Vita Coco Company, Inc. 10-Q

Item 2. 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 condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and related notes as disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 and filed with the Securities and Exchange Commission ("SEC") on February 26, 2025 (the “Form 10-K”). This discussion contains forward-looking statements based upon current plans, expectations and beliefs involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in Part I, Item 1A, “Risk Factors” of the Form 10-K and other factors set forth in the Form 10-K and Quarterly Reports on Form 10-Q. Overview 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 other brands include Ever & Ever , a sustainably packaged water, and PWR LIFT , a protein-infused fitness drink. 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. As of June 30, 2025, we source our coconut water from a diversified global network of 16 factories across six countries supported by thousands of coconut farmers. As we do not own any of these factories, our supply chain is a fixed asset-lite model designed to better react to changes in the market or consumer preferences. We also work with co-packers in U.S., Canada, Mexico, and Europe to support local packaging and repacking of our products to better service our customers’ needs. Vita Coco is available in over 35 countries, with our primary markets located in North America, the United Kingdom and Germany. Our primary markets for private label are North America and Europe. Our products are distributed primarily through club, food, drug, mass, convenience, e-commerce and food service channels. 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 our performance and future success depend on a number of factors that present significant opportunities for us. There have been no material changes to such factors from those described in the Form 10-K under the heading “Key Factors Affecting our Performance” and the changes noted below. Those factors also pose risks and challenges, including those discussed in Part I, Item 1A. “Risk Factors” of the Form 10-K. • 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, tariffs and other import related fees, and inflationary cost environments may affect our global supply chain. Additionally, as further discussed below, the extent and duration of tariffs imposed by the U.S. government on other countries and reciprocal tariffs placed on U.S. goods in response thereto remains uncertain and may depend on various factors, including negotiations and relationships between the U.S. and affected countries, tariff exemptions, negative sentiment toward U.S. companies and products, and availability of domestic alternatives in our supply chain. It is not currently possible to ascertain the overall impact of these macroeconomic uncertainties on our business, results of operations, financial condition or liquidity. Future events and effects related to these macroeconomic uncertainties cannot be determined with precision and actual results could significantly differ from estimates or forecasts. For a further discussion of the risks and challenges posed by these events, please see Part I, Item 1A. “Risk Factors” of the Form 10-K. • During the first quarter of 2025, the U.S. government announced tariffs on certain imports, including imports from Mexico, and Canada. We currently believe that our production in Mexico and Canada is exempt from these tariffs under the United States-Mexico-Canada Agre ement ("USMCA"). On April 2, 2025, the U.S. announced a new 23 Table of Contents universal baseline tariff of 10%, plus significant additional country-specific tariffs for select trading partners, on all U.S. imports. The reciprocal tariffs were subsequently paused for 90 days on most countries; however the 10% baseline tariff is currently being applied, which has increased our cost of goods sold. The baseline tariffs are being challenged in the U.S. legal system and it is unclear whether the tariffs will be upheld and remain in place, or if they will be struck down by the courts. Currently, we are assuming for purposes of our business operations that the baseline tariffs will be in effect indefinitely . However, the uncertainty around the long-term tariff rates that could be applied to our importation of products into the U.S. presents significant challenges to our operations and supply chain, and may result in future results being significantly different than any outlook given. We cannot predict what additional actions might be considered or implemented by the U.S. or its trade partners, particularly in the current geopolitical environment. The uncertainty could also cause disturbances in ocean shipping capacity that could affect our ability to secure ocean freight containers for our products, and create inflationary effects on our costs, in addition to the direct impact of tariffs. We are closely monitoring the evolving