What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-01 compared with 2024-05-02 · 100 added, 66 removed, 214 unchanged (44% of the section changed)

12 unchanged sentences

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.

As of June 30, 2024, we source our coconut water from a diversified global network of 15 factories across six countries supported by thousands of coconut farmers.

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

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Impact of Global Events Causing Macroeconomic Uncertainty

Uncertainty in the macroeconomic environment resulting from current geopolitical and economic instability (including the effects of current wars and other international conflicts) and the high interest rate and inflationary cost environment may affect our business.

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.

It is not currently possible to ascertain the overall impact of these macroeconomic uncertainties on the Company’s business, results of operations, financial condition or liquidity.

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Results of Operations

Comparison of the Three Months Ended March 31, 2024 and 2023

The following table summarizes our results of operations for the three months ended March 31, 2024 and 2023, respectively:

(in thousands) Three Months Ended March 31,

Comparison of the Three and Six Months Ended June 30, 2024 and 2023

The following table summarizes our results of operations for the three and six months ended June 30, 2024 and 2023, respectively:

(in thousands) Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

Net sales $ 144,116 $ 139,645 $ 255,814 $ 249,404

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

(in thousands) Three Months Ended March 31, Change

2024 2023 Amount Percentage

(in thousands) Three Months Ended June 30, Change Six Months Ended June 30, Change

2024 2023 Amount Percentage 2024 2023 Amount Percentage

Americas segment

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Total net sales $ 144,116 $ 139,645 $ 4,471 3.2 % $ 255,814 $ 249,404 $ 6,410 2.6 %

For the three months ended March 31, 2024, the primary driver of the consolidated net sales increase of 1.8% was a 6.2% increase in private label sales with volume growth of 12.2%, along with a 0.6% net sales increase in Vita Coco Coconut Water due to net pricing actions and changes in promotion timings compared to prior year, partially offset by CE volume decline of 4.3%.

For the three months ended June 30, 2024, the primary driver of the consolidated net sales increase of 3.2% was a 4.4% net sales increase in Vita Coco Coconut Water resulting from a case equivalents ("CE") volume increase of 1.9% coupled with net pricing benefits.

For the six months ended June 30, 2024, the net sales increase of 2.6%, was driven by Vita Coco Coconut Water which had a 2.8% net sales increase due to net pricing actions and changes in promotion timing compared to prior year, partially offset by a CE volume decrease of 0.7%.

Volume in Case Equivalent

The following table provides a comparative summary of the percentage change in our volume in CE for the three months ended March 31, 2024 compared to the three months ended March 31, 2023, by operating segment and product category:

Percentage Change - Three Months Ended March 31, 2024 vs.

The following table provides a comparative summary of the percentage change in our volume in CE for the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023, by operating segment and product category:

Percentage Change - Three Months Ended June 30, 2024 vs.

International

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Total volume (CE) 3.4 % 7.3 % 4.0 %

Percentage Change - Six Months Ended June 30, 2024 vs.

International

Vita Coco Coconut Water (0.6) % (1.2) % (0.7) %

Private Label 7.1 % 34.7 % 11.7 %

Other (7.0) % (8.5) % (7.1) %

Total volume (CE) 1.0 % 7.5 % 2.0 %

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

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Americas Segment

Americas net sales decreased by $0.7 million, or 0.7%, to $96.1 million for the three months ended March 31, 2024 from $96.8 million for the three months ended March 31, 2023.

The decrease is primarily driven by CE volume decline of 2.0%, which was partially offset by price/mix benefits.

Vita Coco Coconut Water net sales increased by $0.4 million, or 0.6%, to $69.5 million for the three months ended March 31, 2024, from $69.1 million for the three months ended March 31, 2023.

The increase was the result of net pricing benefits driven by changes in promotional timing, offset by CE volume decline of 3.4%.

Private label net sales decreased $0.8 million, or 3.1%, to $24.3 million for the three months ended March 31, 2024, from $25.1 million for the three months ended March 31, 2023, with CE volume growth of 3.8%, partially offset by price/mix changes.

Net sales from Other products decreased by $0.3 million, or 11.1%, to $2.3 million for the three months ended March 31, 2024 from $2.6 million for the three months ended March 31, 2023, driven by a CE volume decline of 25.5% partially offset by price/mix benefits.

Americas net sales increased $3.2 million, or 2.7%, to $124.5 million for the three months ended June 30, 2024 from $121.3 million for the three months ended June 30, 2023.

