Vita Coco Company, Inc. 10-Q

Item 1. Financial Statements. THE VITA COCO COMPANY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Amounts in thousands, except share data) June 30, 2023 December 31, 2022 Assets Current assets: Cash and cash equivalents $ 47,968 $ 19,629 Accounts receivable, net of allowance of $ 3,192 at June 30, 2023, and $ 2,898 at December 31, 2022 89,588 43,350 Inventory 57,165 84,115 Supplier advances 1,396 1,534 Derivative assets 6,823 3,606 Asset held for sale 503 503 Prepaid expenses and other current assets 20,067 22,181 Total current assets 223,510 174,918 Property and equipment, net 2,223 2,076 Goodwill 7,791 7,791 Supplier advances 3,795 4,360 Deferred tax assets, net 4,259 4,256 Right-of-use assets, net 2,133 2,679 Other assets 1,712 1,677 Total assets $ 245,423 $ 197,757 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 18,555 $ 15,910 Accrued expenses and other current liabilities 51,833 38,342 Notes payable, current 19 23 Derivative liabilities 1,087 71 Total current liabilities 71,494 54,346 Notes payable 18 25 Other long-term liabilities 2,106 2,293 Total liabilities 73,618 56,664 Stockholders’ equity: Common stock, $ 0.01 par value; 500,000,000 shares authorized; 62,641,890 and 62,225,250 shares issued at June 30, 2023 and December 31, 2022, respectively 56,435,690 and 56,019,050 shares outstanding at June 30, 2023 and December 31, 2022, respectively 626 622 Additional paid-in capital 152,187 145,210 Retained earnings 78,805 55,183 Accumulated other comprehensive loss ( 885 ) ( 994 ) Treasury stock, 6,206,200 shares at cost as of June 30, 2023, and December 31, 2022, respectively ( 58,928 ) ( 58,928 ) Total stockholders’ equity attributable to The Vita Coco Company, Inc. 171,805 141,093 Total liabilities and stockholders’ equity $ 245,423 $ 197,757 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 June 30, Six Months Ended June 30, 2023 2022 2023 2022 Net sales $ 139,645 $ 115,305 $ 249,404 $ 211,753 Cost of goods sold 88,551 86,016 164,649 163,401 Gross profit 51,094 29,289 84,755 48,352 Operating expenses Selling, general and administrative 30,249 24,257 57,206 49,058 Income (Loss) from operations 20,845 5,032 27,549 ( 706 ) Other income (expense) Unrealized gain/(loss) on derivative instruments 988 ( 3,242 ) 2,201 5,464 Foreign currency gain/(loss) 170 ( 43 ) 781 ( 144 ) Interest income 268 3 281 10 Interest expense ( 15 ) ( 56 ) ( 30 ) ( 83 ) Total other income (expense) 1,411 ( 3,338 ) 3,233 5,247 Income before income taxes 22,256 1,694 30,782 4,541 Income tax expense ( 4,269 ) ( 555 ) ( 6,090 ) ( 1,175 ) Net income $ 17,987 $ 1,139 $ 24,692 $ 3,366 Net income per common share Basic $ 0.32 $ 0.02 $ 0.44 $ 0.06 Diluted $ 0.31 $ 0.02 $ 0.42 $ 0.06 Weighted-average number of common shares outstanding Basic 56,325,013 55,626,861 56,186,727 55,594,558 Diluted 58,854,063 55,804,448 58,103,502 55,752,597 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 June 30, Six Months Ended June 30, 2023 2022 2023 2022 Net income $ 17,987 $ 1,139 $ 24,692 $ 3,366 Other comprehensive income (loss): Foreign currency translation adjustment ( 64 ) ( 196 ) 109 ( 450 ) Total comprehensive income attributable to The Vita Coco Company, Inc. $ 17,923 $ 943 $ 24,801 $ 2,916 See accompanying notes to the condensed consolidated financial statements. 7 Table of Contents THE VITA COCO COMPANY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) (Amounts in thousands, except for shares) Common Stock Common Stock with Exit Warrants Total Common Stock Additional Paid-In Retained Earnings Accumulated Other Comprehensive Income / (Loss) Treasury Stock Total Shareholders’ Equity Attributable to The Vita Coco Company, Inc. Non- controlling Interest in Subsidiary Total Shareholders’ Equity Shares $ Amount Shares $ Amount Shares $ Amount Capital Shares Amount Balance at December 31, 2021 53,651,477 $ 537 8,113,105 $ 81 61,764,582 $ 618 $ 134,730 $ 47,369 $ ( 616 ) 6,206,200 $ ( 58,928 ) $ 123,173 $ — $ 123,173 Net income — — — — — — — 2,227 — — — 2,227 — 2,227 Stock-based compensation — — — — — — 2,386 — — — — 2,386 — 2,386 Exercise of stock options 26,845 — — — 26,845 — 151 — — — — 151 — 151 Foreign currency translation adjustment — — — — — — — — ( 254 ) — — ( 254 ) — ( 254 ) Balance at March 31, 2022 53,678,322 $ 537 8,113,105 $ 81 61,791,427 $ 618 $ 137,267 $ 49,596 $ ( 870 ) 6,206,200 $ ( 58,928 ) $ 127,683 $ — $ 127,683 Net income — — — — — — — 1,139 — — — 1,139 — 1,139 Stock-based compensation expense — — — — — — 1,814 — — — — 1,814 — 1,814 Exercise of stock options 66,272 1 — — 66,272 1 89 — — — — 90 — 90 Foreign currency translation adjustment — — — — — — — — ( 196 ) — — ( 196 ) — ( 196 ) Balance at June 30, 2022 53,744,594 $ 538 8,113,105 $ 81 61,857,699 $ 619 $ 139,170 $ 50,735 $ ( 1,066 ) 6,206,200 $ ( 58,928 ) $ 130,530 $ — $ 130,530 Balance at December 31, 2022 54,112,145 $ 541 8,113,105 $ 81 62,225,250 $ 622 $ 145,210 $ 55,183 $ ( 994 ) 6,206,200 $ ( 58,928 ) $ 141,093 $ — $ 141,093 Net income — — — — — — — 6,705 — — — 6,705 — 6,705 Cumulative-effect adjustment related to the adoption of accounting guidance for credit losses — — — — — — — ( 1,070 ) — — — ( 1,070 ) — ( 1,070 ) Stock-based compensation — — — — — — 2,162 — — — — 2,162 — 2,162 Exercise of stock options 185,783 2 — — 185,783 2 601 — — — — 603 — 603 Foreign currency translation adjustment — — — — — — — — 173 — — 173 — 173 Balance at March 31, 2023 54,297,928 $ 543 8,113,105 $ 81 62,411,033 $ 624 $ 147,973 $ 60,818 $ ( 821 ) 6,206,200 $ ( 58,928 ) $ 149,666 $ — $ 149,666 Net income — — — — — — — 17,987 — — — 17,987 — 17,987 Stock-based compensation — — — — — — 2,102 — — — — 2,102 — 2,102 Exercise of stock options 230,857 2 — — 230,857 2 2,112 — — — — 2,114 — 2,114 Foreign currency translation adjustment — — — — — — — — ( 64 ) — — ( 64 ) — ( 64 ) Balance at June 30, 2023 54,528,785 $ 545 8,113,105 $ 81 62,641,890 $ 626 $ 152,187 $ 78,805 $ ( 885 ) 6,206,200 $ ( 58,928 ) $ 171,805 $ — $ 171,805 See accompanying notes to the condensed consolidated financial statements. 8 Table of Contents THE VITA COCO COMPANY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Amounts in thousands) Six Months Ended June 30, 2023 2022 Cash flows from operating activities: Net income $ 24,692 $ 3,366 Adjustments required to reconcile net income to cash flows from operating activities: Depreciation and amortization 340 945 (Gain)/loss on disposal of equipment ( 1 ) — Bad debt expense 177 157 Unrealized (gain)/loss on derivative instruments ( 2,201 ) ( 5,464 ) Stock-based compensation 4,264 4,200 Noncash lease expense 561 513 Changes in operating assets and liabilities: Accounts receivable ( 46,605 ) ( 27,167 ) Inventory 27,253 4,730 Prepaid expenses, net supplier advances, and other assets 2,769 ( 5,713 ) Accounts payable, accrued expenses, and other liabilities 14,822 ( 8,939 ) Net cash provided by (used in) operating activities 26,071 ( 33,372 ) Cash flows from investing activities: Cash paid for property and equipment ( 487 ) ( 857 ) Proceeds from sale of property and equipment 5 — Net cash used in investing activities ( 482 ) ( 857 ) Cash flows from financing activities: Proceeds from exercise of stock options/warrants 2,717 242 Borrowings on credit facility — 22,000 Repayments of borrowings on credit facility — — Cash received (paid) on notes payable ( 12 ) ( 16 ) Net cash provided by (used in) financing activities 2,705 22,226 Effects of exchange rate changes on cash and cash equivalents 371 ( 276 ) Net increase/(decrease) in cash and cash equivalents 28,665 ( 12,279 ) Cash and cash equivalents at beginning of the period 19,629 28,690 Cash, cash equivalents and restricted cash at end of the period (1) $ 48,294 $ 16,411 1 Includes $ 326 and $ 0 of restricted cash as of June 30, 2023 and 2022, respectively, that were included in other current assets. See accompanying notes to the condensed consolidated financial statements. 9 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 (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 milk, natural energy drinks (under the brand name Runa ), coconut oil, water (under the brand name Ever & Ever ), protein infused fitness drinks (under the brand name PWR LIFT) and coconut as a commodity. The Company was incorporated in Delaware as All Market Inc. on January 17, 2007. On September 9, 2021, we changed our name to The Vita Coco Company, Inc. In 2018, the Company purchased certain assets and liabilities of Runa , which is marketed and distributed primarily in the United States. 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, four North American subsidiaries established between 2012 and 2018, as well as All Market Europe, Ltd. ("AME") in the United Kingdom of which the Company became the sole shareholder as of December 31, 2021. 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 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, 2023 or for any other interim period or for any other future year. The condensed consolidated balance sheet as of June 30, 2023 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, 2022. During the six months ended June 30, 2023, there were no significant changes to the Company’s significant accounting policies as described in the Company’s audited consolidated financial statements as of and for the year ended December 31, 2022, except for the adoption of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments as described in Note 2, under "Recently Adopted Accounting Pronouncements". 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying condensed consolidated financial statements are presented in accordance with U.S. GAAP. 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. 