SEC Filing | The Vita Coco Company

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coco-20220930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

____________________

FORM 10-Q

____________________

(Mark One)


x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022


o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission File Number: 001-40950

____________________

The Vita Coco Company, Inc.

(Exact Name of Registrant as Specified in its Charter)

____________________


Delaware						11-3713156
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

250 Park Avenue South Seventh Floor New York, NY						10003
(Address of principal executive offices)						(Zip Code)

(212) 206-0763

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

____________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange

on which registered

Common Stock, Par Value $0.01 Per Share

COCO

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	x	Smaller reporting company	o
Emerging growth company	x

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of November 7, 2022, there were 55,924,292 shares of the registrant’s common stock, par value $0.01 per share, outstanding.

Table of Contents

TABLE OF CONTENTS


		Page

PART I - FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021	6
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021	7
	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2022 and 2021	8
	Condensed Consolidated Statements of Non-controlling Interest & Stockholders’ Equity for the nine months ended September 30, 2022 and 2021	9
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021	11
	Notes to Condensed Consolidated Financial Statements	12
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	39

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 3.	Defaults Upon Senior Securities	40
Item 4.	Mine Safety Disclosures	40
Item 5.	Other Information	40
Item 6.	Exhibits	41
Signatures		44

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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q may be forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “estimates,” “forecasts,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements regarding our future results of operations and financial position, industry and business trends, equity compensation, business strategy, plans, market growth and our objectives for future operations.

The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including, but not limited to: risks related to our supply chain and the impact of continued inflation; our dependence on third party manufacturing and co-packing partners, and any changes to their respective labor regulations and business practices; our dependence on existing suppliers for materials used to package our products; our dependence on distributor and retail customers for most of our sales; our cash flows and results of operations may be negatively affected if we are not successful in forecasting and managing our inventory at appropriate levels for our demand; our brands and reputation may be diminished due to quality or food safety issues with our products; competition in the food and beverage retail industry; a reduction in demand for and sales of our coconut water products or a decrease in consumer demand for coconut water generally; risks related to brand and company image, consumer awareness and brand loyalty; failure to introduce new products or successfully improve existing products; consumer preferences for our products are difficult to predict and may change; the impact of pandemics, epidemics or disease outbreaks, such as the COVID-19 pandemic, on our business; our ability to manage our future growth effectively; our reliance on independent certification for a number of our products; our ability to make acquisitions and successfully integrate newly acquired products or businesses; risks related to expanding our operations into countries in which we have no prior operating history; disruptions in the worldwide economy; risks related to climate change; our ability to retain our senior management and key personnel; risks related to sustainability and corporate social responsibility; food safety and food-borne illness incidents or other safety concerns, such as lawsuits, product recalls or regulatory enforcement actions; our products and operations are subject to government regulation and oversight both in the United States and abroad; risks related to the regulation of advertising and marketing and data privacy and data protection; our reliance on our information technology systems and those of our third-party vendors and business partners; our ability to protect our intellectual property; risks related to our Credit Agreement and any agreements governing any future indebtedness; and risks related to ownership of our common stock; as well as, the important factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021 and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2022 and June 30, 2022. The forward-looking statements in this Quarterly Report on Form 10-Q are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed as exhibits to this Quarterly Report on Form 10-Q with the understanding that our actual future results, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained in this Quarterly Report on Form 10-Q, whether as a result of any new information, future events or otherwise.

As used in this Quarterly Report on Form 10-Q, unless otherwise stated or the context requires otherwise, the terms “Vita Coco,” the “company,” “we,” “us,” and “our” refer to The Vita Coco Company, Inc. and its consolidated subsidiaries.

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

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THE VITA COCO COMPANY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Amounts in thousands, except share data)


	September 30, 2022		December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	21,211	$	28,690
Accounts receivable, net of allowance of $1,565 at September 30, 2022, and $1,301 at December 31, 2021	65,717		47,195
Inventory	74,459		75,360
Supplier advances, current	1,519		1,170
Derivative assets	5,080		126
Asset held for sale	503		—
Prepaid expenses and other current assets	22,368		20,718
Total current assets	190,857		173,259
Property and equipment, net	2,014		2,473
Goodwill	7,791		7,791
Intangible assets, net	7,019		7,934
Supplier advances	4,878		2,808
Deferred tax assets, net	1,091		1,265
Other assets	4,728		1,954
Total assets	$	218,378	$	197,484
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	17,353	$	28,338
Accrued expenses and other current liabilities	45,950		42,399
Notes payable, current	24		28
Derivative liabilities	1,735		3,197
Total current liabilities	65,062		73,962
Credit facility	9,500		—
Notes payable	30		48

