Vita Coco Company, Inc. — Q1 2023 10-Q
Business context and period. The company develops, markets, and distributes Vita Coco coconut water and other beverage products, as well as private-label products. This unaudited report covers the three months ended March 31, 2023; comparisons are with Q1 2022. Amounts below are in millions unless noted.
Key financial results
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Net sales | $109.8 | $96.4 | +13.8% |
| Gross profit | $33.7 | $19.1 | +76.6% |
| Gross margin | 30.7% | 19.8% | +10.9 percentage points |
| Operating income (loss) | $6.7 | ($5.7) | Improved |
| Net income | $6.7 | $2.2 | +201% |
| Diluted EPS | $0.12 | $0.04 | +$0.08 |
| Adjusted EBITDA (non-GAAP) | $9.0 | ($2.9) | Improved |
| Operating cash flow | $9.4 | ($22.5) | +$32.0 |
Revenue growth reflected 8.3% growth in case-equivalent volume and benefits from pricing. Americas sales rose 14.4% to $96.8 million; International sales rose 9.7% to $13.0 million. Branded Vita Coco coconut water grew in both segments. Private-label sales increased in the Americas but declined slightly internationally.
Gross margin expansion reflected lower ocean freight and domestic logistics costs, with cost of goods sold per case equivalent down 10% year over year. SG&A increased 8.7% to $27.0 million, primarily from higher personnel costs and increased credit-loss expense following adoption of the new accounting standard. Other income included a $1.2 million unrealized derivative gain, down from $8.7 million in Q1 2022; thus, year-over-year earnings comparisons also reflect a smaller derivative gain.
Financial position and liquidity
- Cash and cash equivalents were $29.1 million at March 31, 2023, versus $19.6 million at December 31, 2022. Cash, cash equivalents, and restricted cash totaled $29.4 million at quarter-end.
- Operating cash flow was $9.4 million, driven by higher net income and working-capital movements, including a $20.1 million inventory reduction that partly offset a $21.3 million increase in accounts receivable.
- Total liabilities were $57.9 million and stockholders’ equity was $149.7 million. Inventory was $64.2 million, down from $84.1 million at year-end.
- No borrowings were outstanding on the $60 million revolving credit facility; vehicle-loan debt was less than $0.1 million. The facility matures May 12, 2026. The company reported compliance with its financial covenants.
Outlook, risks, and notable items
- Management said cash, expected operating cash flows, and available credit are expected to meet anticipated needs for at least 12 months from issuance of the financial statements. The filing provides no specific full-year 2023 revenue or earnings guidance.
- Transportation costs were more favorable than a year earlier, but inflation continues to pressure other product and operating costs. Currency volatility may affect reported international revenue and results; the company uses forward contracts to reduce, not eliminate, currency exposure.
- Two customers represented approximately 50% of Q1 sales and 43% of quarter-end receivables. Management reported no credit issues with them. The company also relies on international suppliers; two suppliers accounted for 32% of purchases in Q1.
- Adoption of the current expected credit-loss standard on January 1, 2023 reduced opening retained earnings by $1.07 million; management said adoption did not materially affect the income statement or cash flows.
- A $200 million shelf registration statement was filed May 2, 2023, allowing potential future securities offerings; it had not been declared effective as of the filing. Selling holders may also register up to 26.6 million shares. No shares may be sold under the registration statement before effectiveness.
- The company reported no material legal proceedings, no material changes to its previously disclosed risk factors, and effective disclosure controls at March 31, 2023.
Important facts for investors to verify
- Whether lower freight costs and improved gross margins persist as inflation, product mix, and transportation rates change.
- How concentrated sales and receivables with two customers, and purchases with key suppliers, affect operating resilience and credit risk.
- Working-capital and cash-flow trends, particularly the quarter’s substantial inventory decline and increase in accounts receivable.
- The earnings and cash-flow effects of foreign-exchange movements and derivative fair-value changes, which contributed materially to reported other income.
- Whether the shelf registration becomes effective and whether any securities are subsequently offered or sold.