tariff landscape and attempting to mitigate these impacts, including using pricing adjustments, sourcing strategies and other cost-mitigation measures. However, there can be no assurance that we will be able to fully mitigate the impacts of such tariffs or that the imposition of tariffs, and the resulting economic impact on the U.S. market and consumer, will not be material to our financial results. We primarily source from the Philippines and Brazil, with additional sourcing from Sri Lanka, Thailand, Malaysia, Vietnam, Canada, and Mexico. Recently, the administration delayed the reciprocal tariff implementation, but then announced significant proposed tariffs on certain of these countries replacing the initially announced reciprocal tariffs, which may further increase our cost of goods sold. In particular, a 50% tariff has been proposed for Brazil, which was not initially listed as one of the proposed reciprocal tariffs. At this time, the overall impact on our business related to tariffs remains uncertain and depends on multiple factors, including the timing, duration and size of any tariffs, future changes to tariff rates, scope, or enforcement of such tariffs, reciprocal measures by impacted trade partners, inflationary effects, changes to consumer purchasing behavior, and the effectiveness of our responses in managing these challenges. These tariff actions, retaliatory measures, or other trade restrictions, could materially and adversely affect our business. • Our sales to one of our major customers include branded and private label product. As discussed in our Form 10-K, the private label coconut oil business with this customer discontinued in early 2024 and we expect private label coconut water net sales in 2025 with this customer to be impacted by the loss of some regions, which started primarily in the second quarter of 2025. Components of Our Results of Operations Net Sales 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. We provide 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. The accompanying condensed consolidated financial statements include accruals for these promotions and discounts. The accruals are made for invoices that have not yet been received as of the end of the reporting period and are recorded as a reduction of sales, and are based on contract terms and our historical experience with similar programs and require management judgment with respect to estimating customer and consumer participation and performance levels. Cost of Goods Sold Cost of goods sold includes the costs of the products sold to customers, inbound and outbound shipping and handling costs, freight and duties, shipping and packaging supplies, and warehouse fulfillment costs. 24 Table of Contents Gross Profit and Gross Margin Gross profit is net sales less cost of goods sold, and gross margin is gross profit as a percentage of net sales. Gross profit has been, and will continue to be, affected by various factors, including the mix of products we sell, the channels through which we sell our products, the promotional environment in the marketplace, manufacturing costs, commodity prices, warehouse costs, and transportation rates. We expect that our gross margin will fluctuate from period to period depending on the interplay of these variables. Management believes gross margin provides investors with useful information related to the profitability of our business prior to considering the operating costs incurred. Management uses gross profit and gross margin as key measures in making financial, operating, and planning decisions and in evaluating our performance. Operating Expenses Selling, General and Administrative Expenses 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. Other Income (Expense), Net Unrealized Gain/(Loss) on Derivative Instruments We are subject to foreign currency risks as a result of our inventory purchases and intercompany transactions. In order to mitigate the foreign currency risks, we and our subsidiaries enter into foreign currency exchange contracts which are recorded at fair value. Unrealized gain/(loss) on derivative instruments consists of gains or losses on such foreign currency exchange contracts which are unsettled as of period end. See Part I, Item 3 “Quantitative and Qualitative Disclosures about Market Risk—Foreign Currency Exchange Risk ” for further information. Foreign Currency Gain/(Loss) Our reporting currency is the U.S. dollar. We maintain the financial statements of each entity within the group in its local currency, which is also the entity’s functional currency. Foreign currency gain/(loss) represents the transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency. See “—Quantitative and Qualitative Disclosures about Market Risk—Foreign Currency Exchange Risk ” for further information. Interest Income Interest income consists of interest income earned on our cash and cash equivalents, and money market funds. 