Vita Coco Company, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; compared with the three months ended March 31, 2023 unless otherwise noted. Unaudited results. Amounts below are in U.S. dollars; financial statement figures are rounded to millions.
Business context
Vita Coco develops, markets, and distributes branded coconut water and other beverages, as well as private-label products. It reports two segments: Americas and International. The company ceased selling its Runa energy drink in December 2023. Its asset-light supply chain relies on third-party manufacturers and co-packers.
Key financial results
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Net sales | $111.7 million | $109.8 million | Up 1.8% |
| Gross profit | $47.2 million | $33.7 million | Up 40.2% |
| Gross margin | 42.2% | 30.7% | Up 11.5 percentage points |
| Operating income | $19.0 million | $6.7 million | Up $12.3 million |
| Net income | $14.2 million | $6.7 million | Up $7.5 million |
| Diluted EPS | $0.24 | $0.12 | Up $0.12 |
| Operating cash flow | $(0.3) million | $9.4 million | Down $9.7 million |
| Adjusted EBITDA (non-GAAP) | $21.2 million | $9.0 million | Up $12.2 million |
Management attributed the gross-margin improvement mainly to lower ocean freight and domestic logistics costs and stronger Vita Coco Coconut Water net pricing, partly offset by product mix. Cost of goods sold fell 15.2% despite sales growth. SG&A rose 4.7% to $28.2 million, principally due to higher personnel costs.
Sales and operating trends
- Americas sales declined 0.7% to $96.1 million; International sales rose 20.2% to $15.6 million.
- Private-label sales increased 6.2% overall, with 12.2% case-equivalent volume growth. International private-label sales rose 93.3%, supported by European distribution and Asia Pacific growth.
- Vita Coco Coconut Water sales increased 0.6%, but case-equivalent volume declined 4.3% overall. Total case-equivalent volume declined 0.5%; management cited pricing and promotion timing as contributors to sales growth.
- Other-product sales declined 7.8% to $3.1 million; volume declined 25.2%.
Cash, debt, and liquidity
- Cash and cash equivalents were $123.0 million at March 31, 2024, versus $132.5 million at December 31, 2023. The cash flow statement reports ending cash, cash equivalents, and restricted cash of $123.3 million, including $0.3 million of restricted cash.
- Operating cash flow was a $0.3 million use of cash. Management attributed the year-over-year decline in cash generation primarily to working-capital increases, including receivables and inventory.
- Capital expenditures were $0.1 million. Financing cash use was $9.1 million, largely reflecting $9.2 million spent on share repurchases. Cash declined $9.6 million during the quarter.
- Debt was immaterial, consisting of less than $0.1 million of vehicle loans. The $60 million revolving facility was undrawn, with no revolver borrowings; the company reported compliance with its financial covenants. The facility matures May 12, 2026.
- Management believes cash, expected operating cash flows, and available credit will meet anticipated needs for at least 12 months from issuance of the financial statements.
Outlook, risks, and notable items
- The filing provides no specific numerical full-year 2024 guidance. Management says results may be affected by macroeconomic and geopolitical uncertainty, inflation, interest rates, and supply-chain conditions; the overall impact is not yet ascertainable.
- Two customers represented 47% of Q1 net sales and 39% of receivables at March 31. Two suppliers represented 38% of Q1 purchases. Management reported no credit issues with the major customers.
- Foreign-currency derivatives generated a $2.5 million unrealized loss, versus a $1.2 million gain a year earlier, weighing on other income. The company reported $105.0 million of forward-contract notional exposure and estimated that a 10% U.S. dollar movement would produce approximately $4.1 million of gain or loss.
- The company repurchased 391,544 shares for $9.2 million in Q1 under a $40 million authorization; $30.0 million remained available at March 31.
- In 2023, the company agreed to discontinue a private-label supply relationship with a significant customer on terms that did not meet long-term margin targets, but expects to continue supplying a significant portion of that customer’s private-label coconut water needs at the customer’s request.
- After quarter-end, the company announced an expanded manufacturing and purchasing agreement with Axelum Resources Corp. The filing reports no material legal proceedings, no material changes to the risk factors in its 2023 Form 10-K, and effective disclosure controls as of March 31, 2024.
Important facts for investors to verify
- Whether the sharp gross-margin recovery from lower freight and logistics costs is sustainable, and how pricing, promotions, and product mix affect future margins.
- Whether branded coconut-water volume trends improve, particularly the 4.3% overall decline, and whether International and private-label growth continues.
- How working-capital needs, especially receivables and inventory, affect cash conversion as the business grows.
- Customer and supplier concentration, the expected continuation of the significant customer relationship, and related credit or supply risks.
- Derivative exposure and the effect of currency movements on reported earnings and cash flows.
- Progress and spending under the share-repurchase authorization, while assessing liquidity and investment needs.