Other long-term liabilities	2,173		301
Total liabilities	76,765		74,311
Commitments and contingencies (Note 7)
Stockholders’ equity:
Common stock, $0.01 par value; 500,000,000 shares authorized; 62,129,192 and 61,764,582 shares issued at September 30, 2022 and December 31, 2021, respectively; 55,922,992 and 55,558,382 shares outstanding at September 30, 2022 and December 31, 2021, respectively	621		618
Additional paid-in capital	143,095		134,730

Retained earnings	57,993		47,369
Accumulated other comprehensive loss	(1,168)		(616)
Treasury stock, 6,206,200 shares at cost as of September 30, 2022, and 6,206,200 shares at cost as of December 31, 2021	(58,928)		(58,928)
Total stockholders’ equity attributable to The Vita Coco Company, Inc.	141,613		123,173


Total liabilities and stockholders’ equity	$	218,378	$	197,484

See accompanying notes to the condensed consolidated financial statements.

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THE VITA COCO COMPANY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(Amounts in thousands, except for share and per share data)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net sales	$	124,043	$	115,669	$	335,796	$	292,929
Cost of goods sold	91,467		77,168		254,868		201,368
Gross profit	32,576		38,501		80,928		91,561
Operating expenses
Selling, general and administrative	23,960		20,675		73,018		61,897
Income (Loss) from operations	8,616		17,826		7,910		29,664
Other income (expense)
Unrealized gain/(loss) on derivative instruments	952		(1,964)		6,416		1,250
Foreign currency gain/(loss)	(364)		(483)		(508)		(2,013)
Interest income	20		31		30		104
Interest expense	(130)		(127)		(213)		(319)
Total other income (expense)	478		(2,543)		5,725		(978)
Income before income taxes	9,094		15,283		13,635		28,686
Income tax expense	(1,836)		(2,296)		(3,011)		(6,277)
Net income	7,258		12,987		10,624		22,409
Net loss attributable to noncontrolling interest	—		(3)		—		(23)
Net income attributable to The Vita Coco Company, Inc.	$	7,258	$	12,990	$	10,624	$	22,432
Net income attributable to The Vita Coco Company, Inc. per common share
Basic	$	0.13	$	0.25	$	0.19	$	0.42
Diluted	$	0.13	$	0.24	$	0.19	$	0.42
Weighted-average number of common shares outstanding
Basic	55,785,622		53,006,746		55,658,946		53,266,209
Diluted	56,579,912		53,780,060		56,029,069		53,742,048

See accompanying notes to the condensed consolidated financial statements.

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THE VITA COCO COMPANY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(Amounts in thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net income	$	7,258	$	12,987	$	10,624	$	22,409
Other comprehensive income (loss):
Foreign currency translation adjustment	(102)		(185)		(552)		131
Total comprehensive income including noncontrolling interest	7,156		12,802		10,072		22,540
Net loss attributable to noncontrolling interest	—		(3)		—		(23)
Foreign currency translation adjustment attributable to noncontrolling interest	—		—		—		4
Total comprehensive loss attributable to noncontrolling interest	—		(3)		—		(19)
Total comprehensive income attributable to The Vita Coco Company, Inc.	$	7,156	$	12,805	$	10,072	$	22,559

See accompanying notes to the condensed consolidated financial statements.

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THE VITA COCO COMPANY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF NON-CONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY

(UNAUDITED)

(Amounts in thousands, except for shares)