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 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. We regularly assess the need to record a valuation allowance against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. Operating Segments 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. 25 Table of Contents • International —The International segment is comprised of our operations primarily in Europe, the Middle East, and the Asia Pacific regions, which includes the Company’s procurement arm. Each segment derives its revenues from the following product categories: • Vita Coco Coconut Water —This product category consists of all branded coconut water product offerings under the Vita Coco labels, where the majority ingredient is coconut water. For these products, control is transferred upon customer receipt, at which point the Company recognizes the transaction price for the product as revenue. • Private Label —This product category consists of all private label product offerings, which includes coconut water and coconut oil. The Company determined the production and distribution of private label products represents a distinct performance obligation. Since there is no alternative use for these products and the Company has the right to payment for performance completed to date, the Company recognizes the revenue for the production of these private label products over time as the production for open purchase orders occurs, which may be prior to any shipment. • Other— This product category consists of all other products, which includes Vita Coco product extensions beyond coconut water, consisting of coconut milk products, including Vita Coco Treats; Ever & Ever and PWR LIFT product offerings; Vita Coco coconut oil sold internationally; 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. Results of Operations Comparison of the Three and Six Months Ended June 30, 2025 and 2024 The following table summarizes our results of operations for the three and six months ended June 30, 2025 and 2024, respectively: (in thousands) Three Months Ended June 30, Six Months Ended June 30, 2025 2024 2025 2024 Net sales $ 168,759 $ 144,116 $ 299,680 $ 255,814 Cost of goods sold 107,494 85,379 190,330 149,900 Gross profit 61,265 58,737 109,350 105,914 Operating expenses Selling, general, and administrative 36,143 28,756 64,935 56,974 Income from operations 25,122 29,981 44,415 48,940 Other income (expense) Unrealized gain/(loss) on derivative instrument 1,067 (5,963) 3,884 (8,488) Foreign currency gain/(loss) 482 (136) 1,062 (78) Interest income 1,500 1,627 3,018 3,150 Other income — — 155 — Total other income (expense) 3,049 (4,472) 8,119 (5,416) Income before income taxes 28,171 25,509 52,534 43,524 Income tax expense 5,263 6,416 10,744 10,193 Net income $ 22,908 $ 19,093 $ 41,790 $ 33,331 26 Table of Contents Net Sales The following table provides a comparative summary of net sales by operating segment and product category: (in thousands) Three Months Ended June 30, Change Six Months Ended June 30, Change 2025 2024 Amount Percentage 2025 2024 Amount Percentage Americas segment Vita Coco Coconut Water $ 120,450 $ 98,494 $ 21,956 22.3 % $ 206,568 $ 168,016 $ 38,552 22.9 % Private Label 14,685 23,135 (8,450) (36.5) % 35,882 47,408 (11,526) (24.3) % Other 6,826 2,873 3,953 137.6 % 12,111 5,169 6,942 134.3 % Subtotal $ 141,961 $ 124,502 $ 17,459 14.0 % $ 254,561 $ 220,593 $ 33,968 15.4 % International segment Vita Coco Coconut Water $ 19,882 $ 13,952 $ 5,930 42.5 % 33,059 23,617 $ 9,442 40.0 % Private Label 6,222 4,816 1,406 29.2 % 10,981 9,968 1,013 10.2 % Other 694 846 (152) (18.0) % 1,079 1,636 (557) (34.0) % Subtotal $ 26,798 $ 19,614 $ 7,184 36.6 % $ 45,119 $ 35,221 $ 9,898 28.1 % Total net sales $ 168,759 $ 144,116 $ 24,643 17.1 % $ 299,680 $ 255,814 $ 43,866 17.1 % For the three months ended June 30, 2025, the primary driver of the consolidated net sales increase of 17.1% was strong Vita Coco Coconut Water volume growth. Vita Coco Coconut Water net sales increased 24.8%, with a case equivalents ("CE") volume increase of 20.9% and growth in the Other category, driven by the U.S. rollout of Vita Coco Treats. This was partially offset by a 25.2% decrease in private label net sales, which was due largely to the loss of private label coconut water service regions for multiple customers that started in the first six months of 2025. For the six months ended June 30, 2025, the consolidated net sales increase of 17.1% was driven by Vita Coco Coconut Water, which had a 25.0% net sales increase, with a case equivalents CE volume increase of 22.7%. This was partially offset by private label net sales decline of 18.3% resulting from the loss of private label coconut water service regions for multiple customers in addition to the transition out of private label coconut oil sales to a major customer that began in the first quarter of 2024. Volume in Case Equivalents 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, 2025 compared to the three and six months ended June 30, 2024, by operating segment and product category: Percentage Change - Three Months Ended June 30, 2025 vs. 2024 Americas International Total Vita Coco Coconut Water 20.6 % 22.9 % 20.9 % Private Label (34.0) % 26.5 % (21.7) % Other 212.7 % 54.2 % 202.2 % Total volume (CE) 12.2 % 24.1 % 14.1 % Percentage Change - Six Months Ended June 30, 2025 vs. 2024 Americas International Total Vita Coco Coconut Water 21.7 % 27.7 % 22.7 % Private Label (18.5) % 20.3 % (10.8) % Other 202.0 % 27.0 % 189.3 % Total volume (CE) 15.2 % 25.4 % 16.9 % Note: 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. 