What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-14 compared with 2022-03-14 · 134 added, 176 removed, 379 unchanged (45% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with the “Selected Consolidated Financial and Other Data” and our consolidated financial statements and related notes included elsewhere in this 10-K filing.

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included elsewhere in this 10-K filing.

This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties.

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Our historical results are not necessarily indicative of the results that may be expected for any period in the future.

Except as otherwise noted, all references to 2021 refer to the year ended December 31, 2021 and all references to 2020 refer to the year ended December 31, 2020.

Discussion on the year ended December 31, 2019 can be found in our prospectus filed on October 22, 2021.

Except as otherwise noted, all references to 2022 refer to the year ended December 31, 2022, all references to 2021 refer to the year ended December 31, 2021 and all references to 2020, refer to the year ended December 31, 2020..

For discussion of our financial condition and results of operations for 2021 compared to 2020, refer to our previously filed Annual Report on Form 10-K.

The Vita Coco Company is a leading platform for brands in the functional beverage category.

We pioneered packaged coconut water in 2004 and extended our business into other healthy hydration categories.

Our mission is to deliver great tasting, natural and nutritious products that are better for consumers and better for the world.

Today we believe that we are the largest brand globally in the coconut and other plant waters category, and one of the largest suppliers of private label coconut water.

Our branded portfolio is led by our Vita Coco brand, which is the leader in the global coconut water category, and also includes coconut oil and coconut milk offerings.

Our other brands include Runa , a leading plant-based energy drink inspired from the guayusa plant native to Ecuador, Ever & Ever , a sustainably packaged water, and the recently launched PWR LIFT , a protein-infused fitness drink.

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 one of the largest suppliers 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 source our coconut water, from a diversified global network of 15 factories across seven countries supported by thousands of coconut farmers.

As we do not own any of the coconut water factories, our supply chain is a fixed asset-lite model designed to better react to changes in the market or consumer preferences.

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 and to better service our customers’ needs.

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Our products are distributed primarily through club, food, drug, mass, convenience, e-commerce, and foodservice channels.

We are also available in a variety of on-premise locations such as corporate offices, fitness clubs, airports, cruise lines, and educational institutions.

Our recent historical financial performance reflects the strides we have made to scale and grow our business:

We are also available in a variety of on-premise locations such as corporate offices, fitness clubs, airports, and educational institutions.

Our recent historical financial performance reflects the strides we have made to grow our business even while experiencing significant supply chain disruptions and in particular increases in transportation costs in both ocean freight and domestic logistics in 2021 and 2022:

• For the year ended December 31, 2022, we reported net sales of $428 million, representing a 13% increase from $380 million for the year ended December 31, 2021.

For the three months ended December 31, 2022, we reported net sales of $92 million, representing a 6% increase from $87 million for the three months ended December 31, 2021 primarily driven by a 4% increase in net sales of Vita Coco Coconut Water during the same period.

• For the year ended December 31, 2021, we generated gross profit of $113 million, representing a margin of 30% and a 8% increase from $105 million for the year ended December 31, 2020.

For the three months ended

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December 31, 2021, we generated gross profit of $22 million, representing a margin of 25% and remaining relatively flat in absolute dollar terms compared to $23 million for the three months ended December 31, 2020.

• For the year ended December 31, 2021, our net income was $19 million, representing a margin of 5% and a 8% decrease from our net income of $33 million and a margin of 11% for the year ended December 31, 2020.

For the three months ended December 31, 2021, our net loss was $3 million, representing a negative margin of 4% and a 120% decrease from our net income of $17 million and margin of 25% for the three months ended December 31, 2020.

• For the year ended December 31, 2021, our adjusted EBITDA was $37 million, representing a margin of 10% and increase of 5% from our adjusted EBITDA of $35 million, representing a margin of 11% for the year ended December 31, 2020.

The declining margin was primarily driven by severe escalation of transportation costs, especially ocean freight.

For the three months ended December 31, 2021, our adjusted EBITDA loss was $1 million, representing a negative margin of 1% and a decrease of 89% from our adjusted EBITDA of $5 million for the three months ended December 31, 2020, due in part to the challenging supply chain environment we experienced during the three months ended December 31, 2021.

• For the year ended December 31, 2022, we generated gross profit of $103 million, representing a margin of 24%, which was a decrease from $113 million, or margin of 30%, for the year ended December 31, 2021.

For the three months ended December 31, 2022, we generated gross profit of $22 million, representing a margin of 24%, compared to $22 million gross profit and 25% margin for the three months ended December 31, 2021.

• For the year ended December 31, 2022, our net income attributable to shareholders was $8 million, representing a margin of 2%, which was a decrease from our net income of $19 million and a margin of 5% for the year ended December 31, 2021.

For the three months ended December 31, 2022, our net loss was $3 million, which was flat compared to our net loss of $3 million for the three months ended December 31, 2021.

• For the year ended December 31, 2022, our adjusted EBITDA was $20 million, a decrease from our adjusted EBITDA of $37 million for the year ended December 31, 2021.

The adjusted EBITDA decline was primarily driven by higher transportation costs and the incremental impact of a full year of public company costs.

For the three months ended December 31, 2022, our adjusted EBITDA was $4 million, which increased from our adjusted EBITDA of $1 million for the three months ended December 31, 2021, primarily driven by reduced selling general & administrative ("SG&A") costs after excluding SG&A non-GAAP adjustments.

• We have traditionally experienced minimal capital expenditures given our asset-lite supply chain model.

We believe that our operating cash flow and access to credit facilities provide us with sufficient capability to support our growth plans.