	Common Stock			Common Stock with Exit Warrants			Total Common Stock			Additional Paid-In		Loan to Shareholder		Retained Earnings		Accumulated Other Comprehensive Income / (Loss)		Treasury Stock			Total Shareholders’ Equity Attributable to The Vita Coco Company, Inc.		Non- controlling Interest in Subsidiary		Total Shareholders’ Equity
	Shares	$ Amount		Shares	$ Amount		Shares	$ Amount		Capital								Shares	Amount
Balance at December 31, 2020	51,086,945	$	511	8,113,105	$	81	59,200,050	$	592	$	100,849	$	(17,700)	$	28,354	$	(949)	1,014,195	$	(8,925)	$	102,221	$	78	$	102,299
Net income	—	—		—	—		—	—		—		—		1,645		—		—	—		1,645		(5)		1,640
Purchase of treasury stock	—	—		—	—		—	—		—		—		—		—		5,192,005	(50,003)		(50,003)		—		(50,003)
Loan to Shareholder	—	—		—	—		—	—		—		(26)		—		—		—	—		(26)		—		(26)
Stock-based compensation	—	—		—	—		—	—		487		—		—		—		—	—		487		—		487
Exercise of stock options	1,365	—		—	—		1,365	—		9		—		—		—		—	—		9		—		9
Foreign currency translation adjustment	—	—		—	—		—	—		—		—		—		17		—	—		17		—		17
Balance at March 31, 2021	51,088,310	$	511	8,113,105	$	81	59,201,415	$	592	$	101,345	$	(17,726)	$	29,999	$	(932)	6,206,200	$	(58,928)	$	54,350	$	73	$	54,423
Net income	—	—		—	—		—	—		—		—		7,797		—		—	—		7,797		(15)		7,782
Loan to Shareholder	—	—		—	—		—	—		—		(25)		—		—		—	—		(25)		—		(25)
Stock-based compensation expense	—	—		—	—		—	—		525		—		—		—		—	—		525		—		525
Exercise of stock options	910	—		—	—		910	—		10		—		—		—		—	—		10		—		10
Foreign currency translation adjustment	—	—		—	—		—	—		—		—		—		295		—	—		295		4		299
Balance at June 30, 2021	51,089,220	$	511	8,113,105	$	81	59,202,325	$	592	$	101,880	$	(17,751)	$	37,796	$	(637)	6,206,200	$	(58,928)	$	62,952	$	62	$	63,014
Net income	—	—		—	—		—	—		—		—		12,990		—		—	—		12,990		(3)		12,987
Purchase of treasury stock	—	—		—	—		—	—		—		—		—		—		—	—		—		—		—
Loan to Shareholder	—	—		—	—		—	—		—		17,751		—		—		—	—		17,751		—		17,751
Stock-based compensation expense	—	—		—	—		—	—		629		—		—		—		—	—		629		—		629
Exercise of stock options	13,195	—		—	—		13,195	—		135		—		—		—		—	—		135		—		135
Acquisition of portion of non-controlling interest	—	—		—	—		—	—		(18)		—		—		—		—	—		(18)		(36)		(54)

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THE VITA COCO COMPANY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF NON-CONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY

(UNAUDITED)

(Amounts in thousands, except for shares)


	Common Stock			Common Stock with Exit Warrants			Total Common Stock			Additional Paid-In		Loan to Shareholder		Retained Earnings		Accumulated Other Comprehensive Income / (Loss)		Treasury Stock			Total Shareholders’ Equity Attributable to The Vita Coco Company, Inc.		Non- controlling Interest in Subsidiary		Total Shareholders’ Equity
	Shares	$ Amount		Shares	$ Amount		Shares	$ Amount		Capital								Shares	Amount
Foreign currency translation adjustment	—	—		—	—		—	—		—		—		—		(185)		—	—		(185)		—		(185)
Balance at September 30, 2021	51,102,415	$	511	8,113,105	$	81	59,215,520	$	592	$	102,626	$	—	$	50,786	$	(822)	6,206,200	$	(58,928)	$	94,254	$	23	$	94,277

Balance at December 31, 2021	53,651,477	$	537	8,113,105	$	81	61,764,582	$	618	$	134,730	—		$	47,369	$	(616)	6,206,200	$	(58,928)	$	123,173	$	—	$	123,173
Net income	—	—		—	—		—	—		—		—		2,227		—		—	—		2,227		—		2,227


Stock-based compensation	—	—		—	—		—	—		2,386		—		—		—		—	—		2,386		—		2,386
Exercise of stock options	26,845	—		—	—		26,845	—		151		—		—		—		—	—		151		—		151
Foreign currency translation adjustment	—	—		—	—		—	—		—		—		—		(254)		—	—		(254)		—		(254)
Balance at March 31, 2022	53,678,322	$	537	8,113,105	$	81	61,791,427	$	618	$	137,267	$	—	$	49,596	$	(870)	6,206,200	$	(58,928)	$	127,683	$	—	$	127,683
Net income	—	—		—	—		—	—		—		—		1,139		—		—	—		1,139		—		1,139


Stock-based compensation	—	—		—	—		—	—		1,814		—		—		—		—	—		1,814		—		1,814
Exercise of stock options	66,272	1		—	—		66,272	1		89		—		—		—		—	—		90		—		90
Foreign currency translation adjustment	—	—		—	—		—	—		—		—		—		(196)		—	—		(196)		—		(196)
Balance at June 30, 2022	53,744,594	$	538	8,113,105	$	81	61,857,699	$	619	$	139,170	$	—	$	50,735	$	(1,066)	6,206,200	$	(58,928)	$	130,530	$	—	$	130,530
Net income	—	—		—	—		—	—		—		—		7,258		—		—	—		7,258		—		7,258

Stock-based compensation expense	—	—		—	—		—	—		1,457		—		—		—		—	—		1,457		—		1,457
Exercise of stock options	271,493	2		—	—		271,493	2		2,468		—		—		—		—	—		2,470		—		2,470

Foreign currency translation adjustment	—	—		—	—		—	—		—		—		—		(102)		—	—		(102)		—		(102)
Balance at September 30, 2022	54,016,087	$	540	8,113,105	$	81	62,129,192	$	621	$	143,095	$	—	$	57,993	$	(1,168)	6,206,200	$	(58,928)	$	141,613	$	—	$	141,613

See accompanying notes to the condensed consolidated financial statements.