27 Table of Contents * International, Other excludes minor volume that is treated as zero CE. Americas Segment Americas net sales increased $17.5 million, or 14.0%, to $142.0 million for the three months ended June 30, 2025 from $124.5 million for the three months ended June 30, 2024. The increase was primarily driven by CE volume growth of 20.6% of Vita Coco Coconut Water, partially offset by volume lost due to the loss of private label coconut water service regions for several customers that started in the first six months 2025. Americas net sales increased $34.0 million, or 15.4%, to $254.6 million for the six months ended June 30, 2025 from $220.6 million for the six months ended June 30, 2024. The increase was primarily driven by CE volume growth of 21.7% of Vita Coco Coconut Water, offset by the private label decline. Vita Coco Coconut Water net sales increased $22.0 million, or 22.3%, to $120.5 million for the three months ended June 30, 2025, from $98.5 million for the three months ended June 30, 2024. The increase was the result of CE volume growth of 20.6% due to increased demand. Vita Coco Coconut Water net sales increased $38.6 million, or 22.9%, to $206.6 million for the six months ended June 30, 2025, from $168.0 million for the six months ended June 30, 2024. The increase was the result of CE volume growth of 21.7% due to strong consumer demand. Private label net sales decreased $8.5 million, or 36.5%, to $14.7 million for the three months ended June 30, 2025, from $23.1 million for the three months ended June 30, 2024, due to a decrease in the private label business as outlined above, resulting in CE volume decrease of 34.0%. Private label net sales decreased $11.5 million, or 24.3%, to $35.9 million for the six months ended June 30, 2025, from $47.4 million for the six months ended June 30, 2024. The decrease was the result of CE volume decline of 18.5% due to the aforementioned losses of private label coconut oil and coconut water business. Net sales from Other products increased by $4.0 million, or 137.6%, to $6.8 million for the three months ended June 30, 2025 from $2.9 million for the three months ended June 30, 2024, primarily due to the national rollout of Vita Coco Treats in the U.S. Net sales from Other products increased by $6.9 million, or 134.3%, to $12.1 million for the six months ended June 30, 2025 from $5.2 million for the six months ended June 30, 2024, driven by CE volume increase of 202.0%, driven by the rollout of Vita Coco Treats. International Segment International net sales increased by $7.2 million, or 36.6%, to $26.8 million for the three months ended June 30, 2025, from $19.6 million for the three months ended June 30, 2024. The increase of 24.1% in CE volume is primarily driven by growth in Germany and the United Kingdom, partially offset by softness in China. International net sales increased by $9.9 million, or 28.1%, to $45.1 million for the six months ended June 30, 2025, from $35.2 million for the six months ended June 30, 2024. The increase is primarily driven by CE volume growth of 25.4% in Germany and United Kingdom partially offset by softness in China. Vita Coco Coconut Water net sales increased by $5.9 million, or 42.5%, to $19.9 million for the three months ended June 30, 2025, from $14.0 million for the three months ended June 30, 2024. The increase was driven by higher volume in Europe due to strong demand for our products, along with some pricing and foreign exchange rate benefits. Vita Coco Coconut Water net sales increased by $9.4 million, or 40.0%, to $33.1 million for the six months ended June 30, 2025, from $23.6 million for the six months ended June 30, 2024. The increase was primarily driven by strong CE volume growth in Europe coupled with pricing benefits. Private label net sales increased $1.4 million, or 29.2%, to $6.2 million for the three months ended June 30, 2025 from $4.8 million for the three months ended June 30, 2024. The increase was driven primarily by private label coconut water CE volume growth in Europe, which was partially offset by a decrease in the private label coconut oil business in Asia. Private label net sales increased $1.0 million, or 10.2%, to $11.0 million for the six months ended June 30, 2025 from $10.0 million for the six