• As of December 31, 2021 and December 31, 2020, we had $0 million and $25 million, respectively, of outstanding indebtedness.

We believe that our operating cash flow and access to credit facility provide us with sufficient capability to support our growth plans.

• As of December 31, 2022 and December 31, 2021, we had no outstanding indebtedness on our 2020 Credit Facility.

Key Factors Affecting Our Performance

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We aim to grow our brands by expanding distribution, adding new formats, promoting trials with new consumers and investing in marketing to attract new consumers and demonstrating to existing consumers the quality and value of their purchases.

To grow and maintain the health of our bands we must invest in sales and marketing and execute on our sales strategy to develop and deepen consumers’ connection to our brands.

To grow and maintain the health of our brands we must invest in sales and marketing and execute on our sales strategy to develop and deepen consumers’ connection to our brands.

We believe that the strength of our core brand, Vita Coco , should enable us to continue to invest in expanding our brands across beverage categories and channels, and to deepen relationships with consumers across all demographics.

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Our ability to successfully improve existing products, or develop, market and sell new products or brands depends on our commitment and continued investment in innovation, and our willingness to try and fail and learn from our experiences.

Relationship with Suppliers and Asset-Lite Supply Chain Model

We believe our global asset lite supply chain model has been an integral part in our ability to efficiently scale our business and compete in the marketplace.

This asset-lite model creates leverage with our partners across our supply chain, allowing us to effectively manage total delivery costs and affording greater ability to shift volume between our suppliers,

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and thus better manage our supply levels.

In addition, our scale of sourcing has allowed us to add volume and service retailers more reliably, and our global position as the largest and highest quality coconut water procurer in the world protects our customer and supplier relationships.

Relationship with Private Label Customers, Suppliers and Asset-Lite Supply Chain Model

We believe our global asset lite supply chain model has been an integral part in our ability to efficiently scale our business and compete in the marketplace, and in particular support our Private Label business.

In addition, our scale of sourcing has allowed us to add volume and service retailers more reliably, and we believe that our global position as one of the largest and highest quality coconut water procurers in the world protects our customer and supplier relationships.

We aim to drive continuous operational improvements with our supplier partners to enhance quality of our products, better control costs and ultimately maintain our competitive advantage.

Our dedicated engineering support team supports our supply partners’ expansion, efficiency and environmental initiatives and shares best practices across our supplier network.

We work with our Private Label customers to service their needs to develop new products and endeavor to be their preferred Private Label vendor.

Ability to Successfully Execute Both In-Store and Online

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Our DSD network is an important asset in executing physical retail programs and ensuring product availability and visibility in the United States.

Managing our DSD network requires relationship building and communication as to plans, and alignment of goals and interests.

Managing our DSD network requires relationship building

and communication as to plans, and alignment of goals and interests.

We look to adapt our approaches as consumer and retail behavior changes to ensure we remain competitive and visible regardless of channel.

Quarterly Performance of Our Business

The beverage market is subject to seasonal variations, and we have typically experienced moderately higher levels of our sales in the second and third quarters of the year when demand for our functional beverage products are highest during the warmer months.

The beverage market is subject to seasonal variations, and we have typically experienced higher levels of our sales in the second and third quarters of the year when demand for our functional beverage products are highest during the warmer months.

Our fourth quarter shipments can also be influenced by our retailer and distributor customers rightsizing their inventory levels after the peak selling levels of the second and third quarters.

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As economies continue to develop and education on health and wellness becomes more mainstream, we anticipate our offerings becoming more appealing and endeavor to position our products to benefit from such changes.

Impact of COVID-19

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.

Although not a material impact in the years ended December 31, 2019 and 2020, the Company saw in fiscal year 2021 significant changes to global ocean shipping availability and pricing of containers, lengthening transit times, increased domestic transportation costs and some payroll inflationary effects among other impacts.

Starting in the second quarter 2021, we took pricing actions such as delaying promotions until later in the year, reducing discounting and sharing cost increases with private label customers as we were able, in order to partially offset the inflationary costs of goods effects we were experiencing.

For the year ended December 31, 2021, we estimate that our EBITDA absorbed incremental costs of goods on a rate/mix basis compared to prior year of approximately $24 million, relating to transportation cost increases across both ocean

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freight and domestic logistics as a result of global supply chain disruptions caused by the COVID-19 pandemic.

Impact of COVID-19 and the Current Geopolitical and Economic Instability

The global macroeconomic environment continues to be affected by the COVID-19 pandemic and the current geopolitical instability (including the effects of the conflict between Ukraine and Russia).

In fiscal year 2021 and continuing into the year ended December 31, 2022, the Company saw significant changes to global ocean shipping availability and pricing of containers, lengthening transit times, increased domestic transportation costs and some payroll inflationary effects among other impacts.

Starting in the second quarter of 2021, and recognizing the strength of our brands, we took pricing actions such as delaying promotional activities until later in the year, reducing discounting, pricing increases and sharing cost increases with private label customers, in order to partially offset the inflationary costs of goods effects we were experiencing.

During 2022, inflation emerged in many of our markets, and it is uncertain how this might affect consumer and retailer behavior.

For the year ended December 31, 2022, we estimate that our gross profit absorbed incremental costs of goods on a rate/mix basis compared to the prior year of approximately $30 million, mostly driven by transportation cost increases across both ocean freight and domestic logistics as a result of global supply chain disruptions caused by these global events.

We do not believe the current costs of goods inflated by the current economic and supply chain pressures are fully representative of our future costs of goods in a normal supply chain environment.

