AMCON Distributing Company (NYSE American: DIT) — FY2020 Form 10-K
Business context and reporting period. The filing covers the fiscal year ended September 30, 2020; it is an annual report, not a standalone fourth-quarter report. AMCON operates a wholesale consumer-products distribution business serving approximately 4,100 outlets across 26 states and a retail health-food business with 21 stores. The wholesale segment accounted for 97% of FY2020 revenue. Cigarettes represented approximately 69% of consolidated revenue and 17% of gross profit.
Financial results and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $1,521.3 million | $1,392.4 million |
| Gross profit / margin | $87.7 million / 5.8% | $84.0 million / 6.0% |
| Operating income / margin | $9.1 million / 0.6% | $6.3 million / 0.4% |
| Net income | $5.5 million | $3.2 million |
| Diluted earnings per share | $9.76 | $5.25 |
| Cash from operating activities | $15.2 million | $(11.5) million |
| Capital expenditures | $3.4 million | $4.4 million |
Segment performance. Wholesale revenue rose $127.1 million to $1,475.3 million, while gross profit increased $3.9 million to $71.6 million; gross margin eased to 4.9% from 5.0%. Retail revenue rose $1.8 million to $46.0 million, but gross profit fell $0.2 million to $16.1 million and gross margin declined to 35.0% from 36.9%. Retail recorded an operating loss of $1.8 million, improved from a $4.7 million loss in FY2019.
Cash, debt and liquidity. Cash was $0.7 million at year-end. The revolving facility had $62.0 million outstanding against a collateral-based limit of $109.6 million, leaving $47.6 million available; the stated facility commitment is $110 million, with a March 2025 maturity. Average facility interest was 2.41% at year-end. Long-term debt, including current maturities, was $3.1 million. Operating lease liabilities were $19.6 million. The company reported a trailing fixed-charge coverage ratio above 1.0; the covenant applies if excess availability falls below 10% of the maximum loan limit.
Operating cash flow improved by $26.7 million year over year, with working-capital movements—including inventory and receivables—material to the change. Cash used in investing was $13.3 million, including a $6.5 million equity investment and a $3.5 million secured loan to Team Sledd. The company paid $1.00 per share in dividends in both years and repurchased $2.0 million of shares in FY2020.
Material changes versus FY2019
- Revenue increased 9.3%, driven by cigarette manufacturer price increases, cigarette volume and mix, higher excise taxes, and growth in other wholesale product categories. Reported sales include excise taxes and are presented net of customer incentives.
- Net income rose to $5.5 million from $3.2 million. Operating expenses increased $1.0 million overall; lower retail impairment charges helped offset higher wholesale compensation, insurance and doubtful-account costs.
- Gross margin declined 0.2 percentage points despite higher gross profit, reflecting the company’s low-margin distribution mix.
- Operating cash flow turned positive from negative, while the company made its initial investment in Team Sledd and issued a related secured loan.
- FY2020 impairment charges were $0.5 million, compared with $2.9 million in FY2019. The FY2020 charge related to a non-performing retail store; FY2019 charges primarily involved retail intangible assets.
Outlook, management commentary and risks
- No quantified earnings or revenue guidance was provided. Management’s stated priorities include maximizing near-term liquidity and operating cash flow, investing in technology, foodservice and infrastructure over the medium term, and pursuing organic growth, acquisitions and geographic expansion longer term.
- Management said inventory and facility borrowings were elevated at year-end due primarily to opportunistic inventory purchases, and expected them to return to normalized levels during FY2021’s first quarter as inventory sold and borrowings were repaid.
- Both business segments continued operating as essential suppliers during COVID-19. The company described employee and workplace safety measures but said it could not predict longer-term effects from renewed restrictions, supply-chain disruption, consumer-demand changes or customer credit deterioration.
- Key risks include cigarette dependence amid declining category demand; tobacco regulation, excise taxes and litigation exposure; intense wholesale and natural-food retail competition; customer and supplier concentration or disruption; fuel, labor and healthcare costs; customer credit risk; and the retail repositioning strategy and potential further asset impairment.
- The revolving facility restricts certain actions, including dividends and additional debt, and the real-estate loan has cross-default provisions. The company reported no cross-default at year-end. It disclosed no legal proceedings and no off-balance-sheet arrangements. Self-insured liabilities for workers’ compensation, general liability and health claims were $1.5 million; a $0.5 million letter of credit supports its workers’ compensation program.
- ASC 842 lease adoption added approximately $21.9 million of right-of-use assets and $22.2 million of lease liabilities at adoption, with no material effect on reported operations or cash flows. The CARES Act affected timing of certain tax payments but had no material reported financial-statement impact.
- Management concluded disclosure controls and internal control over financial reporting were effective at September 30, 2020. The auditor issued an unqualified opinion on the financial statements; the auditor did not attest to internal controls.
Important facts for investors to verify
- Whether the FY2021 first-quarter normalization of inventory and facility borrowings occurred as management expected, and how collateral-based availability changed.
- Whether wholesale gross-profit dollars and margins can keep pace with cigarette price increases, excise taxes and category-volume trends.
- Retail segment performance, including outcomes from the repositioning plan, store closures or openings, and any additional impairment indicators.
- Team Sledd’s operating performance, AMCON’s returns on its approximately 44% equity interest, and recoverability and subordination terms of the $3.5 million loan.
- Ongoing access to the revolving facility and compliance with its availability-triggered covenant and dividend restrictions; also review the cross-default linkage to the real-estate loan.
- The filing states that holders of record were below 300 at September 30, 2020, a threshold that could affect Exchange Act reporting obligations and NYSE American listing if the company suspended reporting.