The increase was primarily driven by CE volume growth of 3.4%, which was partially offset by price/mix changes in private label.

Americas net sales increased $2.6 million, or 1.2%, to $220.6 million for the six months ended June 30, 2024 from $218.0 million for the six months ended June 30, 2023.

The increase was primarily driven by an increase in CE volume of 1.0%.

Vita Coco Coconut Water net sales increased by $3.5 million, or 3.7%, to $98.5 million for the three months ended June 30, 2024, from $95.0 million for the three months ended June 30, 2023.

The increase was the result of CE volume growth of 1.3% coupled with net pricing benefits.

Vita Coco Coconut Water net sales increased by $3.9 million, or 2.4%, to $168.0 million for the six months ended June 30, 2024.

The increase was primarily driven by net pricing benefits due to the timing of pricing promotions, partially offset by a CE volume decrease of 0.6%.

Private label net sales decreased by $0.9 million, or 3.8%, to $23.1 million for the three months ended June 30, 2024, from $24.1 million for the three months ended June 30, 2023, due to the expected decrease in the private label oil business, partially offset by CE volume growth of 10.6%.

Private label net sales decreased by $1.7 million, or 3.5% to $47.4 million for the six months ended June 30, 2024, due to the expected private label oil decrease, partially offset by CE volume growth of 7.1%.

Net sales from Other products increased by $0.7 million, or 30.6%, to $2.9 million for the three months ended June 30, 2024 from $2.2 million for the three months ended June 30, 2023, driven by a CE volume increase of 14.0% due to innovations coupled with price/mix benefits.

Net sales from Other products increased minimally by $0.4 million, or 8.0%, to $5.2 million for the six months ended June 30, 2024.

International Segment

International net sales increased by $2.6 million, or 20.2%, to $15.6 million for the three months ended March 31, 2024, from $13.0 million for the three months ended March 31, 2023.

The increase is primarily driven by price/mix benefits coupled with CE volume growth of 7.8%.

Vita Coco Coconut Water net sales increased by $0.1 million, or 1.1%, to $9.7 million for the three months ended March 31, 2024, from $9.6 million for the three months ended March 31, 2023.

International net sales increased by $1.2 million, or 6.7%, to $19.6 million for the three months ended June 30, 2024, from $18.4 million for the three months ended June 30, 2023.

The increase is primarily driven by CE volume growth of

International net sales increased by $3.9 million, or 12.3%, to $35.2 million for the six months ended June 30, 2024 from $31.4 million for the six months ended June 30, 2023.

The increase is primarily driven by CE volume growth of 7.5%.

Vita Coco Coconut Water net sales increased by $1.2 million, or 9.7%, to $14.0 million for the three months ended June 30, 2024, from $12.7 million for the three months ended June 30, 2023.

The increase was driven primarily by Europe, which had strong volume and net sales performance, partially offset by lower volumes in the Asia Pacific region.

Private label net sales increased by $2.5 million, or 93.3%, to $5.2 million for the three months ended March 31, 2024 from $2.7 million for the three months ended March 31, 2023.

The increase was driven primarily by CE volume growth in Europe from new distribution in addition to strong volume growth in the Asia Pacific region.

Net sales from Other products was relatively flat on a dollar basis for the three months ended March 31, 2024 compared to the prior year period.

(in thousands) Three Months Ended March 31, Change

2024 2023 Amount Percentage

Vita Coco Coconut Water net sales increased by $1.3 million, or 6.0%, to $23.6 million for the six months ended June 30, 2024 from $22.3 million for the six months ended June 30, 2023.

The increase was primarily driven by strong growth in Europe partially offset by lower volumes in the Asia Pacific region.

Private label net sales decreased by $0.2 million, or 4.7%, to $4.8 million for the three months ended June 30, 2024 from $5.1 million for the three months ended June 30, 2023.

The decrease was driven primarily by the expected decrease in private label coconut oil which offset private label coconut water CE volume growth in Europe from new distribution.

Private label net sales increased by $2.2 million, or 29.1%, to $10.0 million for the six months ended June 30, 2024 from $7.7 million for the six months ended June 30, 2023.

The increase was driven primarily by Europe which had strong volume driven by new distribution, partially offset by the private label coconut oil decrease.

Net sales from Other products was relatively flat on a dollar basis for the three and six months ended June 30, 2024 compared to the prior year period.

