What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-02-29 compared with 2023-03-14 · 130 added, 235 removed, 278 unchanged (57% of the section changed)

5 unchanged sentences

Except as otherwise noted, all references to 2023 refer to the year ended December 31, 2023, all references to 2022 refer to the year ended December 31, 2022 and all references to 2021, refer to the year ended December 31, 2021.

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.

This section of this Annual Report on Form 10-K generally discusses the years ended December 31, 2023 and 2022 and year-over-year comparisons between the years ended December 31, 2023 and 2022.

Discussions of the periods prior to the year ended December 31, 2022 that are not included in this Annual Report on Form 10-K are found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022 and the discussion therein for the year ended December 31, 2022 compared to the year ended December 31, 2021.

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

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

We pioneered packaged coconut water in 2004 and have extended our business into other 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 are one of the largest brands globally in the coconut and other plant waters category, and a large supplier of private label coconut water.

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

Our other brands include Ever & Ever , a sustainably packaged water, and PWR LIFT , a protein-infused fitness drink.

We also offered Runa , a plant-based energy drink inspired by the guayusa plant native to Ecuador, which we ceased selling in December 2023.

We supply private label products to key retailers in both the coconut water and coconut oil categories.

Additionally, we generate revenue from bulk product sales to beverage and food companies.

We source our coconut water from a diversified global network of 14 factories across six countries supported by thousands of coconut farmers.

4 unchanged sentences

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, 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, 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 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.

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

Key Factors Affecting Our Performance

We believe that the growth of our business and our future success are dependent upon many factors, the most important of which are as follows:

Ability to Grow and Maintain the Health of Our Brands

We have developed a strong and trusted brand in Vita Coco that we believe has been integral to the growth and health of our business, and are in the early stages of developing additional brands to broaden our portfolio.

In addition, we are continuously developing and sharpening our marketing strategies to ensure that our story and purpose are understood and resonate with consumers.

The success and reputation of our current brands and any brands we develop in the future are critical to the growth of our business and our future success.

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 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.

Ability to Generate Incremental Volume Through Product Innovation

The beverage industry is subject to shifting consumer preferences which presents opportunities for new beverage occasions, new tastes and new functional benefits.

We believe that the growth of our business and our future success are dependent upon many factors, including the key trends and uncertainties highlighted below:

Risks Associated with our Supply Chain and Shipping

Our global asset lite supply chain model has been an integral part of our ability to efficiently scale our business and compete in the marketplace, and to support our private label business.

This asset-lite model allows us to effectively manage total delivery costs and afford greater ability to shift volume between our suppliers to optimize our supply chain, and better manage our supply levels.

In addition, our scale of sourcing has allowed us to add capacity as needed 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.

However, in order to make our supply chain model successful and efficient, we source a large amount of our finished goods from international countries, which exposes us to international supply chain inflation, particularly ocean freight.

Uncertainty in the macroeconomic environment resulting from geopolitical and economic instability (including the effects of current wars and other international conflicts) and variability in interest rates, foreign exchange rates and inflationary cost environments may affect our global supply chain.

Inflation rates and foreign exchange rate movements varies by country and relevant period, and can impact our expenses significantly.

We experienced significant inflation on transportation costs over the past three years, which affected our costs and margins significantly.

Although we saw these transportation costs return to near pre-pandemic levels during 2023, we expect instability in pricing to continue in 2024 caused by recent geopolitical disruption of shipping lanes due to ocean carriers avoiding the Gulf due primarily to concerns that Houthi forces, based in Yemen, may attack freighters.

We experienced spot cost increases for ocean freight routes from Asia, and then more significant cost increases when carriers began to route away from the Suez Canal.

The changes in shipping container prices and service levels and cost increases in shipping and port congestion related costs have materially impacted our financial results in recent years.

Due to the price sensitivity of our products, we may not be able to pass such increases on to our customers without impacting our volume, revenue, margins, and operating results and we have no certainty when these pressures may lessen.

The Company is continuing to monitor the situation carefully to understand any future potential impact on its people and business.