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 10 Table of Contents 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. Additionally, uncertainty in the macroeconomic environment resulting from current geopolitical and economic instability (including the effects of the conflict between Ukraine and Russia) and the high interest rate and inflationary cost environment make estimates and assumptions difficult to calculate with precision. 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, determining the accounts receivables reserve, assessing goodwill for impairment, determining the value of trade promotions, and assessing the realizability of deferred income taxes. Actual results could differ from those estimates. 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 institutions, which may include banks, financial institutions and investment firms, and invest daily or reserve operating cash in money market funds, government securities, bank obligations, municipal securities or other investment vehicles with short-term maturities. 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 53 % and 54 % of total net sales for the six months ended June 30, 2023 and 2022, respectively. In addition, the two customers in aggregate also accounted for 52 % and 39 % of total accounts receivable as of June 30, 2023 and December 31, 2022, respectively. The Company has not experienced credit issues with these customers. Refer to Note 7, Commitments and Contingencies and Note 16, Subsequent Events regarding additional information on our major customers. Recently Adopted Accounting Pronouncements In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). The new accounting standard introduced the current expected credit losses methodology ("CECL") for estimating allowances for credit losses. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized costs, including loans and trade receivables. ASU 2016-13 is effective for the Company, as an Emerging Growth Company ("EGC"), for annual and interim reporting periods beginning after December 15, 2022. The Company adopted the standard on January 1, 2023 using the modified retrospective method for all financial assets in scope. The amounts for reporting periods beginning after January 1, 2023 are presented under ASC 326 methodology, while prior period amounts continue to be reported in accordance with previously applicable U.S. GAAP. As a part of the adoption, the Company selected to apply roll-rate method to estimate current expected credit losses for its accounts receivable population and weighted average remaining maturity ("WARM") method for supplier advances. The difference of $ 1,070 between the incurred credit loss estimate and current expected credit loss estimate was recorded as cumulative effect adjustment to the Company’s opening retained earnings and reflected on the consolidated balance sheet as of January 1, 2023 as a result of the ASC 326 adoption. The adoption of the standard did not have a material impact on the Company’s consolidated statements of operations, or consolidated statements of cash flows. The following table illustrates the impact of ASC 326. 11 Table of Contents As of January 1, 2023 As reported under ASC 326 Pre-ASC 326 adoption Impact of ASC 326 adoption Allowance for credit losses on accounts receivables $ 3,552 $ 2,898 $ 654 Allowance for credit losses on supplier advances 416 — 416 Total $ 3,968 $ 2,898 $ 1,070 Recently Issued Accounting Pronouncements As a company with less than $1.235 billion of revenue during the last fiscal year, the Company currently qualifies as an EGC 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. Based on the closing share price and the market value of the Company's common stock held by non-affiliates as of June 30, 2023, the Company will be deemed a large accelerated public company filer as of December 31, 2023. As a result, beginning with the Annual Report on Form 10-K for the year ending December 31, 2023, the Company will not be able to rely on the extended transition period noted above and will be required to adopt all new accounting pronouncements within the same time periods as 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. The Company determined that the sale of the products represents a distinct performance obligation as customers can benefit from purchasing the products on their own or together with other resources that are readily available to the customers. 