(in thousands) Three Months Ended June 30, Change Six Months Ended June 30, Change

2024 2023 Amount Percentage 2024 2023 Amount Percentage

Cost of goods sold

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Consolidated 40.8 % 36.6 % 4.2 % 41.4 % 34.0 % 7.4 %

On a consolidated basis, cost of goods sold decreased $11.6 million, or 15.2%, to $64.5 million for the three months ended March 31, 2024, from $76.1 million for the three months ended March 31, 2023.

On a consolidated and segment basis, the decrease is primarily related to significantly lower transportation costs, relating to ocean freight and domestic logistics, in addition to lower finished goods costs along with a slight volume CE decline of 0.5%.

On a consolidated basis, gross profit increased $13.5 million, or 40.2%, to $47.2 million for the three months ended March 31, 2024, from $33.7 million for the three months ended March 31, 2023.

Gross margin increased approximately 11.5% percentage points to 42.2% for the three months ended March 31, 2024, as compared to 30.7% for the three months ended March 31, 2023.

These increases resulted from lower global transportation costs and elevated Vita Coco Coconut Water net pricing, partially offset by mix effects within private label products.

On a consolidated basis, cost of goods sold decreased by $3.2 million, or 3.6%, to $85.4 million for the three months ended June 30, 2024, from $88.6 million for the three months ended June 30, 2023.

On a consolidated and segment basis, the decrease was primarily related to lower finished goods and transportation costs and mix impacts from Private Label, which were partially offset by volume CE growth.

Cost of goods sold decreased by $14.7 million, or 9.0%, to $149.9 million for the six months ended June 30, 2024.

On a consolidated basis, the decrease was primarily related to lower finished goods and transportation costs, and mix impacts from Private Label, which were partially offset by volume CE growth.

On a consolidated basis, gross profit increased by $7.6 million, or 15.0%, to $58.7 million for the three months ended June 30, 2024, from $51.1 million for the three months ended June 30, 2023.

Gross margin increased approximately 4.2% percentage points to 40.8% for the three months ended June 30, 2024, as compared to 36.6% for the three months ended June 30, 2023.

The increase in gross profit resulted from lower finished goods and domestic transportation costs, and improvements primarily in Vita Coco Coconut Water pricing along with mix effects of private label products.

Gross profit increased by $21.2 million, or 25.0%, to $105.9 million for the six months ended June 30, 2024.

This increase resulted from lower finished goods and transportation costs, improvements in Vita Coco Coconut Water pricing, volume CE growth, cost of goods mix benefits, partly offset by Private Label net sales mix impacts.

Operating Expenses

(in thousands) Three Months Ended March 31, Change

2024 2023 Amount Percentage

(in thousands) Three Months Ended June 30, Change Six Months Ended June 30, Change

2024 2023 Amount Percentage 2024 2023 Amount Percentage

Selling, general, and administrative $ 28,756 $ 30,249 $ (1,493) (4.9) % 56,974 57,206 (232) (0.4) %

Selling, General and Administrative Expenses

During the three months ended March 31, 2024, SG&A increased by $1.3 million, or 4.7%, versus the three months ended March 31, 2023.

The increase was primarily driven by an increase of $1.9 million in personnel related expenses for the three months ended March 31, 2024 versus the prior year comparable period, partially offset by $0.4 million in lower distribution buyout expenses and $0.3 million less bad debt expense compared to prior year.

During the three months ended June 30, 2024, SG&A decreased by $1.5 million, or 4.9%, versus the three months ended June 30, 2023.

The decrease was primarily driven by reduced marketing expense of $2.7 million largely timing related, partially offset by an increase of $1.1 million in personnel related expenses for the three months ended June 30, 2024 versus the prior year comparable period.

During the six months ended June 30, 2024, SG&A decreased by $0.2 million, or 0.4%, versus the six months ended June 30, 2023.

The decrease was primarily driven lower marketing expense of $2.8 million and reduced bad debt expense of $0.4 million, partially offset by increased personnel related expenses of $3.0 million.

