AMCON Distributing Company (DIT) — Q3 2022 Form 10-Q
Reporting period: Fiscal quarter and nine months ended June 30, 2022; the balance sheet is compared with September 30, 2021. AMCON distributes consumer products and operates 19 natural-food retail stores. Sales include cigarette and tobacco excise taxes.
Financial performance
| Metric | Three months ended June 30 | Nine months ended June 30 |
|---|---|---|
| Sales | $550.6 million, up 25.6% | $1,365.0 million, up 11.7% |
| Gross profit / margin | $33.7 million / 6.1%, versus $25.5 million / 5.8% | $87.3 million / 6.4%, versus $72.0 million / 5.9% |
| Operating income | $6.9 million, versus $4.3 million | $14.6 million, versus $11.6 million |
| Net income available to common shareholders | $6.0 million; diluted EPS $10.27 | $12.0 million; diluted EPS $20.62 |
For comparison, diluted EPS was $6.48 in Q3 2021 and $16.37 for the prior-year nine-month period. Q3 net income before attribution to non-controlling interests was $6.6 million; nine-month net income was $12.6 million.
- Cash flow: Nine-month operating cash flow was $7.1 million, down from $12.7 million. Investing used $13.6 million, including $13.9 million of property and equipment purchases; financing provided $6.6 million. Ending cash was $0.6 million.
- Liquidity: Current assets were $220.0 million and current liabilities $69.1 million at June 30. Current assets included $142.1 million of inventory and $66.5 million of receivables.
- Debt: Credit-facility borrowings were $101.2 million; long-term debt including current maturities totaled $13.4 million. Facilities had $93.2 million available against a collateral-based credit limit of $194.4 million. The stated combined facility capacity was $250 million. Average facility interest rate was 3.23%; AMCON reported covenant compliance.
Material changes and unusual items
- AMCON obtained control of Team Sledd in May 2022, holding approximately 56%, and began consolidating it in the wholesale segment. Q3 sales included $108.7 million from Team Sledd from the control date. The acquisition added approximately $0.8 million of goodwill and $1.7 million of intangible assets.
- A $2.4 million gain from remeasuring AMCON’s previously held Team Sledd interest to fair value was recorded in Q3 other income. This contributed to reported earnings and is distinct from recurring operating income.
- Q3 wholesale sales rose 26.4%, primarily reflecting Team Sledd, cigarette price increases and higher sales in other product categories; lower cigarette carton volume and mix partly offset growth. Retail sales fell 3.4%, including the effect of a Florida store closure.
- For the nine months, wholesale sales increased 12.1% and retail sales 1.4%. Company gross margin increased to 6.4% from 5.9%, while operating expenses rose 20.3%, including higher labor, fuel and Team Sledd costs.
- AMCON amended its main credit facility in Q3, raising borrowing capacity from $110 million to $150 million and extending maturity to June 2027. On July 1, 2022, it repaid the $4.2 million real estate loan; the associated properties became collateral under the amended facility.
Outlook, risks and contingencies
The filing provides no specific financial guidance. Management cited continuing supply-chain and product-availability challenges, inflation, and higher product, labor, fuel and interest costs. Elevated consumer demand may not persist, particularly as inflation affects discretionary spending. The company does not hedge interest-rate or fuel-cost exposure. Potential restrictions on menthol cigarettes and flavored tobacco or vaping products could negatively affect results. Other disclosed risks include labor availability, customer credit and collection risk, competition, and disruption to operations or technology systems. The filing reports no legal proceedings, no material changes to previously disclosed risk factors, and no off-balance-sheet arrangements. Disclosure controls were assessed as effective.
Important facts for investors to verify
- How much reported growth and earnings reflect Team Sledd consolidation and the one-time $2.4 million remeasurement gain.
- Whether gross-margin gains can be sustained as labor, fuel, interest and other operating costs rise.
- Working-capital and borrowing trends: receivables and inventory increased materially, while operating cash flow declined.
- The impact of variable-rate borrowing and potential tobacco-product regulation on future results.
- The final Team Sledd acquisition-date fair values, which the filing describes as preliminary and subject to change.