What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-26 compared with 2024-02-29 · 107 added, 108 removed, 300 unchanged (42% of the section changed)

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

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

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

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Discussions of the periods prior to the year ended December 31, 2023 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, 2023 and the discussion therein for the year ended December 31, 2023 compared to the year ended December 31, 2022.

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 categories.

The Vita Coco Company pioneered packaged coconut water in 2004 and we 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 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 branded portfolio is led by our Vita Coco brand, which is the leader in the coconut water category in the U.S., 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 also previously 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.

We source our coconut water from a diversified global network of 17 factories across seven countries supported by thousands of coconut farmers.

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

We also work with co-packers in America and Europe to support local packaging and repacking of our products and to better service our customers’ needs.

Vita Coco is available in over 30 countries, with our primary markets in North America, the United Kingdom, and China.

We also work with co-packers across four countries to support local packaging and repacking of our products and to better service our customers’ needs.

Vita Coco is available in over 35 countries, with our primary markets in North America, the U.K., and Germany.

Our primary markets for private label are North America and Europe.

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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.

Our global asset-light 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-light 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.

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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 significant inflation and instability 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 in the middle of 2023, in 2024, we saw significant cost increases and supply constraints caused by recent geopolitical disruption.

We expect instability in pricing to continue caused by recent geopolitical disruption of shipping lanes due to ocean carriers avoiding the Gulf of Aden and Red Sea regions 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.

As a result, beginning in the late spring of 2024 and for most of the summer, we were challenged to secure the ocean container capacity that we needed.

In early October 2024, the east coast ports of the U.S.

experienced a labor strike that temporarily shut those ports, resulting in some delays even after the ports reopened.

While a deal has been announced to enter into a new labor agreement, and no port disruption is expected, it is unclear if a final agreement has been ratified, so some disruption risk remains.

When disruptions like port strikes are anticipated, the ocean freight carriers may issue notices of impending surcharges to be applied if the disruption occurs, which creates uncertainty as to our actual expected costs.

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.

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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.

Coconut water accounted for 96% of our revenue for the year ended December 31, 2024 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 retained over 40% market share in the U.S.

and over 82% market share in the U.K.

in this category.

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

Any material negative change to consumer demand for our products or coconut water generally, failure to grow the coconut water category, or loss of significant private label demand, 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.

For example, in 2023, we started the discontinuation of the private label coconut water and coconut oil supply relationship with one of our significant customers as the terms required to retain the business were contrary to our long term margin targets.

While we continued the supply relationship for a significant portion of their private label coconut water needs in 2024 at the customer's request, we are expecting the loss of

further regions that we serviced for this customer during 2024.

We will continue to service their needs if we are asked and it aligns with our long-term margin targets.

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.

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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.

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.

For example, in 2024 we introduced Vita Coco Treats, a refreshingly sweet, flavorful coconutmilk-based drink for consumers looking for an indulgent treat.

In 2025, we intend to expand distribution of Vita Coco Treats to select retailers nationwide.

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 to support continued innovation and learning.

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To aid the growth of our business, we intend to continue improving our operational efficiency and leverage our brand position across channels, and therefore have a balanced approach to investment and development of capabilities in retail and e-commerce execution.

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

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.

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

In 2024, we offered more multi-packs in coconut water in U.S.

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.

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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.

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.

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Income Tax Expense

We are subject to federal and state income taxes in the United States and taxes in foreign jurisdictions in which we operate.

We are subject to federal and state income taxes in the U.S.

and taxes in foreign jurisdictions in which we operate.

We recognize deferred tax assets and liabilities based on temporary differences between the financial reporting and income tax bases of assets and liabilities using statutory rates.

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We operate in two reporting segments:

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

• Americas —The Americas segment is comprised of our operations in the Americas region, primarily in the U.S.

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

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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 (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).

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 included Runa (until we ceased selling it in December 2023) , and includes Ever & Ever and PWR LIFT product offerings, Vita Coco product extensions beyond coconut water, coconut milk products, and other revenue transactions (e.g., bulk product sales).