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.

The Company is continuing to monitor the situations carefully to understand any future potential impact on its people and business, including but not limited to rising inflation rates, and actions taken by both U.S.

and foreign governments to control such increases.

We have also seen greater volatility on foreign exchange rates.

The strong dollar generally benefits the Company's supply chain activities while negatively impacting our reported international revenues.

As a result, it is not currently possible to ascertain the overall impact of COVID-19 or the current economic geopolitical instability (including the effects of the conflict between Ukraine and Russia) on the business, results of operations, financial condition or liquidity.

Future events and effects related to COVID-19 or current geopolitical instability cannot be determined with precision and actual results could significantly differ from estimates or forecasts.

Components of Our Results of Operations

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.

products through their own online platforms.

Our revenue is recognized net of allowances for returns, discounts, credits and any taxes collected from consumers.

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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 channel through which we sell our products, the promotional environment in the marketplace, manufacturing costs, commodity prices and transportation rates.

We expect that our gross margin will fluctuate from period to period depending on the interplay of these variables.

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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.

The contingent consideration payout cannot exceed

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$51.5 million.

The contingent consideration payout cannot exceed $51.5 million.

If a certain revenue growth rate is not achieved, the Company is not required to pay any contingent payment.

The contingent consideration payable to Runa’s former shareholders was re-measured at fair value, which reflects estimates, assumptions, and expectations on Runa’s revenue and revenue growth as of the valuation date.

A key factor in the contingent consideration calculation is whether the growth levels specified in the contract can be met within the four year time period immediately following the acquisition.

A key factor in the contingent consideration calculation is whether the growth levels specified in the contract can be met within the four year time period immediately following the acquisition ending 2022.

The design of the payout is to reward for high growth in the initial years following the acquisition.

Therefore, the contingent payment reduction, by itself, was not considered a triggering event as it measures against growth targets that must be achieved during a limited period, whereas projections used for intangible and goodwill impairment testing consider a longer period of time.

Additionally, the Runa brand has been integrated into the Americas operations, and therefore the goodwill was assigned and tested at the Americas reporting unit level.

As such, since the goodwill is tested at this higher reporting unit level, changes in the individual Runa brand projections are not indicative of a triggering event for goodwill since Runa sales are an insignificant portion of the overall financial results of the Americas reporting unit.

In 2020, we did elect to perform the quantitative assessment.

At the Americas reporting unit level, there was significant cushion between the fair value of the reporting unit and the carrying value, and therefore, no goodwill impairment was recorded.

As of December 31, 2021, we expect the contingent consideration to be zero.

The contingent consideration will continue to be remeasured until the term of the agreement ends in December 2022.

However, we do not believe that the Runa business will achieve the growth targets required and thus we expect that the contingent consideration will be zero at December 2022.

As of December 31, 2022, the contingent consideration was determined to be zero.

The term of the remeasurement period under the agreement ended in December 2022.

Other Income (Expense), Net

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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 on derivative instruments consists of gains or losses on such foreign currency exchange contracts which are unsettled as of period end.

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 “—Qualitative and Quantitative Disclosures about Market Risk—Foreign Currency Exchange Risk ” for further information.

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Interest Income

Interest income consists of interest income earned on our cash and cash equivalents, and money market funds, as well as interest received as part of an interest rate swap which was terminated in May 2020.

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

Interest Expense

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• Americas —The Americas segment is comprised of our operations in the Americas region, primarily in the United States and Canada.

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• International —The International segment is comprised of our operations primarily in Europe, the Middle East and the Asia Pacific regions.

• International —The International segment is comprised of our operations primarily in Europe, the Middle East, Africa, and the Asia Pacific regions.

Each segment derives its revenues from the following product categories:

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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.

• Private Label —This product category consists of all private label product offerings, which includes coconut water and coconut 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, such as Vita Coco Sparkling , coconut milk products, and other revenue transactions (e.g., bulk product sales).

• 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.

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Selling, general and administrative 100,306 88,559 11,747 13.3 %

Change in contingent consideration liability — (16,400) 16,400 n/m

Total operating expenses 100,306 88,559 11,747 13.3 %

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n/m—represents percentage calculated not being meaningful

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

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Americas Segment

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Growth of Americas CE volumes of Vita Coco Coconut Water was strongest in DSD channels, but all core channels experienced strong volume growth.

Americas net sales increased by $61.0 million, or 23.2% to $323.9 million for the year ended December 31, 2021, from $262.9 million for the year ended December 31, 2020, primarily driven by CE volume increase of 19.5%, as well as reduced price promotions and favorable changes in mix for branded products.

Americas net sales increased by $49.7 million, or 15.4%, to $373.6 million for the year ended December 31, 2022, from $323.9 million for the year ended December 31, 2021, primarily driven by CE volume increase of 11.8%, as well as reduced price promotions, price increases, and favorable changes in mix for branded products.

Vita Coco Coconut Water net sales increased by $44.1 million, or 19.0%, to $276.0 million for the year ended December 31, 2022, from $231.9 million for the year ended December 31, 2021.

The increase was primarily driven by a combination of increased consumer demand, retail execution, and overall brand strength.

Private Label net sales decreased by $2.8 million, or 3.4%, to $80.6 million for the year ended December 31, 2021, from $83.4 million for the year ended December 31, 2020.

The decrease was driven by lower consumer demand for Private Label Oil, offset by Private Label Water growth in the Grocery channel.

The increase was primarily driven by a combination of increased CE volume due to higher growth in demand for our brand and benefits from net pricing actions.