months ended June 30, 2024. The increase was driven primarily by CE volume growth in Europe private label coconut water sales, partially offset by a decrease in private label coconut oil volume. Net sales from Other products decreased 18.0% and 34.0% for the three and six months ended June 30, 2025, respectively, compared to the same periods in the prior year, primarily driven by the decrease in sales of Vita Coco coconut oil. 28 Table of Contents Gross Profit ($ in thousands) Three Months Ended June 30, Change Six Months Ended June 30, Change 2025 2024 Amount Percentage 2025 2024 Amount Percentage Cost of goods sold Americas segment $ 90,915 $ 72,295 $ 18,620 25.8 % $ 161,203 $ 127,514 $ 33,689 26.4 % International segment 16,579 13,084 3,495 26.7 % 29,127 22,386 6,741 30.1 % Total cost of goods sold $ 107,494 $ 85,379 $ 22,115 25.9 % $ 190,330 $ 149,900 $ 40,430 27.0 % Gross profit Americas segment $ 51,046 $ 52,208 $ (1,162) (2.2) % $ 93,358 $ 93,080 $ 278 0.3 % International segment 10,219 6,529 3,690 56.5 % 15,992 12,834 3,158 24.6 % Total gross profit $ 61,265 $ 58,737 $ 2,528 4.3 % $ 109,350 $ 105,914 $ 3,436 3.2 % Gross margin Americas segment 36.0 % 41.9 % (5.9) % 36.7 % 42.2 % (5.5) % International segment 38.1 % 33.3 % 4.8 % 35.4 % 36.4 % (1.0) % Consolidated 36.3 % 40.8 % (4.5) % 36.5 % 41.4 % (4.9) % On a consolidated basis, cost of goods sold increased $22.1 million, or 25.9%, to $107.5 million for the three months ended June 30, 2025, from $85.4 million for the three months ended June 30, 2024. On a consolidated and segment basis, the increase was primarily driven by higher CE volume and higher rates for finished goods and transportation costs and the initial impact of baseline tariffs. Cost of goods sold increased by $40.4 million, or 27.0%, to $190.3 million for the six months ended June 30, 2025, from $149.9 million for the six months ended June 30, 2024. On a consolidated basis, the increase was primarily related to increased CE volume and higher finished goods and transportation costs, and to a lesser extent, the initial impact of baseline tariffs. For the three months ended June 30, 2025, consolidated gross profit increased $2.5 million, or 4.3%, to $61.3 million, from $58.7 million for the three months ended June 30, 2024, primarily driven by higher CE volume. The increase was partially offset by increased rates for finished goods and transportation costs and the initial impact of baseline tariffs, these costs also resulted in gross margin decline, which was partially offset by branded coconut water pricing and favorable product mix. For the six months ended June 30, 2025, consolidated gross profit increased $3.4 million, or 3.2%, to $109.4 million, from $105.9 million for the six months ended June 30, 2024, also primarily driven by higher CE volume, and partially offset by increased rates for finished goods and transportation costs and the initial impact of baseline tariffs. Similar to the quarterly results, higher year-on-year ocean freight and finished goods costs resulted in a decrease in gross margin, partially offset by branded coconut water pricing and favorable product mix. Operating Expenses ($ in thousands) Three Months Ended June 30, Change Six Months Ended June 30, Change 2025 2024 Amount Percentage 2025 2024 Amount Percentage Selling, general, and administrative $ 36,143 $ 28,756 $ 7,387 25.7 % 64,935 56,974 7,961 14.0 % Selling, General and Administrative Expenses For the three months ended June 30, 2025, SG&A increased $7.4 million, or 25.7%, versus the three months ended June 30, 2024. The increase was primarily driven by an increase of $3.1 million in marketing expense primarily due to new product awareness campaigns for Vita Coco Treats, $2.7 million in personnel-related expenses, $0.9 million in higher reserves for bad debt, and $0.4 million related to an overlap of rent expense for the new New York office with the current New York office. During the six months ended June 30, 2025, SG&A increased $8.0 million, or 14.0%, versus the six months ended June 30, 2024. The increase was primarily driven by an increase of $4.6 million in personnel-related expenses and $3.0 million in marketing expense due to new product awareness campaigns for Vita Coco Treats, $0.8 million of higher reserves for bad debt expenses, $0.7 million related to the overlap of rent expense for the new New York office with the current New York office. The increases were partially offset by a reduction of $2.3 million in sales related expenses. 