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, 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. Disaggregation of Revenue 12 Table of Contents The following table disaggregates net revenue by product type and reportable segment: Three Months Ended June 30, 2023 Americas International Consolidated Vita Coco Coconut Water $ 95,004 $ 12,720 $ 107,724 Private Label 24,059 5,053 29,112 Other 2,200 609 2,809 Total $ 121,263 $ 18,382 $ 139,645 Three Months Ended June 30, 2022 Americas International Consolidated Vita Coco Coconut Water $ 76,436 $ 11,124 $ 87,560 Private Label 20,547 2,946 23,493 Other 3,510 742 4,252 Total $ 100,493 $ 14,812 $ 115,305 Six Months Ended June 30, 2023 Americas International Consolidated Vita Coco Coconut Water $ 164,142 $ 22,278 $ 186,420 Private Label 49,109 7,719 56,828 Other 4,784 1,372 6,156 Total $ 218,035 $ 31,369 $ 249,404 Six Months Ended June 30, 2022 Americas International Consolidated Vita Coco Coconut Water $ 135,291 $ 19,473 $ 154,764 Private Label 43,627 5,711 49,338 Other 6,186 1,465 7,651 Total $ 185,104 $ 26,649 $ 211,753 4. INVENTORY Inventory consists of the following: June 30, 2023 December 31, 2022 Raw materials and packaging $ 3,856 $ 5,771 Finished goods 53,309 78,344 Inventory $ 57,165 $ 84,115 5. GOODWILL Goodwill consists of the following: June 30, 2023 December 31, 2022 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. The Company has not recognized any impairment since acquisition. 13 Table of Contents 6. DEBT The table below details the outstanding balances on the Company’s credit facility and notes payable as of June 30, 2023 and December 31, 2022: June 30, 2023 December 31, 2022 Notes payable Vehicle loans 37 48 $ 37 $ 48 Current 19 23 Non-current $ 18 25 2020 Credit Facility In May 2020, the Company entered into the five-year credit facility with Wells Fargo Bank, National Association ("Wells Fargo") consisting of a revolving line of credit, which currently provides for committed borrowings of $ 60,000 (the "2020 Credit Facility"). As of June 30, 2023 and December 31, 2022, the Company had no outstanding borrowings under its 2020 Credit Facility. The 2020 Credit Facility is collateralized by substantially all of the Company's assets. In December 2022, the Company amended the 2020 Credit Facility to transition the interest rate from reference to the London Interbank Offered Rate ("LIBOR") to the Secured Overnight Financing Rate ("SOFR"). Borrowings on the 2020 Credit Facility bear interest at rates based on either: 1) a fluctuating rate per annum determined to be the sum of Daily Simple SOFR plus a spread defined in the credit agreement (the "Spread"); or 2) a fixed rate per annum determined to be the sum of the Term SOFR plus the Spread. The Spread ranges from 1.00 % to 1.75 %, which is based on the Company’s leverage ratio (as defined in the credit agreement) for the immediately preceding fiscal quarter as defined in the credit agreement. In addition, the Company is currently subject to an unused commitment fee ranging from 0.10 % and 0.20 % on the unused amount of the line of credit, with the rate being based on the Company’s leverage ratio (as defined in the credit agreement). The borrowings made before the December 2022 amendment bore interest at rates based on either: 1) LIBOR or 2) a specified base rate (determined by reference to the greatest of the prime rate published by Wells Fargo, the federal funds effective rate plus 1.5 % and one-month LIBOR plus 1.5 %), as selected periodically by the Company. The LIBOR-based loans bore interest at LIBOR plus the Spread. The unused commitment fee prior to the December 2022 amendment was the same. The maturity date on the 2020 Credit Facility is May 12, 2026. Interest expense and unused commitment fee for the 2020 Credit Facility amounted to $ 15 and $ 83 for the three months ended June 30, 2023 and 2022, respectively. Interest expense and unused commitment fee for the 2020 Credit Facility amounted to $ 30 and $ 109 for the six months ended June 30, 2023 and 2022, respectively. 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 June 30, 2023, the Company was compliant with all financial covenants. 7. COMMITMENTS AND CONTINGENCIES 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 probable that it will incur a loss and the amount of such loss can be reasonably estimated, a provision for legal settlements will be recorded. As of June 30, 2023 and December 31, 2022, the Company has not recorded any liabilities relating to legal settlements. 14 Table of Contents 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. 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 Six Months Ended June 30, June 30, 2023 December 31, 2022 2023 2022 Customer A 30 % 31 % 29 % 16 % Customer B 23 % 23 % 23 % 23 % One of the customers acquired less than 5% ownership in the Company upon consummation of the Company's initial public offering ("IPO"). The same customer also vested in 100,000 restricted stock awards during the period ended March 31, 2023 as discussed in Note 10, Stockholders' Equity. The customer continues to hold less than 5% ownership in the Company as of June 30, 2023. As discussed in Note 16, Subsequent Events, the private label volume and net sales with one of the major customers is expected to significantly decrease in the future. Major Suppliers — The Company’s suppliers that accounted for 10% or more of the Company’s purchases were as follows: Six Months Ended June 30, 2023 2022 Supplier A 20 % 15 % Supplier B 15 % 12 % 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 purchase 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 June 30, 2023 and December 31, 2022, 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 Baht ("THB"), the Company's subsidiary, All Market Singapore Pte. Ltd. ("AMS"), 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, the Company enters into foreign currency swaps to sell Canadian Dollars ("CAD"). 