NATURAL ALTERNATIVES INTERNATIONAL INC
For the period ended Mar 31, 2024. Filed May 14, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Mar 31, 2024 · Filed May 14, 2024
NAII$1.11-0.9%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2023-12-31; filed 2024-02-13.
0001437749-24-003906
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-03-31; filed 2024-05-14.
0001437749-24-016627
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 38 previous paragraphs and 35 current paragraphs.
14 unchanged; 20 reworded; 1 added; 4 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 5 previous and 5 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (1)
Current report
Our income tax benefit decreased during the third quarter of fiscal 2024 as compared to the third quarter of fiscal 2023 primarily due to a smaller pre-tax loss. During the first nine months of fiscal 2024, we recorded a $1.3 million tax benefit due to a pre-tax loss during the period while the same period in fiscal 2023 included tax expense of $0.3 million due to pre-tax income recorded during that period.
Removed paragraphs (4)
Previous report
Impact of COVID-19 on Our Business
Previous report
The COVID-19 pandemic resulted in significant economic disruption and may have some effect on our business in the future. Our facilities, located both in the United States and Europe, maintained operations throughout the duration of the COVID-19 pandemic, however, there can be no assurance our facilities would continue to operate without interruption in any future event.
Previous report
Our income tax (benefit) expense changed to reflect a benefit of $0.8 million for the three months ended December 31, 2023, compared to an expense of $0.5 million in the same period in fiscal 2023, and a benefit of $1.0 million for the first six months of fiscal 2024, as compared to an expense of $0.7 million for the first six months of fiscal 2023. The change in tax amount is primarily due to recognition of a pretax loss in the three and six months ended December 31, 2023, as compared to pretax income in the same periods in fiscal 2023.
Previous report
As of February 13, 2024, we entered into a Fourth Amendment to our credit facility with Wells Fargo. Among other changes the Fourth Amendment waived all prior instances of non-compliance, decreased our total borrowing capacity on the line of credit to $12.5 million, increased the interest rate on borrowings under the line of credit to 2.25% from 1.29% above the daily simple SOFR rate, modified our continuing compliance requirements, reduced the uses we can fund with the line of credit, decreased the allowed capital expenditures from $7.5 million to $6.5 million for fiscal 2024 and beyond, and requires us to suspend share repurchase and dividend activity.
Reworded paragraphs (20)
Previous wording
The following discussion and analysis is intended to help you understand our financial condition and results of operations for the three and six months ended December 31, 2023. You should read the following discussion and analysis together with our unaudited condensed consolidated financial statements and the notes to the condensed consolidated financial statements included under Item 1 in this Report, as well as the risk factors and other information included in our 2023 Annual Report and other reports and documents we file with the SEC. Our future financial condition and results of operations will vary from our historical financial condition and results of operations described below based on a variety of factors.
Current wording
The following discussion and analysis is intended to help you understand our financial condition and results of operations for the three and nine months ended March 31, 2024. You should read the following discussion and analysis together with our unaudited condensed consolidated financial statements and the notes to the condensed consolidated financial statements included under Item 1 in this Report, as well as the risk factors and other information included in our 2023 Annual Report and other reports and documents we file with the SEC. Our future financial condition and results of operations will vary from our historical financial condition and results of operations described below based on a variety of factors.
Previous wording
During the six months ended December 31, 2023, our net sales were 31% lower than in the six months ended December 31, 2022. Private-label contract manufacturing sales decreased 33% primarily due to reduced orders from several of our larger customers associated with their efforts to reduce excess on-hand inventories, partially offset by increased shipments from other existing customers and shipments to new customers. Revenue concentration for our largest private-label contract manufacturing customer as a percentage of total net sales for the six months ended December 31, 2023, was 41%, and revenue concentration for our largest private-label contract manufacturing customer as a percentage of total net sales for the six months ended December 31, 2022, was 36%. We expect our annualized fiscal 2024 revenue concentration for our largest customer to be flat to slightly higher as compared to our revenue concentration for our largest customer in fiscal 2023.
Current wording
During the nine months ended March 31, 2024, our net sales were 29% lower than in the nine months ended March 31, 2023. Private-label contract manufacturing sales decreased 31% primarily due to reduced orders from several of our larger customers associated with their efforts to reduce excess on-hand inventories, partially offset by increased shipments from other existing customers and shipments to new customers. Revenue concentration for our largest private-label contract manufacturing customer as a percentage of total net sales for the nine months ended March 31, 2024, was 42%, and revenue concentration for our largest private-label contract manufacturing customer as a percentage of total net sales for the nine months ended March 31, 2023, was 40%. We expect our annualized fiscal 2024 revenue concentration for our largest customer to be flat to slightly higher as compared to our revenue concentration for our largest customer in fiscal 2023.
