National Beverage (FIZZ) - 2023 Q2 - Quarterly Report

FORM 10-Q General Information This section provides general information about National Beverage Corp., including its incorporation, stock trading symbol, and filing status - Registrant: NATIONAL BEVERAGE CORP., incorporated in Delaware[2] - Common Stock trades on The NASDAQ Global Select Market under symbol FIZZ[3] - The company is a Large Accelerated Filer and has filed all required reports and interactive data files during the preceding 12 months[3] - Number of common stock shares outstanding as of December 5, 2022, was 93,352,946[3] PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements of National Beverage Corp., including the balance sheets, income statements, comprehensive income statements, shareholders' equity statements, and cash flow statements, along with their accompanying notes, for the periods ended October 29, 2022, and comparative periods Condensed Consolidated Balance Sheets Presents the company's financial position, including assets, liabilities, and equity, at specific reporting dates Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | Oct 29, 2022 | Apr 30, 2022 | | :-------------------------------- | :----------- | :----------- | | Cash and equivalents | $92,626 | $48,050 | | Total current assets | $298,675 | $274,520 | | Total assets | $500,122 | $467,804 | | Total current liabilities | $147,702 | $145,319 | | Long-term debt | $- | $30,000 | | Total liabilities | $205,007 | $228,366 | | Total shareholders' equity | $295,115 | $239,438 | Condensed Consolidated Statements of Income (Unaudited) Details the company's revenues, costs, and net income for the three and six-month periods Condensed Consolidated Statements of Income Highlights (in thousands, except per share amounts) | Metric | 3 Months Ended Oct 29, 2022 | 3 Months Ended Oct 30, 2021 | 6 Months Ended Oct 29, 2022 | 6 Months Ended Oct 30, 2021 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net sales | $299,633 | $283,158 | $617,750 | $594,870 | | Cost of sales | $199,637 | $181,673 | $418,353 | $368,614 | | Gross profit | $99,996 | $101,485 | $199,397 | $226,256 | | Operating income | $46,923 | $51,561 | $93,401 | $121,889 | | Net income | $36,046 | $39,284 | $71,500 | $93,100 | | Basic EPS | $0.39 | $0.42 | $0.77 | $1.00 | | Diluted EPS | $0.39 | $0.42 | $0.76 | $0.99 | Condensed Consolidated Statements of Comprehensive Income (Unaudited) Reports net income and other comprehensive income/loss components, such as cash flow hedges, for the specified periods Condensed Consolidated Statements of Comprehensive Income Highlights (in thousands) | Metric | 3 Months Ended Oct 29, 2022 | 3 Months Ended Oct 30, 2021 | 6 Months Ended Oct 29, 2022 | 6 Months Ended Oct 30, 2021 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income | $36,046 | $39,284 | $71,500 | $93,100 | | Other comprehensive loss, net of tax (Cash flow hedges) | $(5,494) | $(960) | $(16,450) | $(2,713) | | Comprehensive income | $30,552 | $38,324 | $55,050 | $90,387 | Condensed Consolidated Statements of Shareholders' Equity (Unaudited) Outlines changes in shareholders' equity, including retained earnings and accumulated other comprehensive income, over the six-month periods Condensed Consolidated Statements of Shareholders' Equity Highlights (in thousands) | Metric | Oct 29, 2022 (6 Months) | Oct 30, 2021 (6 Months) | | :-------------------------------- | :---------------------- | :---------------------- | | Beginning Retained Earnings | $216,181 | $337,672 | | Net income | $71,500 | $93,100 | | End Retained Earnings | $287,681 | $430,772 | | Accumulated Other Comprehensive (Loss) Income (End of period) | $(9,532) | $304 | | Total Shareholders' Equity (End of period) | $295,115 | $446,846 | Condensed Consolidated Statements of Cash Flows (Unaudited) Summarizes cash inflows and outflows from operating, investing, and financing activities for the six-month periods Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | 6 Months Ended Oct 29, 2022 | 6 Months Ended Oct 30, 2021 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $82,238 | $85,964 | | Net cash used in investing activities | $(7,947) | $(6,627) | | Net cash provided by (used in) financing activities | $(29,715) | $111 | | Net Increase in Cash and Equivalents | $44,576 | $79,448 | | Cash and Equivalents - End of Period | $92,626 | $273,037 | Notes to Condensed Consolidated Financial Statements (Unaudited) Provides additional information and disclosures essential for understanding the condensed consolidated financial statements 1. Significant Accounting Policies Describes the key accounting principles and methods used in preparing the financial statements, including revenue recognition and inventory valuation - National Beverage Corp. develops, produces, markets, and sells sparkling waters, juices, energy drinks, and carbonated soft drinks primarily in the United States and Canada[19] - Interim unaudited condensed consolidated financial statements are prepared in accordance with GAAP and SEC rules, consistent with annual statements[21] Inventory Composition (in millions) | Category | Oct 29, 2022 | Apr 30, 2022 | | :---------------- | :----------- | :----------- | | Finished goods | $46.4 | $58.6 | | Raw materials | $42.0 | $44.7 | | Total Inventories | $88.4 | $103.3 | Marketing Costs (in millions) | Period | Oct 29, 2022 | Oct 30, 2021 | | :---------------- | :----------- | :----------- | | Three Months Ended | $10.3 | $10.8 | | Six Months Ended | $20.6 | $23.2 | Shipping and Handling Costs (in millions) | Period | Oct 29, 2022 | Oct 30, 2021 | | :---------------- | :----------- | :----------- | | Three Months Ended | $22.0 | $21.7 | | Six Months Ended | $45.6 | $44.4 | 2. Property, Plant and Equipment Details the composition and net book value of the company's property, plant, and equipment, along with depreciation expenses Property, Plant and Equipment - Net (in thousands) | Category | Oct 29, 2022 | Apr 30, 2022 | | :-------------------------------- | :----------- | :----------- | | Total (Gross) | $359,313 | $352,695 | | Less accumulated depreciation | $(216,151) | $(208,437) | | Property, plant and equipment – net | $143,162 | $144,258 | Depreciation Expense (in millions) | Period | Oct 29, 2022 | Oct 30, 2021 | | :---------------- | :----------- | :----------- | | Three Months Ended | $4.5 | $3.9 | | Six Months Ended | $9.0 | $7.8 | 3. Debt Outlines the company's debt arrangements, including revolving credit facilities and term loans, and compliance with covenants - Unsecured revolving credit facilities of $100 million, with $97.5 million available for borrowings at October 29, 2022, and no borrowings outstanding[28] - Repaid $30 million outstanding balance on a $50 million unsecured revolving term loan facility, with no borrowings outstanding at October 29, 2022[29] - The subsidiary was in compliance with all loan covenants at October 29, 2022[30] 4. Stock-Based Compensation Provides information on stock options, shares available for grant, and related compensation activities - 13,900 stock options exercised at a weighted average exercise price of $20.46 during the six months ended October 29, 2022[32] - 522,700 options outstanding at a weighted average exercise price of $18.93 per share as of October 29, 2022[32] - 5,387,005 shares of common stock available for grant under stock-based awards[32] 5. Derivative Financial Instruments Explains the company's use of derivative instruments, specifically aluminum swap contracts, for hedging purposes and their financial impact - Company uses aluminum swap contracts as cash flow hedges to mitigate exposure to changes in aluminum costs[33] Impact of Derivative Financial Instruments (in thousands) | Metric | 3 Months Ended Oct 29, 2022 | 3 Months Ended Oct 30, 2021 | 6 Months Ended Oct 29, 2022 | 6 Months Ended Oct 30, 2021 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net change to AOCI | $(5,494) | $(960) | $(16,450) | $(2,713) | | (Loss) gain reclassified from AOCI to cost of sales (before tax) | $(3,106) | $1,483 | $(3,714) | $4,540 | - As of October 29, 2022, the fair value of the derivative liability was $13.0 million, included in accrued liabilities, compared to a derivative asset of $8.8 million at April 30, 2022[34] - Unrealized loss of $12.1 million before tax from outstanding aluminum swap contracts expected to be reclassified to earnings over the next 12 months[33] 6. Leases Details the company's operating lease arrangements, including costs, remaining lease terms, and future payment obligations Operating Lease Costs (in millions) | Period | Oct 29, 2022 | Oct 30, 2021 | | :---------------- | :----------- | :----------- | | Three