NAI(NAII) - 2022 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements This section presents Natural Alternatives International, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, income statements, and cash flow statements, for the period ended March 31, 2022 Condensed Consolidated Balance Sheets Total assets increased to $135.5 million by March 31, 2022, driven by higher property and equipment and inventories, while liabilities also rose due to a new mortgage note payable Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2022 (Unaudited) | June 30, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $18,575 | $32,133 | | Inventories, net | $36,800 | $27,006 | | Property and equipment, net | $40,400 | $22,271 | | Total current assets | $78,206 | $80,348 | | Total assets | $135,488 | $120,281 | | Accounts payable | $17,838 | $11,893 | | Mortgage note payable | $9,863 | $0 | | Total current liabilities | $24,368 | $22,072 | | Total liabilities | $50,411 | $40,198 | | Total stockholders' equity | $85,077 | $80,083 | Condensed Consolidated Statements of Income and Comprehensive Income Q3 2022 net sales decreased to $42.4 million, but net income increased to $2.5 million, while nine-month net sales fell to $118.4 million with a slight decrease in net income Financial Performance Summary (in thousands, except per share data) | Metric | Q3 2022 | Q3 2021 | 9 Months 2022 | 9 Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $42,373 | $46,320 | $118,440 | $134,129 | | Gross profit | $7,393 | $6,836 | $22,220 | $22,515 | | Income from operations | $3,274 | $2,700 | $9,903 | $10,177 | | Net income | $2,504 | $1,916 | $7,607 | $7,806 | | Diluted EPS | $0.41 | $0.30 | $1.22 | $1.22 | Condensed Consolidated Statements of Cash Flows Net cash from operations significantly decreased to $3.1 million for the nine months ended March 31, 2022, while cash used in investing surged to $21.4 million, primarily for property and equipment Cash Flow Summary (in thousands) | Activity | Nine Months Ended Mar 31, 2022 | Nine Months Ended Mar 31, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $3,122 | $15,999 | | Net cash used in investing activities | ($21,438) | ($4,248) | | Net cash provided by (used in) financing activities | $4,758 | ($14,140) | | Net decrease in cash and cash equivalents | ($13,558) | ($2,389) | Notes to Condensed Consolidated Financial Statements These notes detail accounting policies, highlight increased beta-alanine revenue, the acquisition of a $17.5 million manufacturing property, high customer concentration, and segment performance showing growth in licensing despite a decline in contract manufacturing - Beta-alanine (CarnoSyn®) related revenue, including raw material sales and royalties, was $4.8 million for Q3 2022 and $13.5 million for the nine months ended March 31, 2022, up from $4.1 million and $9.6 million in the respective prior-year periods[35] - On August 20, 2021, the company acquired a manufacturing and warehouse property in Carlsbad, California, for $17.5 million to be retrofitted into a powder blending and packaging facility[47] Net Sales by Business Segment (in thousands) | Segment | Q3 2022 | Q3 2021 | 9 Months 2022 | 9 Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Private label contract manufacturing | $37,623 | $42,196 | $104,894 | $124,569 | | Patent and trademark licensing | $4,750 | $4,124 | $13,546 | $9,560 | | Total Net Sales | $42,373 | $46,320 | $118,440 | $134,129 | - Sales to the top three customers were highly concentrated. For the nine months ended March 31, 2022, Customer 1 accounted for $40.1 million, Customer 2 for $22.8 million, and Customer 3 for $19.8 million of net sales[68] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a 12% decline in nine-month net sales, primarily from contract manufacturing, partially offset by a 42% increase in licensing revenue, while forecasting 18-21% sales growth for Q4 2022 - Private-label contract manufacturing sales decreased 16% in the first nine months of fiscal 2022, mainly due to a 44% drop in sales to the largest customer, whose revenue concentration fell from 54% to 34% of total net sales[104] - Patent and trademark licensing revenue grew 42% to $13.5 million in the first nine months of fiscal 2022, attributed to new customers, higher prices, and increased demand as athletic activities resumed post-COVID restrictions[105] - The company anticipates consolidated net sales for Q4 2022 to increase by 18.0% to 21.0% compared to Q4 2021, with operating income as a percentage of net sales expected to be between 9.0% and 12.0%[109] - Liquidity was impacted by a $9.8 million use of cash for inventory buildup and $21.4 million in capital expenditures, primarily for a new facility. The company secured a $10.0 million term loan to help fund the purchase[125][126][127] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2022, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of March 31, 2022, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[134] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, these controls[135] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is involved in ordinary course legal proceedings but does not anticipate a material adverse effect on its financial condition, with no material pending proceedings as of May 12, 2022 - The company is involved in ordinary course investigations, claims, and legal proceedings but does not expect them to have a material adverse effect on the business[138] - As of May 12, 2022, neither NAI nor its subsidiary NAIE were party to any material pending legal proceedings[139] Item 1A. Risk Factors This section refers readers to the company's 2021 Annual Report on Form 10-K for a detailed discussion of comprehensive risk factors - The report refers readers to Item 1A of the 2021 Annual Report on Form 10-K for a detailed discussion of risk factors[140] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not sell unregistered equity securities but repurchased 179,810 common shares for $2.3 million under its authorized plan during the three months ended March 31, 2022 Common Stock Repurchases (Q3 2022) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 2022 | 106,058 | $13.29 | | Feb 2022 | 43,456 | $11.95 | | Mar 2022 | 30,296 | $11.24 | | Total | 179,810 | - | - On January 14, 2022, the Board of Directors authorized an additional $3.0 million for the stock repurchase plan, bringing the total authorized amount to $18.0 million[84] Item 3. Defaults Upon Senior Securities The company reported no defaults upon its senior securities during the period - None[143] Item 5. Other Information The company reported no other information required to be disclosed under this item - None[144] Item 6. Exhibits This section indexes exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL interactive data files - Exhibits filed with this report include Rule 13a-14(a)/15d-14(a) Certifications for the CEO and CFO, a Section 1350 Certification, and XBRL data files[147]