For these products, control is transferred upon customer receipt, at which point the Company recognizes the transaction price for the product as revenue.

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Total operating expenses 124,963 124,236 727 0.6 %

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

Income from operations 73,820 56,493 17,327 30.7 %

Other income (expense):

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 %)

Total other (expense) 1,427 7,786 (6,359) (81.7 %)

Unrealized gain (loss) on derivative instrument (8,176) (872) (7,304) n/m

Foreign currency gain (loss) (1,571) (251) (1,320) n/m

Interest income 6,715 2,581 4,134 160.2 %

Interest expense — (31) 31 n/m

Total other income (expense)

(3,032) 1,427 (4,459) n/m

Income before income taxes 70,788 57,920 12,868 22.2 %

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Total net sales $ 516,013 $ 493,612 $ 22,401 4.5 %

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.

The increase in net sales was driven by higher coconut water CE volumes across both the Americas and International segments, including Vita Coco Coconut Water volume growth of 5.8% and improved Vita Coco Coconut Water pricing due to reduced retailer promotional activity, partially offset by the transition of private label oil business.

Volume in Case Equivalent

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

December 31, Change

2023 2022 Amount Percentage

(in thousands) (in thousands)

Americas segment

Vita Coco Coconut Water 33,021 29,458 3,563 12.1 %

Private Label 11,298 9,063 2,235 24.7 %

Other 923 1,248 (325) (26.0) %

Subtotal 45,242 39,769 5,473 13.8 %

International segment*

Percentage Change - Year Ended December 31, 2024 vs.

International

Vita Coco Coconut Water 4.7 % 12.2 % 5.8 %

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Other (10.4) % 76.3 % (4.9) %

Subtotal 8,326 7,457 869 11.7 %

Total volume (CE) 2.7 % 12.8 % 4.3 %

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Americas Segment

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.

Americas net sales increased by $12.1 million, or 2.8%, to $442.3 million for the year ended December 31, 2024, from $430.2 million for the year ended December 31, 2023, primarily driven by CE volume growth of 2.7% with additional benefit from branded pricing.

These increases were partially offset by a decline in private label volume due to the transition out of private label oil at a key customer, and supply constraints impacting private label coconut water.

Vita Coco Coconut Water net sales increased by $26.1 million, or 8.2%, to $343.3 million for the year ended December 31, 2024, from $317.2 million for the year ended December 31, 2023.

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 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.

Private Label net sales decreased by $13.3 million, or 12.9%, to $89.9 million for the year ended December 31, 2024, from $103.2 million for the year ended December 31, 2023.

The decrease in sales was driven by net CE volume declines of 1.9%, as volume declines of private label coconut oil and the associated product price/mix impact more than offset growth of private label coconut water.

Net Sales for Other products decreased by $0.7 million, or 7.1%, to $9.2 million for the year ended December 31, 2024, from $9.9 million for the year ended December 31, 2023, driven by CE volume decline of 10.4%.

During 2024, the Company strategically simplified the product assortment within this category to decrease complexity and maximize profitability.

International Segment

International net sales increased by $10.3 million, or 16.3%, to $73.7 million for the year ended December 31, 2024 from $63.4 million for the year ended December 31, 2023.

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.

The increased sales were driven by CE volume growth of 12.8%, 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 $8.5 million, or 20.3%, to $50.3 million for the year ended December 31, 2024, from $41.8 million for the year ended December 31, 2023.

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.

The increased sales was driven by higher CE volume, primarily in the European region, and benefits from net pricing actions.

These increases were partially offset by volume decreases in the Asia Pacific region ("APAC").

Private Label net sales increased by $0.6 million, or 3.3%, to $19.3 million for the year ended December 31, 2024, as compared to $18.7 million for the year ended December 31, 2023, which was driven by CE volume growth in EMEA, which was partially offset by CE volume decline in shipments from APAC.

Net Sales for Other products increased by $1.2 million, or 42.6%, to $4.0 million for the year ended December 31, 2024, from $2.8 million for the year ended December 31, 2023, driven primarily by CE volume growth in both EMEA and APAC regions.