Private Label net sales increased by $7.5 million, or 9.3%, to $88.2 million for the year ended December 31, 2022, from $80.6 million for the year ended December 31, 2021.

The increase was mostly driven by benefits from net pricing actions and mix shifts, which were partly offset by a CE volume decrease.

The loss of some geographic regions for a key private label customer mid-year, was only partially offset by the gains with new private label customers.

Net Sales for Other products decreased by $1.9 million, or 16.8%, to $9.5 million for the year ended December 31, 2022, from $11.4 million for the year ended December 31, 2021.

The decrease was primarily driven by year on year reduction of bulk sales and decreased sales CE volume of Runa , Vita Coco Oil, Coco Creations , and Vita Coco sparkling waters, which was partly offset by recent innovations.

The decrease was driven by a reduced CE volume, as the Company has strategically simplified the product assortment within this category to decrease complexity and maximize profitability over the year ended December 31, 2022.

International Segment

International net sales increased by $7.9 million, or 16.5%, to $55.6 million for the year ended December 31, 2021 from $47.7 million for the year ended December 31, 2020, primarily driven by increased sales in our European region and partially offset by decreased in bulk product sales in our Asia Pacific region.

International net sales decreased by $1.5 million, or (2.6)%, to $54.2 million for the year ended December 31, 2022 from $55.6 million for the year ended December 31, 2021.

The segment CE volume grew, particularly in the Europe, the Middle East and Africa ("EMEA") region, which was offset by an unfavorable foreign currency impact, particularly in relation to the US Dollar strengthening against the British Pound ("GBP").

Vita Coco Coconut Water net sales increased by $3.9 million, or 11.3%, to $38.6 million for the year ended December 31, 2022, from $34.6 million for the year ended December 31, 2021.

The increase was driven by CE Volume growth in both Europe and Asia Pacific as we saw recovery in sales after COVID-19 shutdowns experienced in 2020.

Private Label net sales increased by $1.4 million, or 11.2%, to $14.0 million for the year ended December 31, 2021, as compared to $12.6 million for the year ended December 31, 2020.

The increase was driven by higher demand in both Private Label Oil and Private Label Water across international regions.

The increase was driven by higher CE volume, primarily in the European region, which was partially offset by an unfavorable impact related to foreign currency.

Private Label net sales decreased by $1.2 million, or (8.2)%, to $12.9 million for the year ended December 31, 2022, as compared to $14.0 million for the year ended December 31, 2021, which was driven by a decline in CE volumes in the Asia Pacific region, which were partly offset by net pricing benefits.

Net Sales for Other products decreased by $4.2 million, or 60.7%, to $2.7 million for the year ended December 31, 2022, from $7.0 million for the year ended December 31, 2021.

The decrease was primarily driven by decreases in bulk product sales from our Asia Pacific region.

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Year Ended December 31, Change

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Total gross profit $ 103,361 $ 113,148 $ (9,787) (8.6 %)

Gross margin ( percentage of net sales )

Americas segment 25.6 % 31.5 % (5.9 %)

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On a consolidated basis, cost of goods sold increased $58.1 million, or 21.8%, to $324.4 million for the year ended December 31, 2022, from $266.4 million for the year ended December 31, 2021.

On a consolidated and segment basis, the increase was primarily driven by CE volumes and significant escalation in transportation costs in 2021, with the primary driver being ocean freight costs due to shipping and port constraints related to the COVID-19 pandemic.

On a consolidated basis, gross profit increased by $8.3 million, or 7.9%, to $113.1 million for the year ended December 31, 2021, from $104.9 million for the year ended December 31, 2020.

The increase was primarily driven by increased sales volume and favorable price/mix, partially offset by the increase in cost of goods sold.

On a consolidated and segment basis, the increase was primarily driven by higher CE volume and significant increases in transportation costs across ocean freight and domestic logistics.

On a consolidated basis, gross profit decreased by $9.8 million, or 8.6%, to $103.4 million for the year ended December 31, 2022, from $113.1 million for the year ended December 31, 2021.

The decrease was primarily driven by higher transportation costs due to the global shipping environment and domestic logistics pressures, partially offset by strong net sales driven by the strength of our Vita Coco brand and our net pricing actions.

Gross margin was 24.2% for the year ended December 31, 2022, as compared to 29.8% for the year ended December 31, 2021.

The approximate 400 basis points decrease was largely driven by cost pressure related to transportation, including both ocean freight and domestic logistics.

The reduction in the margin was largely driven by cost pressures and inefficiencies related to transportation, including both ocean freight and domestic logistics.

Operating Expenses

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2022 2021 Amount Percentage

(in thousands) (in thousands)

Operating Expenses (in thousands) (in thousands)

Selling, general, and administrative $ 100,306 $ 88,559 $ 11,747 13.3 %

Change in fair value of contingent consideration — (16,400) 16,400 n/m

$ 88,559 $ 58,001 $ 30,558 52.7 %

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Selling, General and Administrative Expenses

SG&A expense increased by $11.7 million, or 13.3%, to $100.3 million for the year ended December 31, 2022, from $88.6 million for the year ended December 31, 2021.

The increase of $14.2 million was driven primarily by increases in People Costs (salaries and benefits, including stock based compensation) of $7.2 million, and other one-time expenses related to public company readiness and ongoing public company costs of $3.6 million.

There was also an additional increase in spend of $2.4 million in marketing to support our brands and retail activation programs.

Change in Fair Value of Contingent Consideration

There was no change in the fair value of contingent consideration for the year ended December 31, 2021, compared to a gain of $16.4 million for the year ended December 31, 2020.