Consumer Demand and Relationships with Key Customers

Coconut water accounted for approximately 92% of our revenue for the year ended December 31, 2023 and we believe that sales of coconut water will continue to be a significant portion of our business in the foreseeable future.

The coconut water category has been growing steadily in recent years and our Vita Coco brand has successfully gained over 50% market share in the US and over 80% market share in the UK in this category.

We are also a significant supplier of private label coconut water and coconut oil products in the US and in Europe.

Any material negative change to consumer demand for our products or coconut water generally, or failure to grow the coconut water category, could adversely affect our business.

Consumer demand between branded products and private label may vary over time.

In order to meet this consumer demand for our products, we also are subject to the risk of overly relying upon our largest customers for both our branded and private label business.

In 2023, we announced changes to our supply relationship with a significant private label customer with the expected loss of a significant private label coconut oil business.

Any loss of business or changes in our relationships with our key customers can impact our operating results in future periods, as may changes in consumer demand for private label versus branded products.

Ability to Generate Growth Through Product Innovation

The beverage industry is subject to shifting consumer preferences which present opportunities for new beverage occasions, tastes and functional benefits.

Our future success is therefore partially dependent on our ability to identify these trends and develop products and brands that effectively meet those needs.

We also invest in sales and marketing and execute our sales strategy to develop and deepen consumers’ connection to our brand and new products and to create category growth and increase our branded share.

Our innovation efforts focus on developing and marketing product extensions, improving upon the quality and taste profiles of existing products, and introducing new products or brands to meet evolving consumer needs.

We aim to develop and test new products, and scale the most promising among them to ensure a strong pipeline of product innovation.

We maintain in-house research and development capabilities as well as strong third-party relationships with flavor development houses, and we monitor the latest advancements in clean ingredients to support continued innovation and learning.

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 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.

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, 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 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.

For example, we introduced Vita Coco juice as our first broad based offering of coconut juice with pulp in cans.

In 2023, we expanded distribution of Vita Coco juice, with a focus on convenience stores and, in 2024, we intend to continue to gain distribution in convenience, while expanding to select mass and food retailers.

Our ability to successfully improve existing products, or develop, market and sell new products or brands, or our ability to grow the category or gain branded share, depends on our commitment and continued investment in sales execution, marketing, innovation, and our willingness to try and fail and learn from our experiences.

Ability to Successfully Execute Both In-Store and Online

1 unchanged sentence

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.

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 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.

Our sales can also be influenced by the timing of holidays and weather fluctuations.

In addition, our financial results may fluctuate from quarter to quarter due to the timing of significant promotional activity or programs of our retail customers, on-boarding new retail or distribution partnerships, which typically launch with inventory buy-ins, and the timing of new product launches, which may also impact comparability to prior periods.

These factors can also impact our working capital and inventory balances in each period in ways that may be difficult to forecast.

Our goal is to make the right business decisions for our long-term success despite fluctuations in quarterly operating results.

Economic Environment & Industry Trends

Our business is healthier where consumers have higher discretionary incomes and are motivated by health and wellness diets and hydration.

Most of our products are at premium prices reflecting their functionality and uniqueness so we do better in more developed economies and major urban areas.

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 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 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.

In 2023, we offered more multi-packs in coconut water in US retail to increase consumption with core consumers, and increased distribution of our other product offerings.

Managing our DSD network requires relationship building and communication as to plans, and alignment of goals and interests, and we are not always a top priority for our DSD network.

We also continue to expand our business in e-commerce, including our DTC business, and look to adapt our approaches as consumer and retail behavior changes to ensure we remain competitive and visible regardless of channel.

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.

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

9 unchanged sentences

Selling, General and Administrative Expenses

Selling, general and administrative expenses include marketing expenses, sales promotion expenses, and general and administrative expenses.

Marketing and sales promotion expenses consist primarily of costs incurred promoting and marketing our products and are primarily driven by investments to grow our business and retain customers.