29 Table of Contents Other Income (Expense), Net ($ in thousands) Three Months Ended June 30, Change Six Months Ended June 30, Change 2025 2024 Amount Percentage 2025 2024 Amount Percentage Unrealized gain/(loss) on derivative instruments $ 1,067 $ (5,963) $ 7,030 n/m $ 3,884 $ (8,488) $ 12,372 n/m Foreign currency gain/(loss) 482 (136) 618 n/m 1,062 (78) 1,140 n/m Interest income 1,500 1,627 (127) (7.8 %) 3,018 3,150 (132) (4.2 %) Other income — — — n/m 155 — 155 n/m $ 3,049 $ (4,472) $ 7,521 n/m $ 8,119 $ (5,416) $ 13,535 n/m Unrealized Gain/(Loss) on Derivative Instruments For the three months ended June 30, 2025 and 2024, we recorded gains of $1.1 million and losses of $6.0 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 gain for the three months ended June 30, 2025 related to the contracts hedging the BRL and THB. For the six months ended June 30, 2025 and 2024, we recorded gains of $3.9 million and losses of $8.5 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 gain for the six months ended June 30, 2025 related to the contracts hedging the BRL and THB, partially offset by loss on GBP, CAD, and EUR hedges. Foreign Currency Gain/(Loss) For the three months ended June 30, 2025, the change in foreign currency gain was $0.6 million as compared to June 30, 2024. For the six months ended June 30, 2025, the change in foreign currency gain was $1.1 million as compared to June 30, 2024. 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. See "Quantitative and Qualitative Disclosures about Market Risk - Foreign Currency Exchange Risk " for further information. Interest Income For the three months ended June 30, 2025, interest income decreased $0.1 million compared to June 30, 2024 primarily due to lower interest rates in the 2025 period compared to the 2024 period. For the six months ended June 30, 2025, interest income decreased $0.1 million as compared to June 30, 2024. The decrease in interest income was due to lower interest rates compared to prior year. Other Income For the six months ended June 30, 2025, Other income of $0.2 million is due to the sale of intellectual property. Income Tax Expense ($ in thousands) Three Months Ended June 30, Change Six Months Ended June 30, Change 2025 2024 Amount Percentage 2025 2024 Amount Percentage Income tax expense 5,263 6,416 $ (1,153) (18.0) % $ 10,744 $ 10,193 $ 551 5.4 % Tax rate 18.7 % 25.2 % 20.5 % 23.4 % Our quarterly income tax provision is based on an estimated annual effective tax rate applied to our consolidated year-to-date pre-tax income or loss. 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. 30 Table of Contents For the six months ended June 30, 2025 and 2024, our effective tax rate was 20.5% and 23.4%, respectively. The effective tax rate for the current period is lower than the U.S. statutory rate of 21% primarily as a result of discrete items recorded during the period. The effective tax rate for the period ending June 30, 2024 was higher than the U.S. statutory rate of 21% primarily as a result of state income taxes for the U.S. entity. 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 expenses in relation to the pre-tax profits. Non-GAAP Financial Measures EBITDA and Adjusted EBITDA are supplemental non-GAAP financial measures that are used by management and external users of our financial statements, such as industry analysts, investors and lenders. 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 a key metric 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. We define EBITDA as net income before interest, taxes, depreciation, and amortization. Adjusted EBITDA is defined as EBITDA with adjustments to eliminate the impact of certain items, including certain non-cash and other items, that we do not consider representative of our ongoing operating performance. A reconciliation from net income to EBITDA and Adjusted EBITDA is set forth below: Three Months Ended June 30, Six Months Ended June 30, 2025 2024 2025 2024 (in thousands) (in thousands) Net income 22,908 19,093 41,790 33,331 Depreciation and amortization 206 182 408 344 Interest income (1,500) (1,627) (3,018) (3,150) Income tax expense 5,263 6,416 10,744 10,193 EBITDA 26,877 24,064 49,924 40,718 Stock-based compensation (a) 2,962 2,399 5,148 4,508 Unrealized (gain)/loss on derivative instruments (b) (1,067) 5,963 (3,884) 8,488 Foreign currency (gain)/loss (b) (482) 136 (1,062) 78 Secondary Offering Costs (c) — (324) — (324) Other adjustments (d) 952 — 1,621 — Adjusted EBITDA $ 29,242 $ 32,238 51,747 $ 53,468 ____________ (a) Non-cash charges related to stock-based compensation, which vary from period to period depending on volume and vesting timing of awards and forfeitures. We adjusted for these charges to facilitate comparison from period to period. (b) Unrealized gains or losses on derivative instruments and foreign currency gains or losses are not considered in our evaluation of our ongoing performance. (c) 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 15, Related Party Transactions , in our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. (d) The three months ended June 30, 2025 includes $0.6 million related to a one-time 2023 incentive program that is measured based on full-year 2025 performance structured differently from our other ongoing employee incentive 31 Table of Contents programs, and $0.4 million of rent expense related to our new New York City office that overlap with our current New York City office rent charges. The six months ended June 30, 2025 includes $1.2 million related to a one-time 2023 incentive program that is measured based on full-year 2025 performance structured differently from our other ongoing employee incentive programs, and $0.7 million of dual rent expense related to our New York City office. These amounts were offset by $0.1 million of partial recoveries of prepaid inventory from a supplier (refer to the Form 10-K for further details) and a gain of $0.2 million from a sale of intellectual property. 