15 Table of Contents The notional amount and fair value of all outstanding derivative instruments in the condensed consolidated balance sheets consist of the following at: June 30, 2023 Derivatives not designated as hedging instruments under ASC 815-20 Notional Amount Fair Value Balance Sheet Location Assets Foreign currency exchange contracts Receive BRL/sell USD 55,619 6,823 Derivative assets Liabilities Foreign currency exchange contracts Receive USD/pay EUR $ 3,898 $ ( 38 ) Derivative liabilities Receive USD/pay GBP 26,214 ( 389 ) Derivative liabilities Receive USD/pay CAD 4,082 ( 12 ) Derivative liabilities Receive THB/sell USD 23,222 ( 648 ) Derivative liabilities December 31, 2022 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 $ 23,702 $ 1,104 Derivative assets Receive BRL/sell USD 46,301 2,314 Derivative assets Receive USD/pay CAD 4,819 188 Derivative assets Liabilities Foreign currency exchange contracts Receive USD/pay EUR 604 ( 7 ) Derivative liabilities Receive THB/sell USD 21,990 ( 64 ) Derivative liabilities The amount and location of realized and unrealized gains and losses of the derivative instruments in the condensed consolidated statements of operations for the three and six months ended June 30, 2023 and 2022 are as follows: 16 Table of Contents Three Months Ended June 30, 2023 2022 Unrealized gain/(loss) on derivative instruments $ 988 $ ( 3,242 ) Location Unrealized gain/(loss) on derivative instruments Unrealized gain/(loss) on derivative instruments Foreign currency gain / (loss) $ 1,572 $ 873 Location Foreign currency gain/(loss) Foreign currency gain/(loss) Six Months Ended June 30, 2023 2022 Unrealized gain/(loss) on derivative instruments $ 2,201 $ 5,464 Location Unrealized gain/(loss) on derivative instruments Unrealized gain/(loss) on derivative instruments Foreign currency gain / (loss) $ 2,643 $ 958 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 incorporated 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. 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 term of the remeasurement period for the contingent consideration ended in December 2022, resulting in no contingent payment as the revenue growth was not achieved. 17 Table of Contents The Company’s fair value hierarchy for those assets (liabilities) measured at fair value on a recurring basis at June 30, 2023 and December 31, 2022, is as follows: Level 1 Level 2 Level 3 Total Forward Currency Swaps/Contracts Contingent consideration liability June 30, 2023 $ — $ 5,736 $ — $ 5,736 December 31, 2022 $ — $ 3,535 $ — $ 3,535 There were no transfers between any 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 June 30, 2023 and December 31, 2022, the Company held 6,206,200 shares, respectively, in treasury stock. As of June 30, 2023 and December 31, 2022, the Company had 3,225,704 and 2,898,930 shares, respectively, of common stock available for issuance upon the conversion of outstanding stock awards under the 2021 Incentive Award Plan ("2021 Plan"). On May 23, 2023, the Company entered into an underwriting agreement (the "Underwriting Agreement") with BofA Securities, Inc., Evercore Group L.L.C. and Goldman Sachs & Co. LLC, as the representative of the underwriters named in Schedule I thereto (collectively, the "Underwriters"), and a stockholder of the Company, Verlinvest Beverages SA (the "Selling Stockholder"), relating to an underwritten public offering of 5,000,000 shares (the "Offering") of the Company’s common stock at a price to the public of $ 23.00 per share (the "Common Stock"), before deducting underwriting discounts. Pursuant to the Underwriting Agreement, all 5,000,000 shares of Common Stock were sold by (the "Selling Stockholder"). Under the terms of the Underwriting Agreement, the Selling Stockholder granted the Underwriters an option exercisable for 30 days to purchase up to an additional 750,000 shares of Common Stock from the Selling Stockholder at the public offering price, less underwriting discounts and commissions, which option was exercised in full prior to the closing of the Offering. The closing of the Offering occurred on May 26, 2023. The Company did not receive any of the proceeds from the sale of the shares. Additionally, the Company incurred $ 856 of administrative expenses related to the Offering, which were expensed in the three months ended June 30, 2023. Warrants —All service and exit warrants expired as of December 31, 2021. As