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THE VITA COCO COMPANY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Amounts in thousands)


	Nine Months Ended September 30,
	2022		2021
Cash flows from operating activities:
Net income	$	10,624	$	22,409
Adjustments required to reconcile net income to cash flows from operating activities:
Depreciation and amortization	1,442		1,557
(Gain)/loss on disposal of equipment	—		89
Bad debt expense	348		20
Unrealized (gain)/loss on derivative instruments	(6,416)		(1,250)
Stock-based compensation	5,657		1,641
Impairment loss on assets held for sale	619		—
Noncash lease expense	963		—

Changes in operating assets and liabilities:
Accounts receivable	(20,696)		(26,940)
Inventory	(255)		(15,362)
Prepaid expenses, net supplier advances, and other assets	(4,433)		(12,766)
Accounts payable, accrued expenses, and other liabilities	(6,034)		14,251

Net cash provided by (used in) operating activities	(18,181)		(16,351)
Cash flows from investing activities:
Cash paid for property and equipment	(907)		(127)

Net cash used in investing activities	(907)		(127)
Cash flows from financing activities:
Proceeds from exercise of stock options/warrants	2,675		153
Borrowings on credit facility	22,000		16,500
Repayments of borrowings on credit facility	(12,500)		(34,000)
Proceeds from settlement of loan to stockholder	—		17,700
Cash received (paid) on notes payable	(22)		30,028
Cash paid to acquire treasury stock	—		(50,003)
Cash paid to acquire portion of non-controlling interest	—		(54)
Net cash provided by (used in) financing activities	12,153		(19,676)
Effects of exchange rate changes on cash and cash equivalents	(544)		(117)
Net decrease in cash and cash equivalents	(7,479)		(36,271)
Cash and cash equivalents at beginning of the period	28,690		72,181
Cash and cash equivalents at end of the period	$	21,211	$	35,910

See accompanying notes to the condensed consolidated financial statements.

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THE VITA COCO COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Amounts in thousands, except share and per share amounts)

1. NATURE OF BUSINESS AND BASIS OF PRESENTATION

The Vita Coco Company, Inc. and subsidiaries (formerly known as All Market Inc.) (the “Company”) develop, market, and distribute various coconut water products under the brand name Vita Coco and for retailers' own brands, predominantly in the United States. Other products include coconut milk, natural energy drinks (under the brand name Runa), coconut oil, water (under the brand name Ever & Ever), protein infused fitness drinks (under the brand name PWR LIFT) and coconut as a commodity.

The Company was incorporated in Delaware on January 17, 2007. In 2018, the Company purchased certain assets and liabilities of Runa, which is marketed and distributed primarily in the United States. Effective as of September 9, 2021, the name of the Company was changed from All Market Inc. to The Vita Coco Company, Inc.

We are a public benefit corporation under Section 362 of the Delaware General Corporation Law. As a public benefit corporation, our Board of Directors is required by the Delaware General Corporation Law to manage or direct our business and affairs in a manner that balances the pecuniary interests of our stockholders, the best interests of those materially affected by our conduct and the specific public benefits identified in our certificate of incorporation.

The Company has nine wholly-owned subsidiaries including four wholly-owned Asian subsidiaries established between fiscal year 2012 and 2015, one North American subsidiary established in 2015, as well as All Market Europe, Ltd. ("AME") in the United Kingdom. AME was established in fiscal year 2009 and has 100% ownership in two European subsidiaries established in 2015. The non-controlling interest in AME represented minority stockholders’ proportionate share of the equity in AME during fiscal year 2021, which was fully acquired by the Company as of December 31, 2021. One of the wholly-owned Asian subsidiaries, All Market Singapore Pte Ltd ("AMS"), has 100% ownership in one subsidiary established in fiscal year 2018 in Ecuador.

