DIT 10-Q
Amcon Distributing Co (DIT)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended |
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from ___________to _________ |
Commission File Number
(Exact name of registrant as specified in its charter)
| ||
(State or other jurisdiction | (I.R.S. Employer | |
of incorporation or organization) | Identification No.) | |
(Address of principal executive offices) | (Zip code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading symbol(s) | Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ◻ | Accelerated filer ◻ | ||
Smaller reporting company | Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ◻ No
The Registrant had
Form 10-Q
1st Quarter
INDEX
2
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
AMCON Distributing Company and Subsidiaries
Condensed Consolidated Balance Sheets
December 31, 2024 and September 30, 2024
December | September | |||||
| 2024 |
| 2024 | |||
(Unaudited) | ||||||
ASSETS | ||||||
Current assets: | ||||||
Cash | $ | | $ | | ||
Accounts receivable, less allowance for credit losses of $ |
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Inventories, net |
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Income taxes receivable | | | ||||
Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use assets, net | | | ||||
Goodwill |
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Other intangible assets, net |
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Other assets |
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Total assets | $ | | $ | | ||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||
Current liabilities: | ||||||
Accounts payable | $ | | $ | | ||
Accrued expenses |
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Accrued wages, salaries and bonuses |
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Current operating lease liabilities | | | ||||
Current maturities of long-term debt |
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Current mandatorily redeemable non-controlling interest | | | ||||
Total current liabilities |
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Credit facilities |
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Deferred income tax liability, net |
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Long-term operating lease liabilities | | | ||||
Long-term debt, less current maturities |
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Mandatorily redeemable non-controlling interest, less current portion | | | ||||
Other long-term liabilities |
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Shareholders’ equity: | ||||||
Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Retained earnings |
| |
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Treasury stock at cost |
| ( |
| ( | ||
Total shareholders’ equity | | | ||||
Total liabilities and shareholders’ equity | $ | | $ | | ||
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
3
AMCON Distributing Company and Subsidiaries
Condensed Consolidated Unaudited Statements of Operations
for the three months ended December 31, 2024 and 2023
For the three months ended December | ||||||
| 2024 |
| 2023 | |||
Sales (including excise taxes of $ | $ | | $ | | ||
Cost of sales |
| |
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Gross profit |
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Selling, general and administrative expenses |
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Depreciation and amortization |
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Operating income |
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Other expense (income): | ||||||
Interest expense |
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Change in fair value of mandatorily redeemable non-controlling interest | | | ||||
Other (income), net |
| ( |
| ( | ||
| |
| | |||
Income from operations before income taxes |
| |
| | ||
Income tax expense |
| |
| | ||
Net income available to common shareholders | $ | | $ | | ||
Basic earnings per share available to common shareholders | $ | | $ | | ||
Diluted earnings per share available to common shareholders | $ | | $ | | ||
Basic weighted average shares outstanding |
| |
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Diluted weighted average shares outstanding |
| |
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| ||||||
Dividends paid per common share | $ | | $ | | ||
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
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AMCON Distributing Company and Subsidiaries
Condensed Consolidated Unaudited Statements of Shareholders’ Equity
for the three months ended December 31, 2024 and 2023
Additional | |||||||||||||||||||
Common Stock | Treasury Stock | Paid-in | Retained | ||||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Earnings |
| Total | ||||||
THREE MONTHS ENDED DECEMBER 2023 | |||||||||||||||||||
Balance, October 1, 2023 | | $ | | ( | $ | ( | $ | | $ | | $ | | |||||||
Dividends on common stock, $ | — | — | — | — | — | ( | ( | ||||||||||||
