Vita Coco Company, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Unless otherwise noted, amounts are in U.S. dollars; financial statement amounts below are in millions. Vita Coco sells branded coconut water and other beverages, private-label products, and related products across Americas and International segments.
Key financial results
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net sales | $115.3 | $101.8 | $211.8 | $177.3 |
| Gross profit | $29.3 | $29.0 | $48.4 | $53.1 |
| Gross margin | 25.4% | 28.5% | 22.8% | 29.9% |
| Operating income (loss) | $5.0 | $7.5 | ($0.7) | $11.8 |
| Net income | $1.1 | $7.8 | $3.4 | $9.4 |
| Diluted EPS | $0.02 | $0.15 | $0.06 | $0.18 |
| Adjusted EBITDA | $7.3 | $9.8 | $4.4 | $15.6 |
- Sales: Q2 sales rose 13.3%; first-half sales rose 19.5%. Growth was led by Vita Coco coconut water, with higher case-equivalent volumes and some benefit from pricing. Americas sales increased 16.7% in Q2; International sales declined 5.4%, mainly due to lower bulk product sales in Asia Pacific.
- Costs and margins: Q2 gross profit was nearly flat despite sales growth, while first-half gross profit fell 8.9%. Management attributed pressure primarily to higher ocean freight and domestic transportation costs. The company estimated incremental cost-of-goods pressure of about $6 million in Q2 and $18 million in the first half versus the respective prior-year periods.
- Operating expenses and earnings: SG&A rose 13.1% in Q2 and 19.0% in the first half, partly reflecting public-company costs, personnel, insurance, and professional fees. Q2 earnings also reflected a $3.2 million unrealized derivative loss, versus a $4.6 million gain a year earlier. First-half derivative gains were $5.5 million versus $3.2 million.
- Cash flow: First-half operating cash flow was negative $33.4 million, compared with negative $15.8 million in 2021. The filing cites working-capital timing and lower earnings; accounts receivable increased $27.2 million in cash-flow terms. Capital expenditures were $0.9 million. Cash declined $12.3 million to $16.4 million.
- Liquidity and debt: At June 30, cash was $16.4 million and total debt was approximately $22.1 million, including $22.0 million drawn on the revolving credit facility. The facility had $38.0 million undrawn, matures May 2026, and is secured by substantially all company assets. The company reported compliance with its financial covenants and believes cash, future operating cash flow, and available facility capacity will meet anticipated needs for at least 12 months.
Material changes and notable items
- Sales growth was outweighed by inflationary freight and logistics costs in margins, particularly in the first half. Management said current elevated costs may not represent costs in a normal supply-chain environment, but the timing and extent of normalization are uncertain.
- The company began applying the new lease accounting standard on January 1, 2022, recognizing $1.9 million of right-of-use assets and $2.1 million of lease liabilities at adoption. It extended its New York office lease through April 2025.
- The company expects no payment under the Runa acquisition earn-out based on current revenue expectations; the contingent consideration will continue to be remeasured through December 2022.
- The CFO announced his resignation effective August 31, 2022. The board appointed the company’s Vice President of Global Accounting & Control as interim CFO effective September 1.
Outlook, risks, and contingencies
The filing provides no specific revenue, earnings, or margin guidance. Management identified ongoing risks from inflation, shipping and supply-chain disruption, COVID-19 and geopolitical instability, foreign-exchange movements, and dependence on third-party manufacturers, suppliers, distributors, and retail customers. Two customers together represented 54% of first-half sales and 42% of receivables at June 30. The company also noted concentration among suppliers and exposure to variable-rate borrowing; a 100-basis-point rate change would affect annual interest expense by approximately $0.1 million at period-end borrowings. Management reported no material legal proceedings and no recorded legal-settlement liabilities.
Investor facts to verify
- Whether sales growth and pricing can offset freight, logistics, and other input-cost inflation, and whether gross margins recover.
- Whether operating cash flow improves as receivables and other working-capital needs evolve.
- Customer and supplier concentration, including the ability to maintain sales and collections from the two largest customers.
- Derivative-driven earnings volatility, foreign-currency exposures, and the cost and availability of credit-facility borrowings.
- The CFO transition and the status of the Runa earn-out as its measurement period concludes in December 2022.