Months Ended | $3.7 | $3.6 | | Six Months Ended | $7.1 | $7.3 | - Weighted-average remaining lease term: 4.29 years (Oct 29, 2022) vs. 4.0 years (Apr 30, 2022)[36] - Weighted average discount rate: 2.90% (Oct 29, 2022) vs. 3.08% (Apr 30, 2022)[36] Future Minimum Lease Payments (in thousands) as of Oct 29, 2022 | Fiscal Year | Amount | | :-------------------------------- | :------- | | 2023 – Remaining two quarters | $6,632 | | 2024 | $11,435 | | 2025 | $8,611 | | 2026 | $6,783 | | 2027 | $5,841 | | Thereafter | $4,125 | | Total minimum lease payments | $43,427 | | Present value of minimum lease payments | $40,843 | | Non-current portion of lease obligations | $28,801 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on National Beverage Corp.'s financial performance and condition, highlighting strategic initiatives, operational results for the quarter and six-month periods, and an analysis of liquidity and capital resources. The company focuses on healthier beverage options and innovative marketing to drive profitable growth Overview Introduces National Beverage Corp.'s business model, product portfolio, and strategic focus on healthier beverages and innovative marketing - National Beverage Corp. innovatively refreshes America with a distinctive portfolio of sparkling waters, juices, energy drinks (Power+ Brands) and, to a lesser extent, Carbonated Soft Drinks[38] - Strategy focuses on profitable growth by developing healthier beverages, emphasizing unique flavor development, maintaining points of difference through innovative marketing, and responding faster to changing consumer trends[39] - Key brands include LaCroix® sparkling water products, Clear Fruit® non-carbonated water, Rip It® energy drinks, and Everfresh®/Mr. Pure® 100% juices, alongside carbonated soft drinks like Shasta® and Faygo®[41] - Primary market focus is the United States and Canada, utilizing a hybrid distribution system (warehouse and direct-store delivery)[42] Results of Operations Analyzes the company's financial performance, including net sales, gross profit, and net income, for the current and prior periods Three Months Ended October 29, 2022 vs. October 30, 2021 Compares the company's financial results for the second quarter of fiscal 2023 against the same period in fiscal 2022 Q2 Fiscal 2023 vs. Q2 Fiscal 2022 Performance Highlights (in millions) | Metric | Q2 FY23 (Oct 29, 2022) | Q2 FY22 (Oct 30, 2021) | Change (%) | | :-------------------------------- | :--------------------- | :--------------------- | :--------- | | Net sales | $299.6 | $283.2 | +5.8% | | Gross profit | $100.0 | $101.5 | -1.5% | | Selling, general and administrative expenses | $53.1 | $49.9 | +6.4% | | Operating income | $46.9 | $51.6 | -9.0% | | Net income | $36.0 | $39.3 | -8.3% | - Net sales increase driven by 10.3% increase in average selling price per case, despite 4.1% volume decline[44] - Gross margin decreased to 33.4% from 35.8% due to increased packaging, ingredients, and freight costs, but improved from 31.2% in Q1 FY23[45] - Effective income tax rate was 23.3% for Q2 FY23, down from 23.8% in Q2 FY22[49] Six Months Ended October 29, 2022 vs. October 30, 2021 Compares the company's financial results for the first six months of fiscal 2023 against the same period in fiscal 2022 H1 Fiscal 2023 vs. H1 Fiscal 2022 Performance Highlights (in millions) | Metric | H1 FY23 (Oct 29, 2022) | H1 FY22 (Oct 30, 2021) | Change (%) | | :-------------------------------- | :--------------------- | :--------------------- | :--------- | | Net sales | $617.8 | $594.9 | +3.8% | | Gross profit | $199.4 | $226.3 | -11.9% | | Selling, general and administrative expenses | $106.0 | $104.4 | +1.5% | | Operating income | $93.4 | $121.9 | -23.3% | | Net income | $71.5 | $93.1 | -23.2% | - Net sales increase driven by 10.3% increase in average selling price per case, despite 5.8% volume decline[49] - Gross margin decreased to 32.3% from 38.0% due to increased packaging, ingredients, and labor costs[50] - Effective income tax rate was 23.5% for H1 FY23, down slightly from 23.6% in H1 FY22[53] Liquidity and Financial Condition Assesses the company's ability to meet its short-term and long-term financial obligations, including cash flow and working capital Liquidity and Capital Resources Discusses the company's