Initial Public Offering

The Company’s registration statement on Form S-1, as amended, was declared effective by the Securities and Exchange Commission ("SEC") on October 20, 2021 and related to the initial public offering ("IPO") of its common stock in the prospectus dated October 20, 2021, filed with the SEC in accordance with Rule 424(b)(4) of the Securities Act on October 22, 2021 (the “Prospectus”). On October 21, 2021, the Company’s shares began trading on the NASDAQ under the ticker symbol “COCO”. On October 25, 2021, we completed our IPO by issuing 2,500,000 shares of our common stock, $0.01 par value per share, at a price to the public of $15 per share, resulting in net proceeds to us of approximately $30,000, after deducting the underwriting discount and commissions of approximately $2,000 and offering expenses of approximately $5,000. Additionally, certain selling stockholders sold an aggregate of 9,000,000 shares. On October, 27, 2021, the Company used the net proceeds from the IPO to repay the outstanding balance on the 2021 Term Loan.

Concurrent with the IPO, various agreements were amended or newly effective, which are further described in our Prospectus, which include:

•The Registration Rights agreement;

•The Investor Rights agreement;

•Amendments to the employment agreements for the then co-CEOs, Mike Kirban and Martin Roper;

•Adoption of the 2021 Stock Incentive Award Plan and grants of awards to employees and directors, and

•Adoption of the 2021 Employee Stock Purchase Plan.

Impact of the COVID-19 Pandemic and Current Geopolitical Instability

Disruptions in the worldwide economy may affect our business, and the macroeconomic environment continues to be affected by the COVID-19 pandemic and the current geopolitical instability (including the effects of the conflict between Ukraine and Russia). As a result, the Company has seen significant cost inflation to domestic and international shipping costs and some inflationary pressures on other cost elements; only some of which have been covered by pricing actions to date. The Company is continuing to monitor the situation carefully to understand any future potential impact on

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its people and business. As a result, it is not currently possible to ascertain the overall impact of COVID-19 or the ongoing geopolitical instability on the Company’s business, results of operations, financial condition or liquidity. Future events and effects related to COVID-19 or the ongoing geopolitical instability cannot be determined with precision and actual results could significantly differ from estimates or forecasts. The Company has also seen greater volatility on foreign exchange rates. A strong dollar generally benefits the Company's supply chain activities while negatively impacting our reported international revenues.

Unaudited interim financial information

The Company’s condensed consolidated interim financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and Article 10 of Regulation S-X. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the Company’s financial information for the interim period presented. These interim results are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any other interim period or for any other future year. The condensed consolidated balance sheet as of September 30, 2022 is unaudited and should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the fiscal year ended December 31, 2021.

During the nine months ended September 30, 2022, there were no significant changes to the Company’s significant accounting policies as described in the Company’s audited consolidated financial statement as of and for the year ended December 31, 2021, except for the adoption of the new lease standard described in "Recently Adopted Accounting Pronouncements" in the Summary of Significant Accounting Policies (Note 2).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying condensed consolidated financial statements are presented in accordance with U.S. GAAP.

Principles of Consolidation

The condensed consolidated financial statements include all the accounts of the wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The non-controlling interest in consolidated subsidiaries presented in the accompanying condensed consolidated financial statements for periods prior to December 31, 2021 represents the portion of AME stockholders’ equity, which was not directly owned by the Company.

Use of Estimates

Preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Management considers many factors in selecting appropriate financial accounting policies and controls in developing the estimates and assumptions that are used in the preparation of these condensed consolidated financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates, including expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of reasonable estimates of the ultimate future outcomes, and management must select an amount that falls within that range of reasonable estimates. The most significant estimates in the condensed consolidated financial statements relate to share-based compensation, assessing long-lived assets for impairment, estimating the net realizable value of inventories, the determination of allowance for uncollectible accounts, assessing goodwill for impairment, the determination of the value of trade promotions, and assessing the realizability of deferred income taxes. Actual results could differ from those estimates.

Concentration of Credit Risk

The Company’s cash and accounts receivable are subject to concentrations of credit risk. The Company’s cash balances are primarily on deposit with banks in the U.S. which are guaranteed by the Federal Deposit Insurance

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Corporation ("FDIC") up to $250. At times, such cash may be in excess of the FDIC insurance limit. To minimize the risk, the Company’s policy is to maintain cash balances with high quality financial institutions and any excess cash above a certain minimum balance may be invested in overnight money market treasury deposits in widely diversified accounts. Substantially all of the Company’s customers are either wholesalers or retailers of beverages. A material default in payment, a material reduction in purchases from these or any large customers, or the loss of a large customer or customer groups could have a material adverse impact on the Company’s financial condition, results of operations and liquidity. The Company is exposed to concentration of credit risk from its major customers for which two customers in aggregate represented