We expect selling and marketing expenses to increase in absolute dollars and to vary from period to period as a percentage of net sales for the foreseeable future.

General and administrative expense include payroll, employee benefits, stock-based compensation, broker commissions and other headcount-related expenses associated with supply chain & operations, finance, information technology, human resources and other administrative-related personnel, as well as general overhead costs of the business, including research and development for new innovations, rent and related facilities and maintenance costs, depreciation and amortization, and legal, accounting, and professional fees.

We expense all selling, general and administrative expense as incurred.

We expect selling, general and administrative expenses to increase in absolute dollars to support business growth and, in the near term, our transition to a public company.

Change in Fair Value of Contingent Consideration

In connection with our acquisition of Runa , we agreed to pay contingent payments to Runa’s former shareholders only if a certain revenue growth rate is achieved.

Assuming the revenue growth is achieved, the former shareholders could elect for payment to be calculated based on quarterly data available between December 2021 and December 2022, as follows:

49% of the product of (a) the net revenue for the trailing 12 calendar months and (b) a specified multiple, which is contingent on the revenue growth achieved since December 31, 2017.

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 ending 2022.

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

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.

Selling, general and administrative expenses ("SG&A") include marketing expenses, promotional expenses, and general and administrative expenses.

Marketing and promotional expenses consist primarily of costs incurred promoting

and marketing our products and are primarily driven by investments to grow our business and retain customers.

General and administrative expenses include payroll, employee benefits, stock-based compensation, broker commissions and other headcount-related expenses associated with supply chain & operations, finance, information technology, human resources and other administrative-related personnel, as well as general overhead costs of the business, including research and development for new innovations, rent and related facilities and maintenance costs, depreciation and amortization, and legal, accounting, and professional fees.

We expense all SG&A as incurred.

Other Income (Expense), Net

12 unchanged sentences

Interest Expense

Interest expense consists of interests on our credit facilities and term loans.

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

Income Tax Expense

5 unchanged sentences

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

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

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

Each segment derives its revenues from the following product categories:

3 unchanged sentences

The Company determined the production and distribution of private label products represents a distinct performance obligation.

Since there is no alternative use for these products and the Company has the right to payment for performance completed to date, the Company recognizes the revenue for the production of these private label products over time as the production for open purchase orders occurs, which may be prior to any shipment.

• Other— This product category consists of all other products, which includes Runa, Ever & Ever and PWR LIFT product offerings, Vita Coco product extensions beyond coconut water, coconut milk products, and other revenue transactions (e.g., bulk product sales).

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 (until we ceased selling it in December 2023) , 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.

11 unchanged sentences

Total operating expenses 124,236 100,306 23,930 23.9 %

Income from operations 3,055 24,589 (21,534) (87.6 %)

Income from operations 56,493 3,055 53,438 n/m

Other income (expense)

Unrealized gain (loss) on derivative instrument 6,606 2,093 4,513 n/m

Foreign currency gain (loss) 1,387 (2,088) 3,475 n/m

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

Interest income 51 127 (76) (59.6 %)

Unrealized gain (loss) on derivative instrument (872) 6,606 (7,478) (113.2 %)

Foreign currency gain (loss) (251) 1,387 (1,638) (118.1 %)

Interest income 2,581 51 2,530 n/m

Interest expense (31) (258) 227 (88.0 %)

3 unchanged sentences

Net income $ 46,629 $ 7,814 $ 38,815 496.7 %

Net income attributable to common stockholders $ 7,814 $ 19,015 $ (11,201) (58.9 %)

n/m—represents percentage calculated not being meaningful

14 unchanged sentences

Total net sales $ 493,612 $ 427,787 $ 65,825 15.4 %

The primary driver of the consolidated net sales increase of 15.4% was increased case equivalents ("CE") volume growth of 13.4%.

Net sales also benefited from branded pricing, which was partially offset by decreased price/mix of private label products.

Volume in Case Equivalent

The primary driver of the consolidated net sales increase of 12.7% was increased case equivalent volumes.