Year Ended December 31, Change

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Consolidated 38.5 % 36.6 % 1.9 %

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, cost of goods sold increased $4.3 million, or 1.4%, to $317.2 million for the year ended December 31, 2024, from $312.9 million for the year ended December 31, 2023.

On a consolidated and segment basis, the increase was primarily driven by elevated transportation costs relating to ocean freight, which was partly offset by lower finished goods costs, partially driven by private label product mix, and domestic logistics.

On a consolidated basis, gross profit increased by $18.1 million, or 10.0%, to $198.8 million for the year ended December 31, 2024, from $180.7 million for the year ended December 31, 2023.

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.

This was a result of CE volume growth, Vita Coco Coconut Water net pricing improvement and lower domestic transportation costs, partially offset by elevated transportation costs relating to ocean freight.

As a result, gross margin increased approximately 1.9% percentage points to 38.5% for the year ended December 31, 2024, as compared to 36.6% for the year ended December 31, 2023.

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SG&A expense increased by $0.7 million, or 0.6%, to $125.0 million for the year ended December 31, 2024, from $124.2 million for the year ended December 31, 2023.

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.

The increased SG&A expense was primarily driven by an increase of $4.5 million in personnel-related expenses and bad debt expense of $2.2 million primarily due to the uncertainty of product delivery and repayment of advances made to a supplier.

These increases were partially offset by $4.1 million lower investments in marketing expenses primarily due to inventory constraints through the third quarter of 2024, as well as the absence of a Vita Coco Community Foundation donation of $1.5 million and an impairment loss of $0.4 million related to land in Ecuador recorded in the year ended December 31, 2023.

Other Income (Expense), Net

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(in thousands) (in thousands)

Unrealized gain/(loss) on derivative instruments $ (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

Unrealized gain/(loss) on derivative instruments $ (8,176) $ (872) $ (7,304) n/m

Foreign currency gain/(loss) (1,571) (251) (1,320) n/m

Interest income 6,715 2,581 4,134 160.2 %

Interest expense — (31) 31 (100.0 %)

Other Income (Expense), Net

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

$ (3,032) $ 1,427 $ (4,459) n/m

n/m—represents percentage calculated not being meaningful

Unrealized Gain/(Loss) on Derivative Instruments

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.

During the year ended December 31, 2024, we recorded an unrealized loss of $8.2 million for the mark-to-market changes in the fair value on the outstanding derivative instruments for forward foreign currency exchange contracts, with the largest loss for the year ended December 31, 2024 related to the contracts hedging the Brazilian real, offset by gains in British Pound, Euro, and Canadian dollar.

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.

All forward foreign currency exchange contracts were entered to hedge some of our exposures to the British pound, Canadian dollar, Brazilian real, Malaysian ringgit, Euro, and Thai baht.

Foreign Currency Gain/(Loss)

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.

Foreign currency loss was $1.6 million for the year ended December 31, 2024, as compared to a $0.3 million loss for the year ended December 31, 2023.

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.

Interest Income

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 income increased by $4.1 million, to $6.7 million for the year ended December 31, 2024, from $2.6 million from December 31, 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

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.

The change in interest expense is immaterial.

Income Tax Expense

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Income tax expense was $14.8 million for the year ended December 31, 2024, as compared to $11.3 million for the year ended December 31, 2023.

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.

The effective combined federal, state and foreign tax rate increased to 21.0% from 19.5% for the years ended December 31, 2024 and 2023, respectively.

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

statutory rate of 21%, due to offsetting items having minimal net impact on the rate.

Primarily, the benefit of lower statutory tax rates in foreign jurisdictions is offset by state income taxes.

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

statutory rate of 21% primarily driven by lower tax rates in foreign jurisdictions and the associated credits available to offset U.S.

The change in effective tax rates between the periods is primarily attributable to state income taxes.