Previous wording
During the six months ended December 31, 2023, patent and trademark licensing revenue increased 40% to $3.9 million, compared to revenue of $2.8 million for the six months ended December 31, 2022. The increase in patent and trademark licensing revenue during the six months ended December 31, 2023, was primarily due to an increase in orders from existing customers and increased royalty income, partially offset by increased volume rebates.
Current wording
During the nine months ended March 31, 2024, patent and trademark licensing revenue increased 28% to $6.6 million, compared to revenue of $5.2 million for the nine months ended March 31, 2023. The increase in patent and trademark licensing revenue during the nine months ended March 31, 2024, was primarily due to an increase in orders from existing customers and increased royalty income.
Previous wording
To protect our CarnoSyn® business and our patents, trademarks and other intellectual property, we incurred legal expenses of approximately $0.1 million during the first six months of both fiscal 2024 and fiscal 2023. Our legal expense associated with our CarnoSyn® business has remained relatively low as we have not had any active litigation in recent periods, and our current run-rate of expenses is primarily related to maintenance of our patent and trademark estate. Our ability to maintain or further increase our beta-alanine royalty and licensing revenue will depend in large part on our ability to develop a market for our sustained release form of beta-alanine marketed under our SR CarnoSyn® trademark, maintain or expand our patent rights, obtain the raw material beta-alanine when and in the amounts needed, expand distribution of beta-alanine to new and existing customers, and continued compliance by third parties with our license agreements and our patent, trademark and other intellectual property rights. During the remainder of fiscal 2024, we will continue our sales and marketing activities to consumers, customers, potential customers, and brand owners on multiple platforms to promote and reinforce the features and benefits of utilizing CarnoSyn® and SR CarnoSyn® beta-alanine.
Current wording
To protect our CarnoSyn® business and our patents, trademarks and other intellectual property, we incurred legal expenses of approximately $0.2 million during the first nine months of both fiscal 2024 and fiscal 2023. Our legal expense associated with our CarnoSyn® business has remained relatively low as we have not had any active litigation in recent periods, and our current run-rate of expenses is primarily related to maintenance of our patent and trademark estate. Our ability to maintain or further increase our beta-alanine royalty and licensing revenue will depend in large part on our ability to develop a market for our sustained release form of beta-alanine marketed under our SR CarnoSyn® trademark, maintain or expand our patent rights, obtain the raw material beta-alanine when and in the amounts needed, expand distribution of beta-alanine to new and existing customers, and continued compliance by third parties with our license agreements and our patent, trademark and other intellectual property rights. During the remainder of fiscal 2024, we will continue our sales and marketing activities to consumers, customers, potential customers, and brand owners on multiple platforms to promote and reinforce the features and benefits of utilizing CarnoSyn® and SR CarnoSyn® beta-alanine.
Previous wording
We experienced a loss from operations during the three and six months ended December 31, 2023. This was primarily due to a slowdown in sales across our private-label contract manufacturing segment. On August 16, 2023, we announced the temporary closure of our high-speed powder processing facility in Carlsbad, California due to excess inventory on hand at one of our largest customers and their efforts to rebalance supply and demand. We now expect this facility will re-open and our prior level of operations will resume late in our fourth fiscal quarter of 2024 to support anticipated deliveries of new orders to this customer in the first quarter of fiscal 2025. However, there can be no assurance this customer will resolve its supply and demand issues in the timeframe expected, what their future purchases may be, or what level of other business we may acquire that will utilize this facility.
Current wording
We experienced a loss from operations during the three and nine months ended March 31, 2024. This was primarily due to a slowdown in sales across our private-label contract manufacturing segment. On August 16, 2023, we announced the temporary closure of our high-speed powder processing facility in Carlsbad, California due to excess inventory on hand at one of our largest customers and their efforts to rebalance supply and demand. On April 2, 2024, we announced we will be reopening this facility in May 2024.
Previous wording
Subject to the change in timing of anticipated new orders from this customer, and our overall sales forecast, we now anticipate we will experience a net loss in the second half of fiscal 2024 and an overall net loss in fiscal 2024.
Current wording
Based on our current overall sales forecast, we anticipate we will experience a net loss in the fourth quarter of fiscal 2024 and an overall net loss for fiscal 2024.
Previous wording
The results of our operations for the three and six months ended December 31 were as follows (dollars in thousands):
Current wording
The results of our operations for the three and nine months ended March 31 were as follows (dollars in thousands):
Previous wording
Private-label contract manufacturing net sales decreased 44% during the three months ended December 31, 2023, and 33% for the six months ended December 31, 2023, when compared to the same periods in the prior year. The decrease in net sales during the three and six months ended December 31, 2023, was primarily due to reduced orders from several of our larger customers associated with their efforts to reduce excess on-hand inventories, partially offset by increased shipments from other existing customers and shipments to new customers.