The gain recorded during the year ended December 31,

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2020 was the result of lower performance expectations during the earn-out period for Runa resulting in revaluation of the contingent consideration liability to $0 as of December 31, 2020.

The increase was primarily driven by a net increase in people costs (salaries and benefits, including stock-based compensation), a full year of ongoing public company costs and a non-cash intangible asset impairment charge of $7 million related to the Runa trademarks and distributor relationships, partially offset by non-recurring IPO readiness expenses in 2021.

Other Income (Expense), Net

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(in thousands) (in thousands)

Unrealized gain (loss) on derivative instrument $ 2,093 $ (4,718) $ 6,811 n/m

Foreign currency gain (loss) (2,088) 1,848 (3,936) n/m

(Loss) on extinguishment of debt (132) — (132) n/m

Unrealized gain (loss) on derivative instrument $ 6,606 $ 2,093 $ 4,513 215.6 %

Foreign currency gain (loss) 1,387 (2,088) 3,475 (166.4 %)

(Loss) on extinguishment of debt — (132) 132 (100.0 %)

Interest income 51 127 (76) (59.6 %)

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During the year ended December 31, 2022, we recorded unrealized gains of $6.6 million relating to outstanding derivative instruments for forward foreign currency exchange contracts.

During the year ended December 31, 2020, we recorded unrealized losses of $4.7 million relating to outstanding derivative instruments for forward foreign currency exchange contracts.

All forward foreign currency exchange contracts were entered to hedge some of our exposures to the British Pound, Canadian Dollar, Brazilian Real, Malaysian Ringgit, and Thai Baht.

During the year ended December 31, 2021, we recorded unrealized gains of $2.1 million relating to outstanding derivative instruments for forward foreign currency exchange contracts.

All forward foreign currency exchange contracts were entered to hedge some of our exposures to the British Pound, Canadian Dollar, Brazilian Real, Malaysian Ringgit, European Union Euro, and Thai Baht.

Foreign Currency Gain/(Loss)

Foreign currency loss was $2.1 million for the year ended December 31, 2021, as compared to $1.8 million gain for the year ended December 31, 2020.

Foreign currency gain was $1.4 million for the year ended December 31, 2022, as compared to a $2.1 million loss for the year ended December 31, 2021.

The change in both years was a result of movements in various foreign currency exchange rates related to transactions denominated in currencies other than the functional currency.

(Loss) on Extinguishment of Debt

On October 27, 2021, the Company repaid the outstanding balance on the 2021 Term Loan using the net proceeds from the IPO and recognized a non-cash loss of $0.1 million on the early extinguishment of debt, primarily related to the write-off of deferred financing costs.

On October 27, 2021, the Company repaid the outstanding balance on the Term Commitment Note with Wells Fargo that was entered into May 2021 ("2021 Term Loan") using the net proceeds from the IPO and recognized a non-cash loss of $0.1 million on the early extinguishment of debt, primarily related to the write-off of deferred financing costs.

Interest Income

Interest income decreased by $0.3 million, or 68.6%, to $0.1 million for the year ended December 31, 2021, from $0.4 million for the year ended December 31, 2020.

The decrease was primarily driven by an amended interest rate from 1.78% to 0.58% on the loan to the co-CEO described in Note 19, Related-Party Transactions, to our notes to the consolidated financial statements.

On September 16, 2021, the co-CEO of the Company, repaid the outstanding principal balance and accrued interest on the promissory note.

The decrease in interest income for the year ended December 31, 2022 compared to the same prior year period was immaterial.

Interest Expense

Interest expense decreased by $0.4 million, or 54.5%, to $0.4 million for the year ended December 31, 2021, from $0.8 million for the year ended December 31, 2020.

The decrease was primarily driven by non-recurring interest expense upon the settlement of an interest rate swap in May 2020 which impacted our interest expense by $0.5 million during the year ended December 31, 2020, which did not repeat in the year ended December 31, 2021.

The decrease in interest expense for the year ended December 31, 2022 compared to the same prior year period was immaterial.

Income Tax Expense

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Year Ended December 31, Change

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Tax Rate 27.9 % 21.6 %

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Income tax expense was $3.0 million for the year ended December 31, 2022, as compared to $5.2 million for the year ended December 31, 2021.

The effective combined federal, state and foreign tax rate decreased to 21.6% from 25.0% for the years ended December 31, 2021, and 2020, respectively.

The effective tax rate for both periods is higher than the US statutory rate of 21% primarily as a result of state income taxes for the US company and other nondeductible expenses for tax purposes, and is partially offset by lower statutory tax rates in countries outside the US 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.

The effective combined federal state and foreign tax rate increased to 27.9% from 21.6% for the years ended December 31, 2022, and 2021, respectively.

The effective tax rate for both periods is higher than the US statutory rate of 21% primarily as a result of state income taxes for the US entity and other nondeductible expenses for tax purposes, and is partially offset by lower statutory tax rates in countries outside the US that the Company operates in.

The change in effective tax rates between the periods is primarily driven by the relative impact of other non-deductible expenses in relation to the pre-tax profits.

Non-GAAP Financial Measures

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Foreign currency (gain)/loss (b) (1,387) 2,088

Change in fair value of contingent consideration (c) — (16,400)

Loss on extinguishment of debt (d) 132 —

Loss on extinguishment of debt (c) — 132

Impairment of intangible assets (d) 6,714 —

Other adjustments (e) 1,240 6,824

Adjusted EBITDA $ 20,294 $ 36,862

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

(a) Non-cash charges related to stock-based compensation, which vary from period to period depending on volume and vesting timing of awards and forfeitures.