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 $167.0 million and $164.7 million of cash and cash equivalents as of June 30, 2025 and December 31, 2024, respectively. From time to time, we may supplement our liquidity needs with incremental borrowing capacity under the 2020 Credit Facility. 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 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. 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. Cash Flows The following tables summarize our sources and uses of cash: Six Months Ended June 30, Change 2025 2024 Amount Percentage ($ in thousands) Cash flows provided by (used in): Operating activities $ 12,010 $ 26,652 $ (14,642) (54.9 %) Investing activities (1,508) (414) (1,094) n/m Financing activities (9,081) (8,562) (519) 6.1 % Effects of exchange rate changes on cash and cash equivalents 961 (106) 1,067 n/m Net (decrease)/increase in cash and cash equivalents $ 2,382 $ 17,570 $ (15,188) 86.4 % Operating Activities Our main source of operating cash is payments received from our customers. Our primary use of cash in operating activities are for cost of goods sold and SG&A expenses. During the six months ended June 30, 2025, cash provided by operating activities decreased $14.6 million compared to the six months ended June 30, 2024. The decrease is driven by timing differences in the collection of accounts receivable and payments made and higher inventory purchases, partly offset by increase in net income, net of non-cash adjustments. 32 Table of Contents Investing Activities During the six months ended June 30, 2025, cash used in investing activities was $1.5 million as compared to $0.4 million for the six months ended June 30, 2024. The increase was primarily due to capital expenditures related to the new New York, London and Singapore offices. Financing Activities During the six months ended June 30, 2025 compared to the six months ended June 30, 2024, net cash used by financing activities increased by $0.5 million, primarily driven by higher volume of share repurchases in the six months ended June 30, 2025 compared to the prior year period. See Note 10, Stockholders' Equity, in our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, for further discussion on share repurchases. Debt We had an immaterial amount of debt outstanding as of June 30, 2025 and December 31, 2024, which was related to vehicle loans. Revolving Credit Facility In May 2020, the Company entered into the 2020 Credit Facility, which currently provides for committed borrowings of $60 million. On February 14, 2025, the 2020 Credit Facility was amended, extending the maturity five years to February 13, 2030. 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 SOFR plus 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 was subject to unused commitment fees 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). As of February 14, 2025, the unused commitment fees range from 0.13% and 0.23% 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 June 30, 2025 and December 31, 2024, respectively. As of June 30, 2025, we were compliant with all financial covenants. Vehicle Loans We periodically enter into vehicle loans. Interest rates on these vehicle loans range from 4.56% to 5.68%. The outstanding balance on the vehicle loans as of June 30, 2025 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. Contractual Obligations and Commitments There have been no material changes to our contractual obligations from those described in the Form 10-K. Critical Accounting Policies and Significant Judgments and Estimates Our consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our consolidated financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate 33 Table of Contents our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions. 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 included in this Quarterly Report on Form 10-Q. During the six months ended June 30, 2025, there were no material changes to our critical accounting policies from those discussed in the Form 10-K. Recent Accounting Pronouncements A description of recently adopted and issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2, Summary of Significant Accounting Policies , to our condensed consolidated financial statements, included in this Quarterly Report on Form 10-Q.