Current wording
Private-label contract manufacturing net sales decreased 26% during the three months ended March 31, 2024, and 31% for the nine months ended March 31, 2024, when compared to the same periods in the prior year. The decrease in net sales during the three and nine months ended March 31, 2024, was primarily due to reduced orders from several of our larger customers associated with their efforts to reduce excess on-hand inventories, partially offset by increased shipments from other existing customers and shipments to new customers.
Previous wording
Net sales from our patent and trademark licensing segment increased 48% during the three months ended December 31, 2023, and 40% during the six months ended December 31, 2023, when compared to the same periods in the prior year. The increase in patent and trademark licensing revenue during the three months ended December 31, 2023, was primarily due to an increase in orders from existing customers, increased royalty income, and favorable volume rebate activity. The increase in patent and trademark licensing revenue during the six months ended December 31, 2023, was primarily due to an increase in orders from existing customers and increased royalty income, partially offset by increased volume rebates.
Current wording
Net sales from our patent and trademark licensing segment increased 13% during the three months ended March 31, 2024, and 28% during the nine months ended March 31, 2024, when compared to the same periods in the prior year. The increase in patent and trademark licensing revenue during the three months ended March 31, 2024, was primarily due to increased royalty income and favorable volume rebate activity. The increase during the nine months ended March 31, 2024, was primarily due to an increase in orders from existing customers and increased royalty income.
Previous wording
The change in gross profit margin for the three and six months ended December 31, 2023, was as follows:
Current wording
The change in gross profit margin for the three and nine months ended March 31, 2024, was as follows:
Previous wording
Selling, general and administrative expenses increased approximately $0.2 million, or 5%, during the three months ended December 31, 2023, and were consistent at $7.6 million during the first six months of fiscal 2024 as compared to the same period in the prior fiscal year.
Current wording
Selling, general and administrative expenses remained consistent at $3.9 million during the three ended March 31, 2024, and increased approximately $0.1 million during the first nine months of fiscal 2024 as compared to the same periods in the prior fiscal year.
Previous wording
Other expense increased $0.1 million during the three months ended December 31, 2023, and increased $0.2 million during the six months ended December 31, 2023, when compared to the comparable periods during the prior year. The increase in both the three and six month periods is primarily associated with increased expenses related to our CHF balance sheet hedge, foreign currency rate fluctuations, and interest expense related to usage of our line of credit.
Current wording
Other expense decreased $0.3 million during the three months ended March 31, 2024, and decreased $0.1 million during the nine months ended March 31, 2024, when compared to the comparable periods during the prior year. The decrease during the third quarter is primarily associated with reduced interest expense due to less use of our credit facility and reduced foreign currency volatility. The decrease during the nine months ended March 31, 2024 is primarily associated with increased interest income and reduced interest expense partially offset by unfavorable foreign currency rate fluctuations.
Previous wording
Our primary sources of liquidity and capital resources are cash flows provided by operating activities and the availability of borrowings under our credit facilities. Net cash provided by operating activities was $4.8 million for the six months ended December 31, 2023, compared to net cash provided by operating activities of $3.7 million in the comparable period during the prior fiscal year.
Current wording
Our primary sources of liquidity and capital resources are cash flows provided by operating activities and the availability of borrowings under our credit facilities. Net cash provided by operating activities was $1.2 million for the nine months ended March 31, 2024, compared to net cash used by operating activities of $0.5 million in the comparable period during the prior fiscal year.
Previous wording
At December 31, 2023, changes in accounts receivable, consisting of amounts due from our private-label contract manufacturing customers and our patent and trademark licensing activities, used $3.4 million in cash compared to providing $7.2 million of cash during the comparable six month period in the prior year. The increase in cash used in accounts receivable during the six months ended December 31, 2023, primarily resulted from the timing of sales and related collections. Days sales outstanding was 27 days during the six months ended December 31, 2023, as compared to 30 days for the prior year period.
Current wording
At March 31, 2024, changes in accounts receivable, consisting of amounts due from our private-label contract manufacturing customers and our patent and trademark licensing activities, used $4.2 million in cash compared to providing $9.8 million of cash during the comparable nine month period in the prior year. The increase in cash used in accounts receivable during the nine months ended March 31, 2024, primarily resulted from the timing of sales and related collections. Days sales outstanding was 30 days during the nine months ended March 31, 2024, as compared to 29 days for the prior year period.
