Vita Coco Company, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited consolidated results. Amounts below are in U.S. dollars. The company develops, markets and distributes coconut water and other beverage products, including private-label products.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net sales | $96.4 million | $75.5 million | +27.8% |
| Gross profit / margin | $19.1 million / 19.8% | $24.1 million / 31.9% | Profit down 20.8%; margin down 12.2 percentage points |
| Operating income (loss) | $(5.7) million | $4.3 million | Turned to operating loss |
| Net income | $2.2 million | $1.6 million | Up from prior-year period |
| Diluted EPS | $0.04 | $0.03 | |
| Operating cash flow | $(22.5) million | $(15.8) million | Cash use increased |
| Cash and equivalents | $18.0 million at March 31 | $28.7 million at December 31, 2021 | Down $10.7 million |
| Debt | $12.1 million | $0.1 million at December 31, 2021 | Primarily new credit-facility borrowing |
Revenue growth reflected 27.1% higher case-equivalent volume and some benefit from pricing actions. Americas sales rose 32.5% to $84.6 million; International sales increased 2.1% to $11.8 million. Two customers represented 56% of net sales in both periods.
Cost of goods sold rose 50.7%, faster than sales. Management attributed margin pressure to elevated ocean freight, domestic logistics, port constraints, detention and demurrage, and other inflationary costs. SG&A increased 25.4% to $24.8 million, partly due to public-company costs and personnel expenses.
Net income included an $8.7 million unrealized derivative gain, compared with a $1.4 million loss in Q1 2021. Adjusted EBITDA, a non-GAAP measure, was $(2.9) million versus $5.8 million; the company excludes derivative and foreign-currency movements and other specified items in this measure.
At March 31, current assets were $170.2 million and current liabilities were $57.8 million. The company had $12.0 million outstanding and $48.0 million undrawn under its $60 million revolving credit facility, maturing May 12, 2026. It reported compliance with its financial covenants. Management said cash, expected operating cash flows and available facility capacity should cover anticipated needs for at least 12 months from issuance of the statements.
Material changes and notable items
- Compared with Q1 2021, higher volume and sales did not prevent a substantial gross-margin decline and an operating loss.
- Operating cash use increased to $22.5 million, principally reflecting working-capital movements and operating costs; the company drew $12.0 million on its credit facility.
- The company adopted lease accounting standard ASC 842 on January 1, 2022, recording lease right-of-use assets and liabilities; adoption had no material impact on earnings or cash flows.
- Stock-based compensation expense increased to $2.4 million from $0.5 million.
- After quarter-end, Michael Kirban resigned as co-CEO effective May 2, 2022 and became Executive Chairman; Martin Roper became sole CEO. A director also notified the company of plans to leave the board after the June 2022 annual meeting.
Outlook, risks and contingencies
The filing provides no specific revenue, earnings or margin guidance. Management said Q1 gross profit absorbed an estimated $12 million of incremental cost-of-goods pressure on a rate/mix basis versus the prior-year quarter, primarily from transportation. Pricing actions had only partially offset these costs. Management cautioned that current cost conditions may not represent costs in a normal supply-chain environment, while noting the duration and overall effects of COVID-19-related disruption and the Russia-Ukraine war could not be determined.
- Foreign-exchange contracts are not designated as accounting hedges. The $8.7 million unrealized gain affected reported earnings; the filing estimates a 10% strengthening or weakening of the U.S. dollar could produce approximately a $6.7 million gain or loss on forward contracts.
- Two customers accounted for 56% of sales, and together represented 40% of receivables at March 31, 2022. The company reported no credit issues with them.
- The company imports finished goods mainly from South America and Southeast Asia and identified regional instability, shipping disruption, freight inflation and foreign-exchange movements as business risks.
- Management expected no payment under the Runa acquisition earn-out, but said the estimate would be remeasured through December 2022. The potential contractual cap is $51.5 million if specified growth targets are met.
- The company reported no material pending legal proceedings and no recorded legal-settlement liabilities. It stated there were no material changes to the risk factors in its 2021 Form 10-K.
Important facts for investors to verify
- Whether pricing, easing freight and logistics costs, or other measures can restore gross margin after the 12.2-point year-over-year decline.
- How operating cash flow and inventory or receivables requirements affect cash balances and use of the revolving facility.
- The extent to which reported earnings depend on volatile, unrealized derivative gains and the company’s foreign-exchange exposures.
- Sales and receivables concentration in the two largest customers, as well as the company’s reliance on external suppliers and international transport.
- Whether Runa’s earn-out remains zero through its December 2022 measurement period, and how the post-quarter CEO transition affects execution and oversight.