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) Non-cash income related to the changes in fair value of the contingent consideration liability related to Runa , which we do not consider in our evaluation of ongoing performance.

(d) Represents the non-cash loss on extinguishment of debt primarily for the write-off of deferred financing costs related to the early paydown of the 2021 Term Loan with the IPO proceeds, which we do not consider in our evaluation of ongoing performance.

(e) Reflects other charges inclusive of other non-recurring expenses mostly related to our public company readiness preparation and a two-year management incentive program structured differently from other regular employee compensation, which we do not consider in our evaluation of our ongoing performance.

(c) Non-cash loss on extinguishment of debt related to the early pay down of the 2021 Term Loan with the IPO proceeds which we do not consider in our evaluation of ongoing performance.

(d) Non-cash intangible asset impairment charge of $7 million related to the Runa trademarks and distributor relationships.

(e) Reflects other charges inclusive of legal costs, an impairment loss related to assets held for sale, and other non-recurring expenses (including costs related to public company readiness preparation in 2021 and a 2021 two-year management incentive program structured differently from other regular employee compensation).

Liquidity and Capital Resources

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We had $19.6 million and $28.7 million of cash and cash equivalents as of December 31, 2022 and 2021, respectively.

We believe that our existing cash and cash equivalent balances will be sufficient to support operating and capital requirements for at least the next 12 months.

We supplemented our liquidity needs with incremental borrowing capacity under the 2021 Term Facility and the Revolving Facility, which we amended in May 2021.

With the successful completion of the IPO, the net proceeds from our IPO were used to repay the 2021 Term Loan as described in Note 10, Debt , in the consolidated financial statements.

Considering recent market conditions and the ongoing COVID-19 pandemic, we have reevaluated our operating cash flows and cash requirements and continue to believe that current cash, cash equivalents, future cash flows from operating activities and cash available under our Revolving 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 consolidated financial statements included herein.

During the year, we supplemented our liquidity needs with incremental borrowing capacity under the 2020 Credit Facility.

Considering recent market conditions and the continued result of the ongoing COVID-19 pandemic, 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 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 supply chain model provides us with a low cost, nimble, and scalable supply chain, which allows us to quickly adapt to changes in the market or consumer preferences while also efficiently introducing new products across our platform.

Our asset-lite operating model has historically provided us with a low cost, nimble and scalable supply chain, which has allowed 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 general 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.

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.

The following tables summarize our sources and uses of cash:

Year Ended December 31, Change

2021 2020 Amount Percentage

(in thousands) 2022 2021 Amount Percentage

Cash flows provided by (used in):

(in thousands)

Operating activities $ (10,935) $ (16,166) $ 5,231 (32.4) %

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Net (decrease) increase in cash and cash equivalents $ (9,061) $ (43,491) $ 34,430 (79.2) %

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n/m—represents percentage calculated not being meaningful

Operating Activities

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Our primary use of cash in operating activities are for cost of goods sold and SG&A expenses.

The unfavorable changes in our operating assets and liabilities during the year ended December 31, 2021, as compared to the year ended December 31, 2020 were primarily a result of changes in working capital of $37 million.

Reflected in working capital changes for the year ended December 31, 2021 were increased inventories in 2021, which we rebuilt after finishing December 2020 with very low inventory levels, increased accounts receivable due to increased sales volume, increased accrued trade promotions due to increased sales volumes and related promotions, and increases in prepayments to suppliers to secure inventory due to increased demand.

Reflected in working capital changes for the year ended December 31, 2020 were decreased inventories due to constrained supply during the COVID-19 pandemic, increased accrued trade promotions due to increased sales volumes and related promotions, increased other current assets due to the increase in contract assets for the recognition of private label revenue, and increased net advances to suppliers to secure inventory due to increased demand.

During the year ended December 31, 2022, $5.2 million less cash was used as compared to the year ended December 31, 2021.

The lower cash use was driven by $10 million in working capital improvement, offset by lower income after adjusting for non-cash items, primarily reflecting elevated transportation costs and increased SG&A expenses to further expand our capabilities as a public company.

Investing Activities

During the year ended December 31, 2021, cash used in investing activities was $0.6 million, primarily driven by cash paid for property and equipment.

During the year ended December 31, 2020, cash used in investing activities was $0.4 million, driven by cash paid for property and equipment.

During the year ended December 31, 2022 as compared to the year ended December 31, 2021, cash used in investing activities increased $0.4 million, driven by increased cash paid for property and equipment.

Financing Activities

During the year ended December 31, 2021, net cash used in financing activities was $26.8 million, resulting from $50.0 million paid to acquire treasury stock, repayment of $25.0 million on the Revolving Facility, partially offset by $30.4 million in net proceeds from issuance of common stock upon initial public offering, and $17.7 million proceeds from settlement of the loan to the co-CEO described in Note 19 of the consolidated financial statements, and $0.2 million from the exercise of stock options and warrants.

The 2021 Term Loan was borrowed and repaid during the year ended December 31, 2021 with the IPO proceeds, resulting in no net cash impact.

During the year ended December 31, 2020, net cash provided by financing activities was $2.1 million resulting from $25.0 million proceeds from the Revolving Facility and $0.9 million from the exercise of stock options and warrants, partially offset by $16.9 million relating to the repayment of outstanding indebtedness under our Prior Term Facilities, and $6.9 million paid to acquire treasury stock.