Compensation expense and issuance of stock in connection with equity-based awards | | | — | — | | — | | ||||||||||||
Net income available to common shareholders | — |
| — | — | — | — | | | |||||||||||
Balance, December 31, 2023 | | $ | | ( | $ | ( | $ | | $ | | $ | | |||||||
THREE MONTHS ENDED DECEMBER 2024 | |||||||||||||||||||
Balance, October 1, 2024 | | $ | | ( | $ | ( | $ | | $ | | $ | | |||||||
Dividends on common stock, $ | — | — | — | — | — | ( | ( | ||||||||||||
Compensation expense and issuance of stock in connection with equity-based awards | | | — | — | | — | | ||||||||||||
Net income available to common shareholders | — |
| — | — | — | — | | | |||||||||||
Balance, December 31, 2024 | | $ | | ( | $ | ( | $ | | $ | | $ | | |||||||
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
5
AMCON Distributing Company and Subsidiaries
Condensed Consolidated Unaudited Statements of Cash Flows
for the three months ended December 31, 2024 and 2023
December | December | |||||
| 2024 |
| 2023 | |||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||
Net income available to common shareholders | $ | | $ | | ||
Adjustments to reconcile net income available to common shareholders to net cash flows from (used in) operating activities: | ||||||
Depreciation | | | ||||
Amortization | | | ||||
(Gain) loss on sales of property and equipment | ( | ( | ||||
Equity-based compensation | | | ||||
Deferred income taxes | | | ||||
Provision for credit losses | | ( | ||||
Inventory allowance | | | ||||
Change in fair value of contingent consideration | ( | — | ||||
Change in fair value of mandatorily redeemable non-controlling interest | | | ||||
Changes in assets and liabilities: | ||||||
Accounts receivable | ( | | ||||
Inventories | ( | | ||||
Prepaid and other current assets | | ( | ||||
Other assets | ( | ( | ||||
Accounts payable | ( | | ||||
Accrued expenses and accrued wages, salaries and bonuses | ( | ( | ||||
Other long-term liabilities | | | ||||
Income taxes payable and receivable | | | ||||
Net cash flows from (used in) operating activities | ( | | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||
Purchase of property and equipment | ( | ( | ||||
Proceeds from sales of property and equipment | | | ||||
Net cash flows from (used in) investing activities | ( | ( | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||
Borrowings under revolving credit facilities | | | ||||
Repayments under revolving credit facilities | ( | ( | ||||
Principal payments on long-term debt | ( | ( | ||||
Dividends on common stock | ( | ( | ||||
Net cash flows from (used in) financing activities | | ( | ||||
Net change in cash | ( | | ||||
Cash, beginning of period | | | ||||
Cash, end of period | $ | | $ | | ||
Supplemental disclosure of cash flow information: | ||||||
Cash paid during the period for interest, net of amounts capitalized | $ | | $ | | ||
Supplemental disclosure of non-cash information: | ||||||
Equipment acquisitions classified in accounts payable | $ | | $ | | ||
Dividends declared, not paid | | | ||||
Issuance of common stock in connection with the vesting of | — |
| | |||
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
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AMCON Distributing Company and Subsidiaries
Notes to Condensed Consolidated Unaudited Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
AMCON Distributing Company and Subsidiaries (“AMCON” or the “Company”) serves customers in
| ● | Our wholesale distribution segment (the “Wholesale Segment”), which includes our Team Sledd, LLC (“Team Sledd”) and Henry’s Foods, Inc. (“Henry’s”) subsidiaries, distributes consumer products and provides a full range of programs and services to our customers that are focused on helping them manage their business and increase their profitability. We serve customers primarily in the Central, Rocky Mountain, Great Lakes, Mid-South and Mid-Atlantic regions of the United States. |
| ● | Our retail health food segment (the “Retail Segment”) operates |
WHOLESALE SEGMENT
Our Wholesale Segment is one of the largest wholesale distributors in the United States, serving approximately
Our Wholesale Segment offers retailers the ability to take advantage of manufacturer- and Company-sponsored sales and marketing programs, merchandising and product category management services, and the use of information systems and data services that are focused on minimizing retailers’ investment in inventory, while seeking to maximize their sales and profits. In addition, our wholesale distribution capabilities provide valuable services to both manufacturers of consumer products and convenience retailers. Manufacturers benefit from our broad retail coverage, inventory management, efficiency in processing small orders, and frequency of deliveries. Convenience retailers benefit from our distribution capabilities by gaining access to a broad product line, inventory optimization and merchandising expertise, information systems, and accessing trade credit.