Other Income (Expense), Net

(in thousands) Three Months Ended March 31, Change

2024 2023 Amount Percentage

Unrealized gain/(loss) on derivative instruments $ (2,525) $ 1,213 $ (3,738) 308.2 %

(in thousands) Three Months Ended June 30, Change Six Months Ended June 30, Change

2024 2023 Amount Percentage 2024 2023 Amount Percentage

Unrealized gain/(loss) on derivative instruments $ (5,963) $ 988 $ (6,951) n/m $ (8,488) $ 2,201 $ (10,689) n/m

Foreign currency gain/(loss) (136) 170 (306) 180.0 % $ (78) 781 (859) (110.0 %)

Interest income 1,523 13 1,510 (11615.4 %)

Interest income 1,627 268 1,359 n/m $ 3,150 281 2,869 n/m

Interest expense — (15) 15 100.0 % $ 0 (30) 30 (100.0 %)

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Unrealized Gain/(Loss) on Derivative Instruments

For the three months ended March 31, 2024 and 2023, we recorded losses of $2.5 million and gains of $1.2 million, respectively, for the mark-to-market changes in fair value on the outstanding derivative instruments for forward foreign currency exchange contracts, with the largest loss for the three months ended March 31, 2024 related to the contracts hedging the BRL and THB, and partly offset by gain on GBP hedges.

For the three months ended June 30, 2024 and 2023, we recorded losses of $6.0 million and gains of $1.0 million, respectively, for the mark-to-market changes in fair value on the outstanding derivative instruments for forward foreign currency exchange contracts, with the largest loss for the three months ended June 30, 2024 related to the contracts hedging the BRL.

For the six months ended June 30, 2024 and 2023, we recorded losses of $8.5 million and gains of $2.2 million, respectively, for the mark-to-market changes in fair value on the outstanding derivative instruments for forward foreign currency exchange contracts, with the largest loss for the six months ended June 30, 2024 related to the contracts hedging the BRL and THB, partially offset by gains on GBP, CAD and EUR hedges.

Foreign Currency Gain/(Loss)

For the three months ended March 31, 2024, the change in foreign currency loss was $553 as compared to March 31, 2023.

For the three months ended June 30, 2024, the change in foreign currency loss was $0.3 million as compared to June 30, 2023.

For the six months ended June 30, 2024, the change in foreign currency loss was $0.9 million as compared to June 30, 2023.

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

Interest Income

The increase in interest income for the three months ended March 31, 2024 compared to the prior year period was primarily related to interest income on cash invested with financial institutions.

The cash investment program was not in operation during the first quarter of 2023.

For the three months ended June 30, 2024, the increase in interest income was $1.4 million as compared to June 30, 2023.

The increase was primarily due to higher levels of cash invested with financial institutions during the second quarter of 2024 compared to the second quarter of 2023.

For the six months ended June 30, 2024, the change in interest income was $2.9 million as compared to the same period ending June 30, 2023.

The increase in interest income period over period was due to the cash investment program that began in April 2023, in addition to higher levels of cash invested with financial institutions compared to prior year.

Interest Expense

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Income Tax Expense

(in thousands) Three Months Ended March 31, Change

2024 2023 Amount Percentage

(in thousands) Three Months Ended June 30, Change Six Months Ended June 30, Change

2024 2023 Amount Percentage 2024 2023 Amount Percentage

Income tax expense (6,416) (4,269) $ (2,147) 50.3 % $ (10,193) $ (6,090) $ (4,103) 67.4 %

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The effective income tax rate is based upon the estimated income for the year, the composition of that income in different countries, and adjustments, if any, in the applicable quarterly periods for the potential tax consequences, benefits, resolutions of tax audits or other tax contingencies.

For the three months ended March 31, 2024 and 2023 our effective tax rate was 21.0% and 21.4% respectively.

The effective tax rate for the current period is consistent with the U.S.

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

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

where the Company operates in.

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

For the six months ended June 30, 2024 and 2023 our effective tax rate was 23.4% and 19.8% respectively.

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

The change in effective tax rates between the periods is primarily driven by the jurisdictional mix of our pre-tax profits and the impact of higher non-deductible expense this year related to covered employees' compensation in relation to the pre-tax profits.

Non-GAAP Financial Measures

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These non-GAAP measures are a key metric used by management and our Board of Directors to assess our financial performance.

We present these non-GAAP measures because we believe they assist investors in comparing our

performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance and because we believe it is useful for investors to see the measures that management uses to evaluate the Company.

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

We define EBITDA as net income before interest, taxes, depreciation, and amortization.

1 unchanged sentence

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

Three Months Ended March 31,

(in thousands)

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

(in thousands) (in thousands)

Net income 19,093 17,987 33,331 24,692

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Foreign currency (gain)/loss (b) 136 (170) 78 (781)

Secondary Offering Costs (c) (324) 856 (324) 856

Adjusted EBITDA $ 32,238 $ 23,978 53,468 $ 33,009

2 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) Reflects other non-recurring expenses related to costs associated with two secondary offerings in which Verlinvest Beverages SA sold shares of the Company in an underwritten public offering that closed on May 26, 2023 and a block trade that was executed on November 9, 2023.