We had zero outstanding debt as of December 31, 2021 compared to $25.0 million as of December 31, 2020.

The outstanding balance as of December 31, 2020 related to borrowings under the Revolving Facility and vehicle loans.

During the year ended December 31, 2022 compared to the year ended December 31, 2021, net cash provided by financing activities was $29.8 million higher, primarily driven by the significant financing activities completed in 2021, including one-time share buyback of $50 million recorded in the year ended December 31, 2021 to repurchase 5,192,005 shares from RWVC S.a.r.l, a principal stockholder, partially offset by $18 million of cash proceeds from settlement of loan to a stockholder.

For further discussion of the stock repurchase and the stockholder loan, see Note 14, Stockholder’s Equity , and Note 19, Related-Party Transactions , respectively, in the consolidated financial statements.

We had an immaterial amount of outstanding debt as of December 31, 2022 and December 31, 2021 related to vehicle loans.

Revolving Credit Facility

In May 2020, we entered into a five-year credit facility ("Revolving Facility" or "2020 Credit Facility") with Wells Fargo consisting of a revolving line of credit, which provided for committed borrowings of $50.0 million and a $10.0 million non-committed accordion feature.

The Revolving Facility was further amended in May 2021 and October 2021, and currently provides for committed borrowings of $60 million.

We may repay outstanding balances under the Revolving Facility at any time without premium or penalty.

Borrowings under the Revolving Facility bear interest at a rate per annum equal to, at our option, either (a) adjusted LIBOR (which shall not be less than 0.0%) plus the applicable rate or (b) 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%).

The applicable rate for LIBOR borrowings under the Revolving Facility is subject to step-downs based on our total net leverage ratio (as defined in the credit agreement) for the immediately preceding fiscal quarter.

In addition, the Company is currently subject to an unused commitment fee ranging from 0.05% and 0.20% 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).

In May 2020, we entered into the 2020 Credit Facility with Wells Fargo consisting of a revolving line of credit, which provided for committed borrowings of $50 million and a $10 million non-committed accordion feature.

The 2020 Credit Facility was further amended in May 2021, October 2021 and December 2022, and currently provides for committed borrowings of $60 million.

We may repay outstanding balances under the 2020 Credit Facility at any time without premium or penalty.

Borrowings under the 2020 Credit Facility bear interest at a rate per annum equal to, at our option, either (a) adjusted LIBOR (or current LIBOR replacement rate), which shall not be less than 0.0%, plus the applicable rate or (b) 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 (or current LIBOR replacement) plus 1.5%).

The applicable rate for LIBOR borrowings under the 2020 Credit Facility is subject to step-downs based on our total net leverage ratio (as defined in the credit agreement) for the immediately preceding fiscal quarter.

In addition, the Company is currently subject to an unused commitment fee ranging from 0.05% to 0.20% 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 12, 2026.

The effective interest rate

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as of December 31, 2021 was 0.97%.

The outstanding balance on the Revolving Facility was zero and $25 million as of December 31, 2021 and December 31, 2020, respectively.

The effective interest rate as of December 31, 2022 was 2.53%.

In December, 2022, the Company amended the 2020 Credit Facility to transition the interest rate from reference to LIBOR to SOFR.

The borrowings made after the amendment bear interest at rates based on either 1) a fluctuating rate per annum determined to be the sum of Daily Simple SOFR plus the same spread discussed above or 2) a fixed rate per annum determined to be the sum of the Term SOFR plus the same spread discussed.

The spread and the commitment fees did not change as a result of this amendment.

The outstanding balance on the Revolving Facility was zero as of December 31, 2022 and December 31, 2021, respectively.

As of December 31, 2022, we were compliant with all financial covenants.

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In May 2021, we entered into a Term Commitment Note, or the Term Facility with Wells Fargo pursuant to the terms of the Credit Agreement entered into in connection with the 2020 Credit Facility.

The Term Facility provides us with term loans of up to $30.0 million, or the Term Loans.

The Term Facility provided us with term loans of up to $30.0 million, or the Term Loans.

Borrowings under the Term Facility bear interest at the same rate as the Revolving Facility.

We were required to repay the principal on the Term Loans in quarterly installments, commencing on October 1, 2021, through maturity date of May 21, 2026.

We were required to repay the principal on the Term Loans in quarterly installments, commencing

on October 1, 2021, through maturity date of May 21, 2026.

On October 27, 2021, the Company repaid the outstanding balance on the 2021 Term Loan using the net proceeds from the IPO.

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Future minimum commitments under these leases are $2.8 million as of December 31, 2022.

In connection with our business acquisitions of Runa , we entered into contingent consideration arrangements, which would require future cash outflows related to milestone payments based on revenue performance.

In connection with our business acquisitions of Runa in 2018, we entered into contingent consideration arrangements, which would require future cash outflows related to milestone payments based on revenue performance.

Under the terms of the arrangement, we are obligated to pay the former shareholders up to $51.5 million if certain revenue thresholds are met during the period from December 31, 2021 through December 31, 2022.

As of December 31, 2021 and 2020, we have recognized a liability of $0 related to the revenue performance contingent consideration as we believe the required milestones are not expected to be achieved.

As of December 31, 2022 and 2021, we have recognized a liability of $0 related to the revenue performance contingent consideration as the required milestones were not achieved.

The term of the remeasurement period under the agreement ended in December 2022.

As of December 31, 2022, we also have inventory purchase commitments, which include any raw material or packaging commitments with our suppliers to secure our needs for future orders, which are generally due to be paid within one year.

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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

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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 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.

