Natural Alternatives International, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended June 30, 2020, compared with fiscal 2019. Although the request metadata says “2019 Q4,” this filing reports full-year FY2020 results, not a standalone quarterly report. The company manufactures private-label nutritional supplements and sells/licenses beta-alanine under the CarnoSyn and SR CarnoSyn brands. Financial statements received an unqualified audit opinion; the auditor was not engaged to attest to internal control effectiveness.
Financial results
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Net sales | $118.9 million | $138.3 million | Down 14% |
| Gross profit / margin | $18.9 million / 15.9% | $23.6 million / 17.1% | Down $4.7 million; margin down 1.1 percentage points |
| Operating income (loss) | $(1.5) million | $6.0 million | Down $7.5 million |
| Net income (loss) | $(1.6) million | $6.5 million | Down $8.2 million |
| Diluted EPS | $(0.25) | $0.92 | Loss in FY2020 |
| Cash from operations | $3.7 million | $6.6 million | Down $2.9 million |
| Capital expenditures | $4.5 million | $5.3 million | Down $0.8 million |
- Revenue mix: Contract manufacturing sales were $106.3 million, down 13%; patent, licensing and beta-alanine sales were $12.6 million, down 25%.
- Expenses and unusual items: SG&A rose 16% to $20.4 million, including $3.3 million of bad-debt expense. A $4.3 million total reserve for a former customer included a fully reserved $3.3 million receivable and a $1.0 million inventory reserve. Patent litigation and compliance expense was approximately $2.0 million, versus $2.4 million in FY2019.
- Liquidity and debt: Cash and equivalents were $30.5 million at year-end, including $13.8 million held by the Swiss subsidiary. The company had drawn the full $10.0 million Wells Fargo revolving facility, leaving no availability; it reported covenant compliance. The facility matures November 2022. Management said cash and expected operating cash flows should fund working capital and capital spending for at least 12 months.
- Balance sheet: Current assets were $79.0 million and current liabilities $27.8 million. Total assets were $120.2 million, liabilities $48.8 million, and stockholders’ equity $71.4 million. Adoption of lease accounting added substantial operating-lease assets and liabilities; FY2019 balance-sheet amounts were not restated.
Changes, outlook and key risks
- Sales fell primarily from lower volumes among existing manufacturing customers and reduced beta-alanine shipments and prices. The largest customer, Juice Plus+, represented 44% of FY2020 sales (49% in FY2019); its sales declined 23%. Another customer represented 21%. The company terminated its relationship with Kaged Muscle effective March 31, 2020; related sales were $7.0 million in FY2020, with no assurance they would be replaced.
- U.S. sales were approximately flat at $66.9 million; sales outside the U.S. declined to $52.0 million from $71.3 million. Two customers together accounted for $77.2 million of FY2020 sales.
- Management expected FY2021 consolidated sales and operating income to increase, citing current orders and forecasts and non-recurrence of the $4.3 million customer reserve. It also anticipated positive FY2021 net income, but provided no quantified guidance and cautioned that COVID-19’s duration and financial impact could not be estimated reliably.
- Management expected continued raw-material, packaging, labor and transportation cost pressure in FY2021, as well as potential tariff impacts. One supplier accounted for 10% of FY2020 raw-material purchases; beta-alanine sourcing and availability are important risks.
- Major exposures include COVID-19 disruptions, customer and supplier concentration, changing demand and order timing, competition from generic beta-alanine, patent protection and litigation costs, regulatory compliance, and foreign-exchange movements. Management expected FY2021 patent litigation and compliance costs of approximately $1.0–$1.5 million.
- Other notable items: the company repurchased 400,787 shares during FY2020 for approximately $3.3 million under its plan; it has never paid a common-stock dividend and does not expect to do so in the foreseeable future. Management reported effective disclosure controls and internal control over financial reporting as of June 30, 2020.
Most important facts for investors to verify
- Whether FY2021 sales and operating-income improvement materialized, and how much depends on the largest customer and the replacement of former-customer sales.
- Collection of receivables and disposition or recovery of customer-specific inventory, including the $4.3 million reserve and the fully reserved $3.3 million receivable.
- Cash generation, working-capital needs, and refinancing or repayment plans for the fully drawn $10 million credit facility.
- Gross-margin trends amid input-cost, freight, labor and tariff pressures, and the effect of these costs on customer pricing.
- Beta-alanine sales, licensing and patent protection—including market adoption of SR CarnoSyn and competition from generic products.
- COVID-19 effects on manufacturing continuity, suppliers, customers and demand, as well as customer concentration and foreign-exchange hedge outcomes.