primary sources of funds and its capacity to meet future capital requirements - Principal source of funds is cash generated from operations[54] - Maintains $150 million unsecured revolving credit facilities with no outstanding borrowings at October 29, 2022[54] - Existing capital resources are believed to be sufficient to meet liquidity and capital requirements for the next twelve months[54] Cash Flows Summarizes the changes in cash and equivalents from operating, investing, and financing activities over the six-month periods Cash Flow Summary (in millions) | Metric | 6 Months Ended Oct 29, 2022 | 6 Months Ended Oct 30, 2021 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $82.2 | $86.0 | | Net cash used in investing activities | $8.0 (capital expenditures) | $6.6 (capital expenditures) | | Repayments of loan facility | $30.0 | $- | | Net Increase in Cash and Equivalents | $44.6 | $79.4 | - Cash position increased by $44.6 million for the first six months of fiscal 2023, compared to $79.4 million in the prior year[56] - Anticipates fiscal 2023 capital expenditures to be comparable to fiscal 2022 levels[58] Financial Position Provides an overview of the company's working capital, current ratio, and key asset and liability trends Financial Position Highlights | Metric | Oct 29, 2022 | Apr 30, 2022 | | :---------------- | :----------- | :----------- | | Working capital | $151.0 million | $129.2 million | | Current ratio | 2.0 to 1 | 1.9 to 1 | | Trade receivables | Increased $6.9 million | | | Days sales outstanding | 30.5 | 30.0 | | Inventories | Decreased $14.9 million | | | Inventory turns | 9.2 times | 8.2 times | Item 3. Quantitative and Qualitative Disclosures about Market Risk There have been no material changes in market risks from those reported in the Annual Report on Form 10-K for the fiscal year ended April 30, 2022 - No material changes in market risks since the Annual Report on Form 10-K for fiscal year ended April 30, 2022[59] Item 4. Controls and Procedures Management, including the CEO and Principal Financial Officer, concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period. No material changes in internal control over financial reporting occurred during the quarter - Disclosure controls and procedures were effective as of the end of the reporting period, based on evaluation by management, CEO, and Principal Financial Officer[60] - No material changes in internal control over financial reporting during the most recent fiscal quarter[61] FORWARD-LOOKING STATEMENTS Cautions readers that statements about future events are subject to risks and uncertainties that could cause actual results to differ materially - Statements are 'forward-looking' and involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially[63] - Factors include general economic and business conditions, pricing of competitive products, success of new product introductions, fluctuations in raw material costs, consumer demand, and government regulations[63] - The company disclaims an obligation to update any forward-looking statements[63] PART II - OTHER INFORMATION Presents additional information not included in the financial statements, such as risk factors and exhibits Item 1A. Risk Factors There have been no material changes in risk factors from those reported in the Annual Report on Form 10-K for the fiscal year ended April 30, 2022 - No material changes in risk factors since the Annual Report on Form 10-K for fiscal year ended April 30, 2022[66] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including amendments to credit agreements, certifications from the CEO and Principal Financial Officer under Sections 302 and 906 of Sarbanes-Oxley, and financial information formatted in iXBRL - Includes Fifth Amendment to Second Amended and Restated Credit Agreement[67] - Certifications of Chief Executive Officer and Principal Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are filed[67] - Financial information from the Quarterly Report on Form 10-Q is formatted in iXBRL[67] SIGNATURE The report was signed on December 8, 2022, by George R. Bracken, Executive Vice President – Finance and Principal Financial Officer, on behalf of National Beverage Corp - Report signed on December 8, 2022, by George R. Bracken, Executive Vice President – Finance (Principal Financial Officer)[70]