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Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with ASC Topic 718, Compensation—Stock Compensation (ASC 718) for stock options issued under the 2014 Stock Option and Restricted Stock Plan.

The Company measures all stock option awards based on their fair value on the date of the grant and recognizes compensation expense for those awards over the requisite service period of each stock-option grant, which is generally the vesting period of the respective award by using the accelerated attribution method.

The Company accounts for stock-based compensation in accordance with ASC Topic 718, Compensation—Stock Compensation ("ASC 718") for stock options issued under the 2014 Stock Option and Restricted Stock Plan and the 2021 Stock Incentive Award Plan..

The Company measures all awards based on their fair value on the date of the grant and recognizes compensation expense for those awards over the requisite service period of each stock award grant, which is generally the vesting period of the respective award by using the accelerated attribution method.

The Company applies an estimated forfeiture rate derived from historical employee termination behavior.

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The Company recognizes expense for performance-based awards when it becomes probable that such awards will be earned over a requisite service period.

The Company defers the recognition of compensation expense for the stock-option awards that vest upon a qualifying liquidity events until the qualifying events are probable of occurrence.

Stock option awards are equity-classified, as they do not contain a cash settlement option or other features requiring them to be liability-classified.

The Company uses the Black-Scholes-Merton, or Black-Scholes, option-pricing model to determine the fair value of stock awards with service-based vesting conditions and performance-based vesting conditions.

For stock awards with

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performance-based and market-based vesting conditions, the Company uses the Barrier option valuation model to determine the fair value.

The Company has classified stock-based compensation expense in its consolidated statements of operations in SG&A expenses.

The Company defers the recognition of compensation expense for the stock awards that vest upon a qualifying liquidity events until the qualifying events are probable of occurrence.

Stock awards are equity-classified, as they do not contain a cash settlement option or other features requiring them to be liability-classified.

The Company uses the Black-Scholes-Merton (“Black-Scholes”) option-pricing model to determine the fair value of stock awards with service-based vesting conditions and performance-based vesting conditions.

For stock awards with performance-based and market-based vesting conditions, the Company uses the Barrier option valuation model to determine the fair value.

The Company has classified most of its stock-based compensation expense in its consolidated statements of operations in SG&A expenses, reflecting the same manner in which the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified.

There are restricted stock units previously granted to entities affiliated with a major customer, which were recognized as a stock-based sales incentive based on guidance in ASC 606 and reflected as a reduction in the transaction price revenue.

See Note 14, Stockholders’ Equity , to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.

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Determination of fair value of common stock – The calculation of the fair value of awards also requires an estimate of our equity value.

After the IPO, the fair value of common stock is determined based on the quoted market closing price of our common stock.

For stock awards granted subsequent to the IPO, the fair value of the common stock assumed for the grant date fair value of the awards will be based on the closing price of our common stock as reported on the day of grant.

Prior to the IPO, as there was no public market for our common stock, the estimated fair value of our common stock was determined by our board of directors as of the date of each option grant, with input from management and valuations by a third-party specialist.

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• our stage of development and commercialization and our business strategy;

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• external market conditions affecting our industry and the global soft drinks and consumer products industry;

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As a result, if we had used significantly different assumptions or estimates, the fair value of our common stock and our stock-based compensation could have been materially different.

Once a public trading market for our common stock was established in connection with the completion of the IPO in October 2021, it is now no longer 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 is now determined based on the quoted market price of our common stock.

Stock Awards Granted Subsequent to Our Initial Public Offering

For stock awards granted subsequent to our initial public offering, the fair value of the common stock assumed for the grant date fair value of the awards will be based on the closing price of our common stock as reported on the day of grant.

The Company accounts for income taxes under Accounting Standards Codification (ASC) 740, Income Taxes , which requires an asset and liability approach to financial accounting and reporting for income taxes.

The Company accounts for income taxes under Accounting Standards Codification 740, Income Taxes ("ASC 740"), which requires an asset and liability approach to financial accounting and reporting for income taxes.

Deferred income tax assets and liabilities are computed annually for differences between the consolidated financial statements and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future.

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When the recoverability test fails, the Company measures the impairment loss based on the fair value of the assets compared to the carrying amount of the asset.

The fair value of the trade names is determined through an income approach using the relief

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from royalty method.

The fair value of the trade names is determined through an income approach using the relief from royalty method.

The fair value of the distributor relationships is determined through an income approach using the excess earnings method.

Goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination and is measured in accordance with the provisions of ASC 350, Intangibles—Goodwill and Other .

Goodwill represents the excess of the purchase price paid in excess of the fair value of net tangible and intangible assets acquired in a business combination and is measured in accordance with the provisions of ASC 350, Intangibles—Goodwill and Other .

Goodwill is not amortized;

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The Company first assesses qualitative factors to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value.

In performing the qualitative assessment, the Company reviews factors both specific to the reporting units and to the Company as a whole, such as financial performance, macroeconomic conditions, industry and market considerations, and the fair value of each reporting unit at the last valuation date.

In performing the qualitative assessment, the Company reviews factors both specific to the reporting units

and to the Company as a whole, such as financial performance, macroeconomic conditions, industry and market considerations, and the fair value of each reporting unit at the last valuation date.

If the Company elects this option and believes, as a result of the qualitative assessment, that it is more likely than not that the carrying value of each of the reporting units exceeds their fair value, the quantitative impairment test is required;

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We may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for private companies.

We will cease to be an emerging growth company on the date that is the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more, (ii) the last day of our fiscal year following the fifth anniversary of the date of the closing of this offering, (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission.

Recently Issued Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis