Vita Coco Company, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Unless noted, dollar amounts below are in millions; the financial statements report amounts in thousands. Vita Coco develops, markets and distributes coconut water and other beverages, primarily through third-party manufacturing, distribution and retail partners.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $115.7 | $87.3 | $292.9 | $241.1 |
| Gross profit | $38.5 | $29.4 | $91.6 | $82.3 |
| Gross margin | 33.3% | 33.6% | 31.3% | 34.1% |
| Income from operations | $17.8 | $10.3 | $29.7 | $26.9 |
| Net income | $13.0 | $9.0 | $22.4 | $15.6 |
| Diluted EPS | $0.24 | $0.15 | $0.42 | $0.27 |
| Adjusted EBITDA (non-GAAP) | $20.6 | $11.3 | $36.3 | $29.8 |
Q3 sales grew 32.5%; nine-month sales grew 21.5%. Growth was primarily volume-led, with some benefit from reduced promotions and pricing actions. For nine months, branded Vita Coco coconut water revenue rose 33% to $202.7 million; private-label revenue rose 6% to $76.1 million. Americas sales increased 22.6%, while International sales increased 15.0%.
Cost of goods sold rose 33.2% in Q3 and 26.8% for nine months. Management attributed pressure to higher ocean freight, fulfillment and shipping costs; cost of goods per case equivalent increased 10% in Q3 and 8% for nine months. Gross margin fell 0.4 percentage points in Q3 and 2.9 points for nine months. SG&A increased 8.5% in Q3 and 11.6% for nine months, partly reflecting public-company readiness costs.
Cash flow, balance sheet and liquidity
- Cash and cash equivalents were $35.9 million at September 30, down from $72.2 million at December 31, 2020. Current assets were $178.1 million and current liabilities $72.8 million.
- Nine-month operating cash flow was negative $16.4 million, versus positive $31.6 million in 2020. The principal driver was working-capital use, including higher receivables, inventory and prepayments to suppliers. Inventory increased to $47.2 million from $32.0 million.
- Debt totaled $37.6 million at quarter-end: $30.0 million under the 2021 term loan, $7.5 million under the revolving credit facility and a small vehicle-loan balance. The company reported compliance with debt covenants. Revolver availability was $52.5 million.
- Financing cash outflow included $50.0 million to repurchase 5.2 million shares from a principal stockholder, partly offset by term-loan proceeds and repayment of a $17.7 million loan to a co-CEO.
- Management stated existing cash, expected operating cash flow and available credit were expected to cover anticipated needs for at least 12 months from issuance of the financial statements.
Material developments, outlook and risks
- IPO after quarter-end: On October 25, 2021, the company issued 2.5 million shares at $15 per share, receiving approximately $30 million net proceeds. Selling stockholders sold another 9.0 million shares. The company used IPO proceeds on October 27 to repay the $30 million term loan.
- Costs and outlook: Management expected ongoing supply-chain cost pressure, potentially sequentially worse than prior quarters, and said it would consider further pricing actions and cost reductions. The filing provides no specific revenue or earnings guidance.
- COVID-19 and supply chain: The company reported shipping constraints, higher freight and domestic transport costs, intermittent inventory and delivery issues, and temporary partner-facility shutdowns. The duration and financial impact remained uncertain.
- Customer and supplier concentration: Two customers represented 55% of nine-month sales; the two largest suppliers represented 33% of purchases. Management reported no credit issues with major customers.
- Contingencies and unusual items: The Runa acquisition earnout liability was zero at September 30, 2021, but potential payments of up to $51.5 million remain contingent on growth conditions and may be assessed through December 2022. The company reported no material pending legal proceedings and no recorded legal-settlement liabilities.
- Other post-quarter matters: The company became publicly traded in October, effected a 455-for-1 stock split, and adopted new equity plans. A significant customer-affiliated entity agreed to buy $20 million of shares from an existing stockholder; the company receives no proceeds from that transaction. The customer also received $3 million of restricted shares in connection with extending its distribution agreement.
Key facts investors should verify
- Whether pricing actions and cost controls can offset continued freight, logistics and other inflation without weakening volume or margins.
- Whether working-capital investment, especially receivables and inventory, converts into operating cash flow as sales grow.
- Exposure to the two largest customers and concentrated suppliers, and the resilience of third-party manufacturing and shipping capacity.
- The extent of dilution, post-IPO share sales and equity compensation, as well as the effect of the term-loan repayment on liquidity and borrowing needs.
- Whether Runa earnout conditions could be met and create a future cash obligation; the filing does not provide a clear expected payment value.