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

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

December 31, Change

15 unchanged sentences

Americas Segment

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.

Americas net sales increased by $56.6 million, or 15.2%, to $430.2 million for the year ended December 31, 2023, from $373.6 million for the year ended December 31, 2022, primarily driven by CE volume growth of 13.8% with additional benefit from branded pricing, partially offset by private label price/mix.

Vita Coco Coconut Water net sales increased by $41.3 million, or 15.0%, to $317.2 million for the year ended December 31, 2023, from $276 million for the year ended December 31, 2022.

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.

The increase was primarily driven by a combination of increased CE volume growth and benefits from pricing actions.

Private Label net sales increased by $15.0 million, or 17.0%, to $103.2 million for the year ended December 31, 2023, from $88.2 million for the year ended December 31, 2022.

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 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.

The increase was driven by significant CE volume growth of 24.7%, which was partly offset by product price/mix.

Net Sales for Other products increased by $0.4 million, or 3.9%, to $9.9 million for the year ended December 31, 2023, from $9.5 million for the year ended December 31, 2022.

International Segment

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").

International net sales increased by $9.2 million, or 17.0%, to $63.4 million for the year ended December 31, 2023 from $54.2 million for the year ended December 31, 2022.

The increase was driven by CE volume growth of 11.7%, with notable growth in the Europe, the Middle East and Africa ("EMEA") region, in addition to benefits from net pricing actions.

Vita Coco Coconut Water net sales increased by $3.3 million, or 8.4%, to $41.8 million for the year ended December 31, 2023, from $38.6 million for the year ended December 31, 2022.

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.

The increase was driven by higher CE volume, primarily in the European region, which was partially offset by volume decreases in Asia, in addition to benefits from net pricing actions..

Private Label net sales increased by $5.9 million, or 45.6%, to $18.7 million for the year ended December 31, 2023, as compared to $12.9 million for the year ended December 31, 2022, which was driven by CE volume growth in both EMEA and the Asia Pacific regions.

Net Sales for Other products increased by $0.1 million, or 3.1%, to $2.8 million for the year ended December 31, 2023, from $2.7 million for the year ended December 31, 2022, driven primarily by CE volume growth in the EMEA region.

Year Ended December 31, Change

12 unchanged sentences

Consolidated 36.6 % 24.2 % 12.4 %

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

On a consolidated basis, cost of goods sold decreased $11.5 million, or 3.6%, to $312.9 million for the year ended December 31, 2023, from $324.4 million for the year ended December 31, 2022.

On a consolidated and segment basis, the decrease was primarily driven by significantly lower transportation costs, relating to ocean freight and domestic logistics, which were partly offset by higher CE volume.

On a consolidated basis, gross profit increased by $77.4 million, or 74.9%, to $180.7 million for the year ended December 31, 2023, from $103.4 million for the year ended December 31, 2022.

This was a result of decreased transportation cost, strong CE volume growth and benefits from branded pricing actions, which was partially offset by price/mix effects within private label products.

As a result, gross margin increased approximately 12.4% percentage points to 36.6% for the year ended December 31, 2023, as compared to 24.2% for the year ended December 31, 2022.

Operating Expenses

1 unchanged sentence

2023 2022 Amount Percentage

Operating Expenses (in thousands) (in thousands)

(in thousands) (in thousands)

Selling, general, and administrative 124,236 100,306 $ 23,930 23.9 %

1 unchanged sentence

SG&A expense increased by $23.9 million, or 23.9%, to $124.2 million for the year ended December 31, 2023, from $100.3 million for the year ended December 31, 2022.

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.

The increase was primarily driven by a $13.3 million increase in marketing expenses, a $13.3 million increase in personnel related expenses and $1.5 million of costs associated with the secondary share offerings in May 2023 and in November 2023, partially offset by a non-recurring intangible asset impairment charge of $6.7 million in 2022.

