Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk
We are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate sensitivities.
As of December 31, 2025, the outstanding amounts related to our Revolving Facility incur interest fees at variable interest rates and are affected by changes in the general level of market interest rates. However, there was no outstanding balance on the Revolving Facility as of December 31, 2025.
Foreign Currency Exchange Risk
We transact business globally in multiple currencies and hence have foreign currency risks related to our net sales, cost of goods sold, and operating expenses. We use derivative financial instruments to reduce our net exposure to foreign currency fluctuations. Our objective in managing exposure to foreign currency fluctuations is to reduce the volatility caused by foreign exchange rate changes on the earnings, cash flows and financial position of our international operations. We generally target to hedge a majority of our forecasted yearly foreign currency exchange exposure through a 24-month rolling layered approach and leave a portion of our currency forecast floating at spot rate. Our currency forecast and hedge positions are reviewed quarterly. The gains and losses on the forward contracts associated with our balance sheet positions are recorded in “Other income (expense), net” in the consolidated statements of operations.
The total notional values of our forward exchange contracts were $128.8 million and $107.4 million as of December 31, 2025 and December 31, 2024, respectively. The derivatives on the forward exchange contracts resulted in an unrealized loss of $4.7 million as of December 31, 2025, and we estimate that a 10% strengthening or weakening of the U.S. dollar would have resulted in an approximately $9.5 million gain or loss.
Part of our cash and cash equivalents are denominated in foreign currencies. As of December 31, 2025, a 1% change in the value of the U.S. dollar compared to foreign currencies would have caused our cash and cash equivalents to decrease or increase by $0.2 million. As of December 31, 2024, a 1% change in the value of the U.S. dollar compared to foreign currencies would have caused our cash and cash equivalents to decrease or increase by $0.1 million.
Inflation Risk
Inflation generally affects us by increasing our cost of transportation, labor and manufacturing costs. In recent years, we have seen fluctuating transportation costs caused by global supply chain disruptions or geopolitical instability and general inflation effects, which may cause pressure on our costs and margins. More specifically, we source a large amount of our finished goods from international countries, which exposes us to international supply chain inflation, particularly ocean freight. During the year ended December 31, 2025, general inflationary pressures continued to increase the other elements of our cost of goods and operating expenses. During 2025, tariffs were imposed on most imports into the United States, including coconut water, which created an increase in our cost of goods reported in 2025. Beginning in November 2025, we benefited from a U.S. executive action granting tariff exemptions applicable to coconut water products, which reduced our costs. If tariffs are implemented on goods from countries where we do business, or currently applicable exemptions expire or are rescinded, they may raise our cost of importation of coconut water and require us to adjust our pricing or strategy. See Part I, Item 1A. “Risk Factors— Changes in U.S. trade policy, including the imposition of new and revised tariffs on our principal sourcing countries, have increased our costs and created significant uncertainty, and could continue to materially and adversely affect our business, financial condition, results of operations, and cash flows .” for more information.
Credit Risk
We are exposed to concentration of credit risk from our major customers. As of December 31, 2025, sales to two customers represented approximately 44% of our consolidated net sales. We have not experienced credit issues with these customers. We maintain provisions for potential credit losses and evaluate the solvency of our customers on an ongoing
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basis to determine if additional allowances for doubtful accounts and customer credits need to be recorded. Significant economic disruptions or a slowdown in the economy could result in substantial additional charges.
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