Previous wording
Changes in inventory provided $10.1 million in cash during the six months ended December 31, 2023, compared to using $3.6 million in the comparable prior year period. The change in cash related to inventory during the six months ended December 31, 2023, was primarily related to the difference in the amount and timing of orders and anticipated sales as compared to same period in the prior year. Changes in accounts payable and accrued liabilities used $0.3 million in cash during the six months ended December 31, 2023, compared to using $3.1 million during the six months ended December 31, 2022. The change in cash flow activity related to accounts payable and accrued liabilities was primarily due to the timing of inventory receipts and payments.
Current wording
Changes in inventory provided $8.6 million in cash during the nine months ended March 31, 2024, compared to using $6.8 million in the comparable prior year period. The change in cash related to inventory during the nine months ended March 31, 2024, was primarily related to the difference in the amount and timing of orders and anticipated sales as compared to same period in the prior year. Changes in accounts payable and accrued liabilities used $0.7 million in cash during the nine months ended March 31, 2024, compared to using $6.2 million during the nine months ended March 31, 2023. The change in cash flow activity related to accounts payable and accrued liabilities was primarily due to the timing of inventory receipts and payments.
Previous wording
Cash used in investing activities in the six months ended December 31, 2023, was $1.7 million compared to $11.6 million in the comparable prior year period. The increase during the six months ended December 31, 2022, in capital purchases was associated with retrofitting our new powder manufacturing and warehouse facility. Construction on this new facility was completed during the fourth quarter of fiscal 2023. Capital equipment purchase activity during the first six months of fiscal 2024 was primarily for manufacturing equipment and solar power generation equipment for our Vista and Carlsbad, California production facilities.
Current wording
Cash used in investing activities in the nine months ended March 31, 2024, was $2.0 million compared to $13.2 million in the comparable prior year period. The increase during the nine months ended March 31, 2023, was related to capital purchases associated with retrofitting our new powder manufacturing and warehouse facility in Carlsbad, California. Construction on this new facility was completed during the fourth quarter of fiscal 2023. Capital equipment purchased during the first nine months of fiscal 2024 was primarily for manufacturing equipment and solar power generation equipment for our Vista and Carlsbad, California production facilities.
Previous wording
Cash used by financing activities for the six months ended December 31, 2023, was $0.1 million compared to $1.2 million used in the comparable prior year period. The decrease in cash used by financing activities is primarily due to zero stock repurchase activity during the first six months of fiscal 2024 compared to $1.1 million in stock repurchases during the same period in fiscal 2023.
Current wording
Cash used by financing activities for the nine months ended March 31, 2024, was $0.4 million compared to providing $7.4 million in the comparable prior year period. The change in financing activities is primarily due to reduced stock repurchase activity and no outstanding balance on our credit facility during the first nine months of fiscal 2024 compared to $9.1 million in borrowings against our credit facility during the first nine months of fiscal 2023.
Previous wording
At December 31, 2023, we had no outstanding balances due on our line of credit with $20.0 million available, and we owed $9.4 million on the term loan borrowed as part of the purchase of our Carlsbad, California manufacturing facility in August 2021. At June 30, 2023, we also had no outstanding balances due and $20.0 million available in connection with our line of credit.
Current wording
At March 31, 2024, we had no outstanding balances due on our line of credit with $6.4 million available, and we owed $9.3 million on the term loan borrowed as part of the purchase of our Carlsbad, California manufacturing facility in August 2021. At June 30, 2023, we also had no outstanding balances due and $20.0 million available in connection with our line of credit. On March 31, 2024, we were in compliance with the financial covenants as modified by the Fourth Amendment to our credit facility.
Previous wording
As of December 31, 2023, we had $16.6 million in cash and cash equivalents. Of these amounts, $14.8 million of cash and cash equivalents were held by NAIE. Overall, we believe our available cash, cash equivalents, potential cash flows from operations, and our credit facility will be sufficient to fund our current working capital needs and capital expenditures through at least the next 12 months.
Current wording
As of March 31, 2024, we had $12.4 million in cash and cash equivalents. Of these amounts, $12.1 million of cash and cash equivalents were held by NAIE. Overall, we believe our available cash, cash equivalents, potential cash flows from operations, and our credit facility will be sufficient to fund our current working capital needs and capital expenditures through at least the next 12 months.
Previous wording
As of December 31, 2023, we did not have any off-balance sheet debt nor did we have any transactions, arrangements, obligations (including contingent obligations) or other relationships with any unconsolidated entities or other persons that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenue or expenses material to investors.
Current wording
As of March 31, 2024, we did not have any off-balance sheet debt nor did we have any transactions, arrangements, obligations (including contingent obligations) or other relationships with any unconsolidated entities or other persons that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenue or expenses that would be material to investors.