Other Income (Expense), Net

2 unchanged sentences

(in thousands) (in thousands)

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

Unrealized gain/(loss) on derivative instruments $ (872) $ 6,606 $ (7,478) (113.2 %)

Foreign currency gain/(loss) (251) 1,387 (1,638) (118.1 %)

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

Interest income 51 127 (76) (59.6 %)

Interest income 2,581 51 2,530 n/m

Interest expense (31) (258) 227 (88.0 %)

Other Income (Expense), Net

$ 1,427 $ 7,786 $ (6,359) (81.7 %)

1 unchanged sentence

Unrealized Gain/(Loss) on Derivative Instruments

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, 2021, we recorded unrealized gains of $2.1 million relating to outstanding derivative instruments for forward foreign currency exchange contracts.

During the year ended December 31, 2023, we recorded an unrealized loss of $0.9 million relating to outstanding derivative instruments for forward foreign currency exchange contracts, with the largest loss for the year ended December 31, 2023 related to the contracts hedging the British pound and the Brazilian real.

During the year ended December 31, 2022, we recorded an unrealized gain of $6.6 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 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.

Foreign currency loss was $0.3 million for the year ended December 31, 2023, as compared to a $1.4 million gain for the year ended December 31, 2022.

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 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

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

The increase in interest income for the year ended December 31, 2023 compared to the same prior year period was related to interest income on cash invested with financial institutions, reflecting improved cash balances and higher interest rates versus prior periods.

Interest Expense

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

The decrease in interest expense for the year ended December 31, 2023 compared to the same prior year period was driven by decreased borrowings on the 2020 Credit Facility.

Income Tax Expense

5 unchanged sentences

Income tax expense was $11.3 million for the year ended December 31, 2023, as compared to $3.0 million for the year ended December 31, 2022.

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.

The effective combined federal, state and foreign tax rate decreased to 19.5% from 27.9% for the years ended December 31, 2023, and 2022, respectively.

The effective tax rate for the current period is lower than the U.S.

statutory rate of 21% primarily as a result of lower statutory tax rates in countries outside the U.S.

that the Company operates in and the corresponding credits available from those taxing jurisdictions to offset U.S.

The effective tax rate for the same period in the prior year is higher than the U.S.

statutory rate of 21% primarily as a result of state income taxes for the U.S.

operations of the Company and other nondeductible expenses for tax purposes, and is partially offset by lower statutory tax rates in countries outside the U.S.

that the Company operates in.

The change in effective tax rates between the periods is primarily driven by the jurisdictional mix of the Company’s pre-tax profits and the relative impact of other nondeductible expense in relation to the pre-tax profits.

Non-GAAP Financial Measures

17 unchanged sentences

Foreign currency (gain)/loss (b) 251 (1,387)

Loss on extinguishment of debt (c) — 132

Secondary Offering Costs (c) 1,525 —

Impairment of intangible assets (d) — 6,714

4 unchanged sentences

(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 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).

(c) Reflects other non-recurring expenses related to costs associated with two secondary offerings in which Verlinvest Beverages SA sold shares of the Company.

The shares were sold in an underwritten public offering, which closed on May 26, 2023 and a block trade that was executed on November 9, 2023.

The Company did not receive any proceeds from the sale of the shares.

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

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

Liquidity and Capital Resources

1 unchanged sentence

We had $132.5 million and $19.6 million of cash and cash equivalents as of December 31, 2023 and 2022, respectively.

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.

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

Our future capital requirements will depend on many factors, including our revenue growth rate, our working capital needs primarily for inventory build, our global footprint, the expansion of our marketing activities, the timing and extent of spending to support product development efforts, the introduction of new and enhanced products and the continued market consumption of our products, as well as any shareholder distribution either through equity buybacks or dividends.

Our asset-lite operating model has historically provided us with a low cost, nimble and scalable supply chain, which has allowed us to 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 allows us to adapt to changes in the market or consumer preferences while also efficiently introducing new products across our platform.

We may seek additional equity or debt financing in the future in order to acquire or invest in complementary businesses, products and/or new IT infrastructures.

13 unchanged sentences

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

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.

