Natural Alternatives Q2 Loss Widens Y/Y, Sales Increase

Core Viewpoint - Natural Alternatives International, Inc. (NAII) has experienced significant stock declines following its second-quarter fiscal 2026 results, with a 25.3% drop compared to a 0.3% return for the S&P 500 index during the same period [1] Financial Performance - For the second quarter ended December 31, 2025, the company reported a net loss of $2.6 million, or 42 cents per diluted share, compared to a net loss of $2.2 million, or 37 cents per diluted share, in the prior-year period [2] - Net sales increased by 2% year over year to $34.8 million from $34.1 million, while gross profit improved to $2.5 million, or 7.2% of net sales, from $1.7 million, or 4.9% [2] - For the first six months of fiscal 2026, net sales rose 8% to $72.5 million from $67.2 million, and the net loss narrowed to $2.8 million, or 47 cents per share, from a $4.2 million loss, or 70 cents per share, a year earlier [3] Segment & Channel Performance - Private-label contract manufacturing, the company's core business, increased by 2% in the quarter to $32.8 million, with private-label sales climbing 9% to $68.9 million for the first six months of fiscal 2026 [4] - On a trailing 12-month basis, private-label manufacturing accounted for approximately 94.5% of total revenues, highlighting its importance in the revenue mix [4] - CarnoSyn beta-alanine royalty, licensing, and raw material sales rose 13% year over year in the second quarter to $2 million from $1.8 million, but for the first six months, CarnoSyn revenues declined 15% to $3.7 million from $4.3 million [5] Management Commentary & Operating Environment - The company faces challenges in forecasting demand from clients in multi-level marketing and direct selling channels across various regions, leading to underutilization of manufacturing capacity [7] - Despite improved gross margins and a slight decline in selling, general, and administrative expenses, the company continues to incur operating losses due to fixed manufacturing costs being spread over lower-than-expected volumes [8] - Management noted growth in other sales channels, including large retailers and internet-based direct-to-consumer sales [8] Strategic Initiatives - The company emphasizes the strategic importance of expanding the CarnoSyn patent estate, particularly through TriBsyn, a new formulation aimed at improving bioavailability [9] - There are opportunities for TriBsyn and sustained-release CarnoSyn in wellness and healthy aging markets, especially related to the use of GLP-1 medications [9] Liquidity & Financial Position - As of December 31, 2025, cash and cash equivalents totaled $3.8 million, down from $12.3 million at June 30, 2025, with working capital at $28.7 million [10] - The company had $5.8 million outstanding under its line of credit, with $10 million in available borrowing capacity, and total assets were $153.3 million with stockholders' equity at $67 million [10] Outlook - Management expects sales revenues to increase in the remaining two quarters of fiscal 2026 compared to both prior-year periods and the first half of the current fiscal year, but anticipates a net loss in the second half of fiscal 2026 [11]