such, there was no warrant activity for the six months ended June 30, 2023. Stock-based Compensation —The stockholders of the Company approved the adoption of the Company’s 2014 Stock Option and Restricted Stock Plan (the “2014 Plan”). The 2014 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 options (i.e., granted and outstanding stock options and stock options not yet granted). Under the terms of the 2014 Plan, the Company could grant employees, directors and consultants stock options and restricted stock awards and had the authority to establish the specific terms of each award, including exercise price, expiration and vesting. Only stock options were granted under the 2014 Plan. Generally, stock options issued pursuant to the 2014 Plan contain exercise prices no less than the fair value of the Company’s common stock on the date of grant and have a ten-year contractual term. The stockholders of the Company approved the adoption of the 2021 Plan, which was effective after the closing of the Company's IPO completed in October 2021. On and after closing of the offering and the effectiveness of the 2021 Plan, no further grants have been made under the 2014 Plan. The Company recognized stock-based compensation expense of $ 1,951 and $ 1,502 for the three months ended June 30, 2023 and 2022, respectively, in selling, general and administrative expenses. Additionally, the stock compensation expense of $ 3,248 and $ 3,580 was recognized for the six months ended June 30, 2023 and 2022, respectively, in selling, general and administrative expenses. For the restricted stock units ("RSUs") previously granted to a major customer, $ 151 and $ 312 was recognized for the three months ended June 30, 2023 and June 30, 2022, respectively, as stock-based sales incentive based on guidance in ASC 606 and reflected as a reduction in the transaction price revenue. The Company 18 Table of Contents recognized $ 1,016 and $ 620 for the six months ended June 30, 2023 and June 30, 2022, respectively, as a reduction in transaction price revenue for this major customer. Option Awards with Service-based Vesting Conditions Most of the stock option awards granted under the 2014 Plan and 2021 Plan vest based on continuous service. The options awarded to the employees have differing vesting schedules as specified in each grant agreement. There were 285,146 new service-based stock option awards granted during the six months ended June 30, 2023. Exercises of stock options during the three and six months ended June 30, 2023, are disclosed in the Condensed Consolidated Statements of Non-controlling Interests and Stockholders' Equity" in Part I, Item I in this Quarterly Report on Form 10-Q. Option Awards with Performance and Market-based Vesting Conditions There are also stock option awards containing performance-based vesting conditions, subject to achievement of various performance goals by a future period, including revenue and gross margin targets. There are also stock option awards containing performance and market vesting conditions, such as options vesting upon occurrence of an IPO or other qualifying liquidity event and upon achieving a predetermined equity value of the Company. During the six months ended June 30, 2022, certain awards that contained performance-based vesting conditions were modified. The modification adjusted the performance condition to allow for 50 % of the performance awards to meet the criteria to vest, and no other terms were modified. Since it did not affect any terms that would affect the fair value, and only the number of awards, it is considered an improbable-to-probable modification. The impact of the modification was not material. There were no modifications during the six months ended June 30, 2023. There were 412,341 new stock option awards granted during the six months ended June 30, 2023 with performance-based vesting conditions, subject to achievement of various performance goals by the end of 2025 or 2026, specifically net sales growth and Adjusted EBITDA targets. Service & Performance based Restricted Stock and Restricted Stock Unit Awards ("RSUs") Restricted stock and RSUs were granted under the 2021 Plan and primarily vest based on continuous service. The RSUs with service-based vesting conditions awarded to the employees have differing vesting schedules as specified in each grant agreement. The RSUs granted to non-employee directors vest in full on the earlier of: (i) the day immediately preceding the date of the first Annual Shareholders Meeting following the date of grant; or (ii) the first anniversary of the date of grant. During the six months ended June 30, 2023, the Company also granted RSUs that contained performance-based vesting conditions, subject to achievement of various performance goals by the end of 2025 or 2026, specifically net sales growth and Adjusted EBITDA targets. Also included in these awards are $ 3 million of shares of restricted common stock granted at the time of the IPO to entities affiliated with a significant customer, at a price per share granted at the IPO of $ 15.00 , or 200,000 restricted shares, in connection with an amendment to extend the distributor agreement term to June 10, 2026. Since the distribution agreement has not been terminated by either party for cause as of March 31, 2023, 50 % of the shares were released on March 31, 2023. Assuming the distribution agreement is not terminated by either party for cause, the remaining 50 % will be released on March 31, 2024. The grant was accounted for as a stock-based sales incentive based on guidance in ASC 606 and is reflected as a reduction in the transaction price of revenue on the basis of the grant-date fair-value measure in accordance with the stock compensation guidance in ASC 718. During the six months ended June 30, 2023, there were 189,634 service based and 17,742 performance based RSUs granted, which had an aggregate grant date fair value of $ 3,793 . 11. INCOME TAXES For the three months ended June 30, 2023 and 2022, the Company recorded income tax expense of $ 4,269 and $ 555 , respectively. For the six months ended June 30, 2023 and 2022, the Company recorded $ 6,090 and $ 1,175 , respectively, in income tax expense in its condensed consolidated statements of operations. 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. 19 Table of Contents As of June 30, 2023 and December 31, 2022, the Company recorded liabilities for income tax uncertainties in its consolidated balance sheets of $ 106 and $ 144 , respectively. The Company’s policy is to record interest and penalties related to income taxes as part of its income tax provision. The Company does not expect its uncertain tax positions to change significantly over the next twelve months. The Company is subject to income tax examinations by the U.S. Internal Revenue Service ("IRS") and various state and local jurisdictions for the open tax years between December 31, 2019 and December 31, 2022. 12. EARNINGS PER SHARE Basic and diluted earnings per share were calculated as follows: Three months ended June 30, Six months ended June 30, 2023 2022 2023 2022 Numerator: Net income $ 17,987 $ 1,139 $ 24,692 $ 3,366 Denominator: Weighted-average number of common shares used in earnings per share—basic 56,325,013 55,626,861 56,186,727 55,594,558 Effect of conversion of stock options 2,529,050 177,587 1,916,775 158,039 Weighted-average number of common shares used in earnings per share—diluted 58,854,063 55,804,448 58,103,502 55,752,597 Earnings per share—basic $ 0.32 $ 0.02 $ 0.44 $ 0.06 Earnings per share—diluted $ 0.31 $ 0.02 $ 0.42 $ 0.06 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: Three months ended June 30, Six months ended June 30, 2023 2022 2023 2022 Options to purchase common stock 54,008 2,372,656 560,721 2,369,686 13. SEGMENT REPORTING The Company has two operating and reportable segments: • Americas—The Americas segment is comprised primarily of the U.S. and Canada, and derives its revenues from the marketing and distribution of various coconut water and non-coconut water products (e.g., coconut oil and milk). The Company’s Guayusa leaf products ( Runa ), aluminum bottle canned water ( Ever & 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 Chief Executive Officer is the chief operating decision maker and evaluates segment performance primarily based on net sales and gross profit. All intercompany transactions between the segments have been eliminated. 20 Table of Contents Information about the Company’s operations by operating segment as of the three and six months ended June 30, 2023 and 2022 is as follows: Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Net sales $ 139,645 $ 115,305 $ 249,404 $ 211,753 Americas 121,263 100,493 218,035 185,104 International 18,382 14,812 31,369 26,649 Gross profit $ 51,094 $ 29,289 $ 84,755 $ 48,352 Americas 45,109 26,710 74,258 43,006 International 5,985 2,579 10,497 5,346 As of June 30, As of December 31, 2023 2022 Total segment assets $ 245,423 $ 197,757 Americas 184,637 156,588 International 60,786 41,169 Three Months Ended June 30, Six Months Ended June 30, Reconciliation 2023 2022 2023 2022 Total gross profit $ 51,094 $ 29,289 $ 84,755 $ 48,352 Less: Selling, general, and administrative expenses 30,249 24,257 57,206 49,058 Income (loss) from operations $ 20,845 $ 5,032 $ 27,549 $ ( 706 ) Less: Unrealized gain/(loss) on derivative instruments 988 ( 3,242 ) 2,201 5,464 Foreign currency gain/(loss) 170 ( 43 ) 781 ( 144 ) Interest income 268 3 281 10 Interest expense ( 15 ) ( 56 ) ( 30 ) ( 83 ) Income before income taxes $ 22,256 $ 1,694 $ 30,782 $ 4,541 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: Six Months Ended June 30, 2023 2022 United States $ 204,152 $ 174,818 All other countries(1) 45,252 36,935 Net sales $ 249,404 $ 211,753 ___________ (1) No individual country is greater than 10% of total net sales for the six months ended June 30, 2023 and 2022. 