During the year ended December 31, 2023, cash from operating activities increased $118 million as compared to the year ended December 31, 2022.

The higher cash generation was driven by the increase in net income after adjusting for non-cash items and improvements in working capital.

Investing Activities

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.

During the year ended December 31, 2023 as compared to the year ended December 31, 2022, cash used in investing activities decreased $0.4 million, driven by less expenditures for property and equipment.

Financing Activities

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.

During the year ended December 31, 2023 compared to the year ended December 31, 2022, net cash provided by financing activities was $3.3 million higher, primarily driven by increased proceeds from the exercise of stock options.

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

Revolving Credit Facility

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).

In May 2020, the Company entered into the five-year credit facility (the "2020 Credit Facility") with Wells Fargo Bank, National Association consisting of a revolving line of credit, which currently provides for committed borrowings of $60 million.

The maturity date on the 2020 Credit Facility is May 12, 2026.

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.

Starting in December 2022, 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 Secured Overnight Financing Rate ("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 December 2022 bore interest at rates based on either:

1) London Interbank Offered Rate ("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 1.50%), 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 outstanding balance on the Revolving Facility was zero as of December 31, 2023 and December 31, 2022, respectively.

4 unchanged sentences

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.

13 unchanged sentences

Future minimum commitments under these leases are $1.7 million as of December 31, 2023.

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, 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, 2023, 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.

13 unchanged sentences

Each contract includes a single performance obligation to transfer control of the product to the customer.

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

For our various products in the Vita Coco Coconut Water and Other product categories, control is transferred upon customer receipt, at which point the Company recognizes the transaction price for the product as revenue.

6 unchanged sentences

The resulting contract assets are recorded in Prepaid expenses and other current assets.

The Company provides trade promotions to its customers.

These discounts do not meet the criteria for a distinct good or service and therefore, the Company reduces revenue for the discounts associated with meeting this obligation based on the expected value method.

These consolidated financial statements include trade promotion accruals.

Trade promotion accruals are made for invoices that have not yet been received as of year-end and are recorded as a reduction of sales.

This promotion accrual is a management estimate based upon the known price of retail promotions and estimates of the sales volume during the promotion period.

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 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.

If the actual forfeitures differ from those estimated by management, adjustment to compensation expense may be required in future periods.

The Company issues stock-based awards with service-based and performance-based and market-based vesting conditions.

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 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.

The fair value of each stock option is estimated on the grant date using the Black-Scholes option-pricing model or the Barrier option valuation model, which uses multiple assumptions and judgments.

The subjective assumptions and the application of judgment in determining the fair value of the awards represent management’s best estimates.

If factors change and different assumptions are used, our equity compensation expense could be materially different in the future.

The most significant assumptions and judgments are as follows:

• Fair value of common stock.

• Option exercise price—Approximated fair value of common stock.

• Expected volatility—We determine the expected price volatility based on the historical volatilities of our peer group, as we do not have a trading history for our shares.

Industry peers consist of several public companies in the soft drinks industries similar to us in size, stage of life cycle and financial leverage.

We intend to continue to consistently apply this process using the same or similar public companies until a sufficient amount of historical information regarding the volatility of our own stock price becomes available, or unless circumstances change such that the identified companies are no longer similar to us, in which case, more suitable companies whose share prices are publicly available would be utilize in the calculation.

• Expected term—The expected term represents the period that the stock-based awards are expected to be outstanding based on the service or performance conditions specified for the awards.

We account for the expected life of the options with service conditions in accordance with the “simplified” method as defined in ASC 718, which enables the use of a practical expedient for “plain vanilla” share options.

The expected term using the simplified method is calculated using the midpoint between the vesting date and the contractual term.

• Risk-free interest rate—We based the risk-free rate on U.S.

Treasury yield curve in effect at the time of the grant of the award for a term corresponding to the duration of the options.

• Dividend yield—We used a dividend rate of zero as we do not anticipate paying dividends in the foreseeable future.

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.

The board considered the most recently available third-party valuations of common stock and an assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent valuation through the date of the grant.