The amounts for the three and six months ended June 30, 2023 relate to costs for the May 26, 2023 offering.

The amounts for the three and six months ended June 30, 2024 relate to an expense waiver of certain costs incurred during the November 9, 2023 block trade.

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

For additional information regarding the expense waiver for the three and six months ended June 30, 2024, see Note 14, Related Party Transactions , in our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

Liquidity and Capital Resources

Since our inception, we have financed our operations primarily through cash generated from our business operations and proceeds on borrowings through our credit facilities and term loans.

We had $123.0 million and $132.5 million of cash and cash equivalents as of March 31, 2024 and December 31, 2023, respectively.

We had $150.1 million and $132.5 million of cash and cash equivalents as of June 30, 2024 and December 31, 2023, respectively.

From time to time, we may supplement our liquidity needs with incremental borrowing capacity under the 2020 Credit Facility.

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In the event that we require additional financing, we may not be able to raise such financing on terms acceptable to us or at all.

If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in continued product innovation, we may not be able to compete successfully, which would harm our business, operations and financial condition.

If we are unable to raise additional capital or generate cash flows

necessary to expand our operations and invest in continued product innovation, we may not be able to compete successfully, which would harm our business, operations and financial condition.

The following tables summarize our sources and uses of cash:

Three Months Ended March 31, Change

Six Months Ended June 30, Change

2024 2023 Amount Percentage

9 unchanged sentences

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

During the three months ended March 31, 2024, $9.7 million less net cash was generated by operating activities compared to the three months ended March 31, 2023.

The lower cash generation was due to increases in working capital, partly offset by an increase in net income after any non-cash adjustments.

During the six months ended June 30, 2024, $0.6 million more net cash was generated by operating activities compared to the six months ended June 30, 2023.

The higher cash generation was due to increase in net income after any non-cash adjustments, partially offset by increases in working capital.

Investing Activities

During the three months ended March 31, 2024, cash used in investing activities was $0.1 million as compared to $0.4 million for the three months ended March 31, 2023, due to less cash paid for property and equipment.

During the six months ended June 30, 2024, cash used in investing activities was $0.4 million as compared to $0.5 million for the six months ended June 30, 2023, due to a minor increase in capital expenditures.

Financing Activities

During the three months ended March 31, 2024 compared to the three months ended March 31, 2023, net cash used by financing activities was $9.7 million higher primarily driven by share repurchases that occurred in January 2024.

See Note 10, Stockholders' Equity, for further discussion.

We had an immaterial amount of debt outstanding as of March 31, 2024 and December 31, 2023, which was related to vehicle loans.

During the six months ended June 30, 2024 compared to the six months ended June 30, 2023, net cash used by financing activities was $11.3 million higher primarily driven by share repurchases that occurred in January 2024 and lower proceeds from stock award exercises.

See Note 10, Stockholders' Equity, for further discussion on share repurchases.

We had an immaterial amount of debt outstanding as of June 30, 2024 and December 31, 2023, which was related to vehicle loans.

Revolving Credit Facility

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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 outstanding balance on the Revolving Facility was zero as of March 31, 2024 and December 31, 2023, respectively.

As of March 31, 2024, we were compliant with all financial covenants.

The outstanding balance on the Revolving Facility was zero as of June 30, 2024 and December 31, 2023, respectively.

As of June 30, 2024, we were compliant with all financial covenants.

Vehicle Loans

1 unchanged sentence

Interest rates on these vehicle loans range from 4.56% to 5.68%.

The outstanding balance on the vehicle loans as of March 31, 2024 was less than $0.1 million.

The outstanding balance on the vehicle loans as of June 30, 2024 was less than $0.1 million.

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

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Our critical accounting policies are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Significant Judgments and Estimates” in the Form 10-K and the notes to the unaudited condensed consolidated financial statements appearing in this Quarterly Report on Form 10-Q.

During the three months ended March 31, 2024, there were no material changes to our critical accounting policies from those discussed in the Form 10-K.

During the six months ended June 30, 2024, there were no material changes to our critical accounting policies from those discussed in the Form 10-K.

Recent 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-Q

Item 2. Management’s Discussion and Analysis