AMCON Distributing Company (NYSE American: DIT) — FY2022 Form 10-K
Reporting period: Fiscal year ended September 30, 2022; comparisons are with fiscal 2021. AMCON distributes consumer products in 29 states and operates 19 natural-food retail stores. FY2022 results include Team Sledd after AMCON obtained control in May 2022.
Financial performance
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Revenue | $2,010.8 million | $1,672.4 million | +$338.4 million |
| Gross profit / margin | $127.7 million / 6.4% | $100.5 million / 6.0% | +$27.2 million / +0.4 percentage points |
| Operating income / margin | $22.6 million / 1.1% | $17.8 million / 1.1% | +$4.8 million |
| Net income available to common shareholders | $16.7 million | $15.5 million | +$1.1 million |
| Diluted EPS | $28.59 | $27.36 | +$1.23 |
| Cash from operations | $22.9 million | $20.9 million | +$2.0 million |
Revenue includes cigarette and tobacco excise taxes ($467.1 million in FY2022 versus $403.9 million in FY2021) and is reported net of customer incentives. Wholesale sales were $1,964.6 million, up $339.5 million; retail sales were $46.2 million, down $1.1 million. Cigarettes accounted for approximately 66% of revenue but 18% of consolidated gross profit.
Wholesale gross profit rose $28.2 million to $110.8 million, with margin increasing to 5.6% from 5.1%. Retail gross profit declined $1.0 million to $16.9 million, and margin fell to 36.6% from 37.8%.
Liquidity, debt and capital
- At September 30, 2022, cash was $0.4 million, current assets were $211.0 million and current liabilities were $72.0 million.
- Combined revolving facilities had $250 million of stated borrowing capacity; borrowing availability, subject to collateral and borrowing-base limits, was $93.5 million after $91.3 million outstanding. The average facility rate was 5.11%. AMCON reported covenant compliance.
- Long-term debt was $9.0 million, including current maturities. The company also reported $20.2 million of operating lease liabilities and $11.2 million of mandatorily redeemable non-controlling interest.
- Operating cash flow was $22.9 million; property and equipment purchases were $14.7 million. Cash dividends were $3.4 million, or $5.72 per common share, unchanged from FY2021.
- The AMCON facility was amended in FY2022: its stated capacity rose from $110 million to $150 million and maturity was extended to June 2027. The remaining $4.2 million real estate loan was repaid in Q4, with the properties added as facility collateral.
Material changes and unusual items
- AMCON moved from an approximately 49% equity-method interest in Team Sledd to approximately 56% ownership and control in May 2022, with no additional consideration. Team Sledd contributed $298.4 million of consolidated revenue from the control date through year-end.
- The acquisition caused a $2.4 million remeasurement gain on AMCON’s previously held interest. The company also recorded a $1.5 million fair-value expense on the mandatorily redeemable non-controlling interest.
- Wholesale revenue growth reflected the acquisition, cigarette price increases and higher sales in other product categories; these were partly offset by lower cigarette carton volume and mix. Operating expenses rose $22.4 million, including acquisition-related costs, $7.3 million higher employee compensation and benefits, and $2.0 million higher fuel costs.
- Retail gross profit included $0.5 million of Hurricane Ian inventory losses; the filing also reports a fixed-asset impairment of less than $0.1 million related to the hurricane.
- FY2022 capital expenditures were $14.7 million versus $1.5 million in FY2021, including substantial construction in progress.
Outlook, risks and controls
Management described FY2022 as strong but said it remains cautious about FY2023 and beyond. It cited supply-chain and product-availability disruptions, inflation in product, labor, fuel and interest costs, uncertainty about whether pandemic-era demand gains will persist, and pressure on discretionary spending. The company gave no quantified earnings or revenue guidance.
Key risks include reliance on a declining cigarette category, which generated about 66% of FY2022 revenue; possible FDA restrictions or bans affecting menthol cigarettes and flavored tobacco or vaping products; competition, customer credit exposure, supplier and labor constraints, inflation, interest-rate and fuel-cost exposure, and execution of the retail repositioning strategy. The company does not currently hedge interest-rate or fuel-cost exposure.
Management and the auditor identified a material weakness in internal control over financial reporting involving accounting for a complex instrument related to the non-controlling interest. Management concluded disclosure controls and internal control over financial reporting were not effective at September 30, 2022. A remediation plan includes additional employee training and outside expert consultation. The auditor issued an unqualified opinion on the financial statements but did not attest to internal control effectiveness.
The filing reports no legal proceedings and no off-balance-sheet arrangements. It warns that the low number of shareholders of record could eventually permit suspension of Exchange Act reporting and lead to delisting; as of September 30, 2022, record holders were below 300.
Investor verification points
- Assess how much reported revenue and earnings growth is attributable to consolidating Team Sledd, and compare with the filing’s unaudited pro forma results.
- Check the sustainability of margins and cash generation amid inflation, higher wages and fuel costs, and the decline in cigarette volumes.
- Review borrowing-base availability, interest-rate exposure, covenant headroom and the terms governing mandatory Team Sledd interest redemptions.
- Track remediation of the material weakness and any subsequent disclosure-control or financial-reporting updates.
- Evaluate the potential effect of tobacco regulation, customer credit losses, and AMCON’s shareholder-of-record count on operations and stock liquidity.