These third-party valuations are performed in accordance with guidance outlined in the Americas Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation.

Our third-party common stock valuations were prepared using a probability weighted-expected return method, or PWERM.

Under this method, discrete future outcomes, such as an IPO, and non-IPO scenario were weighted based on our estimate of the probability of each scenario.

In determining the equity value under each scenario, the IPO scenario utilized the market approach while the non-IPO scenario utilized a combination of the income approach and market approach.

In leveraging the income approach, we estimated the equity value based on the expectation of future cash flows that the Company will generate.

These future cash flows, and an assumed terminal value, were discounted to their present values using a discount rate that reflects the risks inherent in the cash flows.

In leveraging the market approach, the third-party common stock valuations reviewed the trading multiples of guideline publicly traded companies, the transactions multiples of guideline comparable company transactions, and also gave consideration to our precedent transactions.

Given our simple capital structure, after subtracting net debt, the residual equity value as of the various date was allocated to the common stock.

In addition to considering the results of these third-party valuations, our board of directors considered various objective and subjective factors to determine the fair value of our common stock as of each grant date, including:

• the nature and history of our business;

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

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

• the market value of companies that are engaged in a similar business to ours;

• our financial positions, including cash on hand, and our historical and forecasted performance and operating results;

• the lack of an active public market for our common stock;

• the likelihood of achieving a liquidity event, such as an initial public offering, or IPO, or sale of our company in light of prevailing market conditions;

• the analysis of IPOs and the market performance of similar companies in our industry;

• the overall inherent risks associated with our business at the time awards were approved;

• the overall equity market conditions and general economic trends.

The assumptions underlying these valuations represent management’s best estimates, which involve inherent uncertainties and the application of management’s judgment.

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.

The Company provides trade promotions and sales discounts to its customers and distributors.

Since these sales promotions and sales discounts do not meet the criteria for a distinct good or service, they are primarily accounted for as a reduction of revenue and include payments to customers and distributors for performing activities on our behalf, such as payments for in-store displays, payments to gain distribution of new products, payments for shelf space and discounts to promote lower retail prices.

These consolidated financial statements include accruals for these promotion and discounts.

The accruals are made for invoices that have not yet been received as of year-end and are recorded as a reduction of sales, and are based on contract terms and our historical experience with similar programs and require management judgement with respect to estimating customer and consumer participation and performance levels.

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.

8 unchanged sentences

Changes to any of the assumptions or judgments could cause our actual income tax obligations to differ from our estimates.

Intangible assets

Intangible assets consist primarily of acquired trade names and distributor relationships.

The Company determines the appropriate useful life of our intangible assets by performing an analysis of expected cash flows of the acquired assets.

Intangible assets are amortized over their estimated useful lives of ten years, using the straight-line method, which approximates the pattern in which the economic benefits are consumed.

The Company’s intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable, or a triggering event.

When a triggering event is identified, a test of recoverability is performed by estimating the undiscounted future cash flows associated with such assets and comparing them to the carrying value of the asset.

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 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 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 .

4 unchanged sentences

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;

8 unchanged sentences

Emerging Growth Company Status

The Jumpstart Our Business Startups Act of 2012, or the JOBS Act, permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies.

We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act.

As a result, we will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies, and our consolidated financial statements may not be comparable to other public companies that comply with new or revised accounting pronouncements as of public company effective dates.

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 SEC.

The Jumpstart Our Business Startups Act of 2012, or the JOBS Act, permits an “emerging growth company” to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies.

Following the IPO, as an emerging growth company, we elected to apply the extended transition period.

Emerging growth company status ceases 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 $1.235 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 SEC.

Based on the closing share price and the market value of the Company's Common Stock, par value $0.01 per share ("Common Stock"), held by non-affiliates as of June 30, 2023, the Company was deemed a large accelerated public company filer as of December 31, 2023.

As a result, beginning with this 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.

Recently Issued Accounting Pronouncements

1 unchanged sentence

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