21 Table of Contents The following table provides information related to the Company’s property and equipment, net by country: June 30, 2023 December 31, 2022 United States $ 610 $ 683 Ecuador 503 503 Singapore 1,452 1,288 All other countries(1) 161 105 Property and equipment, net (including asset held for sale) $ 2,726 $ 2,579 ___________ (1) No individual country is greater than 10% of total property and equipment, net as of June 30, 2023 and December 31, 2022. 14. RELATED-PARTY TRANSACTIONS Director Nominee Agreements - On May 24, 2022, two members of the Board of Directors appointed under the Investor Rights Agreement by Verlinvest Beverages SA, a stockholder of the Company, entered into nominee agreements instructing the Company to pay all cash and equity compensation earned in connection with their board of director services to Verlinvest Beverages SA. Based on the aforementioned nominee agreements, RSUs granted to these two directors will be held by them as nominees for Verlinvest Beverages SA and, upon vesting of the RSUs, the shares will be transferred to Verlinvest Beverages SA. The nominee agreements are primarily between the directors and Verlinvest Beverages SA. The Company is a party to this arrangement solely to agree to the manner in which it would satisfy the compensation obligations to these directors. As of June 30, 2023 and December 31, 2022, there is only one current member of the Board of Directors that is subject to this nominee agreement. Distribution Agreement with Shareholder —On October 1, 2019, the Company entered into a distribution agreement with one of its stockholders who held over 5% ownership in the Company, which extended through December 31, 2022 and has been continued upon the mutual agreement of each party. As of June 30, 2023, the stockholder's ownership in the Company is less than 5%. The distribution agreement granted 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 $ 1,397 and $ 2,074 for the three months ended June 30, 2023 and 2022, respectively, and $ 2,987 and $ 3,406 for the six months ended June 30, 2023 and 2022, respectively. The amounts due from the stockholder in accounts receivable, net were $ 474 and $ 753 as of June 30, 2023 and December 31, 2022, respectively. Amounts payable to the stockholder in accounts payable were $ 0 and $ 38 as of June 30, 2023 and December 31, 2022, 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 $ 33 and $ 58 for the three months ended June 30, 2023 and 2022, respectively, and $ 87 and $ 97 for the six months ended June 30, 2023 and 2022, in selling, general, and administrative expense ("SG&A") for this service agreement. 15. ASSET HELD FOR SALE The asset group held for sale consists of a farm in Ecuador which was the source of Guayusa leaves for our Runa products. Since the Company is able to source Guayusa through alternative means to produce the Runa products, as of September 30, 2022, the Company committed to a plan for disposal through sale. The Company performed a fair value assessment on the asset group held for sale consisting of land, a production plant, equipment and inventory. The Company obtained a valuation of the assets and adjusted the carrying amount down to their fair value less costs to sell, which resulted in a $ 619 impairment loss recorded in SG&A during the third quarter of 2022. The remaining carrying amount as of June 30, 2023 and December 31, 2022 is listed below. These assets held for sale do not qualify for discontinued operations reporting. Asset held for sale Amount Land $ 503 22 Table of Contents 16. SUBSEQUENT EVENTS The stock option awards described in Note 10, Stockholders' Equity, containing performance and market vesting conditions, include a grant to the current CEO in 2019 that vest upon occurrence of an initial public offering or other qualifying liquidity event and upon achieving a predetermined equity value of the Company. As of July 31, 2023, the performance and market vesting conditions were achieved and the remaining stock compensation expense of $762 for this award will be accelerated and recognized in the third quarter of 2023. Based on recent negotiations with one of our major customers disclosed in Note 7, Commitments and Contingencies, a joint decision was made to start to discontinue the private label supply relationship as the terms required to retain the business were contrary to the Company's long term margin targets. While there is some uncertainty about the timing of this transition, the Company expects a significant decline in its private label net sales over the next 12 months with potential impact beginning as early as the fourth quarter of 2023. The Company does not expect this change to impact its branded business with this customer. 23 Table of Contents