Non-GAAP Financial Measures

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These non-GAAP measures should not be considered as alternatives to net income as a measure of financial performance or cash flows from operations as a measure of liquidity, or any other performance measure derived in accordance with GAAP and should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

These non-GAAP measures are key metrics used by management and our board of directors, to assess our financial performance.

These non-GAAP measures are key metrics used by management and our Board, 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.

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Secondary offering costs (c)

Impairment of intangible assets (d) — 6,714

Other adjustments (e) $ 363 $ 1,240

Other adjustments (d)

Adjusted EBITDA $ 84,127 $ 68,169

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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.

(d) For the year ended December 31, 2024, the amount reflects the write-off of prepayments made to a supplier for inventory orders.

In November 2024, we learned that the supplier failed to produce the orders placed and paused operations.

Further, the supplier did not provide a refund for such orders.

For the year ended December 31, 2023, the amount relates to the impairment loss of assets held for sale.

Liquidity and Capital Resources

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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 allows us to adapt to changes in the market or consumer preferences while also efficiently introducing new products across our platform.

Our asset-light 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.

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

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.

During the year ended December 31, 2024, cash provided by operating activities decreased $64.3 million as compared to the year ended December 31, 2023.

The decrease in cash provided by operating activities was substantially driven by an increase in inventory purchases to rebuild inventory to improved levels to better support the business, and the timing of certain working capital payments, partly offset by higher cash generation from the business growth.

Investing Activities

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.

During the year ended December 31, 2024 as compared to the year ended December 31, 2023, cash used in investing activities increased $0.4 million due to equipment purchases and technology related capital expenditures.

Financing Activities

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.

During the year ended December 31, 2024 compared to the year ended December 31, 2023, net cash used by financing activities increased $14.6 million, primarily driven by share repurchases that occurred in 2024 and lower proceeds from stock award exercises.

See Note 14, Stockholders' Equity, for further discussion on share repurchases.

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

Revolving Credit Facility

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.

In May 2020, the Company entered into 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.

On February 14, 2024, the 2020 Credit Facility was amended and extended for five years, with an amended maturity date of February 13, 2030.

Starting in December 2022, borrowings on the 2020 Credit Facility bear interest at rates based on either:

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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:

In addition, the Company was subject to an unused commitment fee ranging from 0.10% and 0.20% on the unused amount of the line of credit in the year ended December 31, 2024, with the rate based on the Company’s leverage ratio (as defined in the credit agreement).

Beginning on February 14, 2025, the unused commitment fees will range from 0.125% to 0.225%.

The borrowings made prior to 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.

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.

There were no amounts drawn on the Revolving Facility as of December 31, 2024 and December 31, 2023, respectively.

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

Term Loan Facility

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

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

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

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

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

Vehicle Loans

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As of December 31, 2024, we had no outstanding balance on the Revolving Facility.

Any future outstanding balances on the Revolving Facility will be required to be repaid by May 2026.

Any future outstanding balances on the Revolving Facility will be required to be repaid by February 2030.

We lease certain assets under noncancelable operating leases, which expire through 2025.

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Revenue Recognition

The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers ("ASC 606").

The Company recognizes revenue in accordance with Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers ("ASC 606").

ASC 606 defines a five-step model that requires entities exercise judgment when considering the terms of contract(s), which include (1) identifying the contract or agreement with a customer, (2) identifying the performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied.

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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.

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

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

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

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

Goodwill represents 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 Topic 350, Intangibles—Goodwill and Other (ASC 350").

Goodwill is not amortized;

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The Company has determined that there are three reporting units for purposes of testing goodwill for impairment.

(i) the Americas reporting unit, (ii) the Europe reporting unit, and (iii) the Asia reporting unit.

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.

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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.

Based on the closing share price and the market value of our common stock, par value $0.01 per share, 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 the Annual Report on Form 10-K for the year ended December 31, 2023, the Company was not able to rely on the extended transition period noted above and was required to adopt all new accounting pronouncements within the same time periods as public companies.

Recently Issued Accounting Pronouncements

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

What changed 10-K

Item 7. Management’s Discussion and Analysis