Our Wholesale Segment operates
RETAIL SEGMENT
Our Retail Segment, through our Healthy Edge Retail Group subsidiary, is a specialty retailer of natural/organic groceries and operates
Market banners. We operate within the natural products retail industry, which is a subset of the United States grocery industry. This industry includes conventional, natural, gourmet and specialty food markets, mass and discount retailers, warehouse clubs, health food stores, dietary supplement retailers, drug stores, farmers markets, mail order and online retailers, and multi-level marketers. These stores carry over
7
FINANCIAL STATEMENTS
The Company’s fiscal year ends on September 30th. The results for the interim period included with this Quarterly Report may not be indicative of the results which could be expected for the entire fiscal year. All significant intercompany transactions and balances have been eliminated in consolidation. Certain information and footnote disclosures normally included in our annual financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) have been condensed or omitted. In the opinion of management, the accompanying condensed consolidated unaudited financial statements (“financial statements”) contain all adjustments necessary to fairly present the financial information included herein. The Company believes that although the disclosures contained herein are adequate to prevent the information presented from being misleading, these financial statements should be read in conjunction with the Company’s annual audited consolidated financial statements for the fiscal year ended September 30, 2024, as filed with the Securities and Exchange Commission on Form 10-K. For purposes of this report, unless the context indicates otherwise, all references to “we”, “us”, “our”, the “Company”, and “AMCON” shall mean AMCON Distributing Company and its consolidated subsidiaries. Additionally, the three-month fiscal periods ended December 31, 2024 and December 31, 2023 have been referred to throughout this Quarterly Report as Q1 2025 and Q1 2024, respectively. The fiscal balance sheet dates as of December 31, 2024 and September 30, 2024 have been referred to as December 2024 and September 2024, respectively.
ACCOUNTING PRONOUNCEMENTS
Recent Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, “Segment Reporting (Topic 280) – Improvements to Reportable Segment Disclosures”, which improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. This ASU also expands disclosure requirements to enable users of financial statements to better understand the entity’s measurement and assessment of segment performance and resource allocation. This guidance is effective for fiscal years beginning after December 15, 2023 (fiscal 2025 for the Company), and interim periods within fiscal years beginning after December 15, 2024 (fiscal 2026 for the Company), with early adoption permitted. The Company is currently reviewing this ASU and its potential impact on our consolidated financial statements.
In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740) – Improvements to Income Tax Disclosures”, which enhances the transparency, effectiveness and comparability of income tax disclosures by requiring consistent categories and greater disaggregation of information related to income tax rate reconciliations and the jurisdictions in which income taxes are paid. This guidance is effective for annual periods beginning after December 15, 2024 (fiscal 2026 for the Company), with early adoption permitted. The Company is currently reviewing this ASU and its potential impact on our consolidated financial statements.
In November 2024, the FASB issued ASU No. 2024-03, “Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures”, which improves disclosure requirements and provides more detailed information about an entity’s expenses, specifically amounts related to purchases of inventory, employee compensation, depreciation, intangible asset amortization, and selling expenses, along with qualitative descriptions of certain other types of expenses. This guidance is effective for fiscal years beginning after December 15, 2026 (fiscal 2028 for the Company), and interim periods within fiscal years beginning after December 15, 2027 (fiscal 2029 for the Company), with early adoption permitted. The Company is currently reviewing this ASU and its potential impact on our consolidated financial statements.
2. INVENTORIES
Inventories in our Wholesale Segment consisted of finished goods and are stated at the lower of cost or net realizable value, utilizing FIFO and average cost methods. Inventories in our Retail Segment consisted of finished goods and are stated at the lower of cost or market using the retail method. The wholesale distribution and retail health food segment inventories consist of finished products purchased in bulk quantities to be redistributed to the Company’s customers or sold at retail. Finished goods included total reserves of approximately $
8
3. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill at December 2024 and September 2024 was as follows:
| December |
| September | |||
2024 | 2024 | |||||
Wholesale Segment | $ | | $ | | ||
Other intangible assets at December 2024 and September 2024 consisted of the following:
| December |
| September | |||
2024 | 2024 | |||||
Customer lists (Wholesale Segment) (less accumulated amortization of $ | $ | | $ | | ||
Non-competition agreements (Wholesale Segment) (less accumulated amortization of $ | | | ||||
Tradename (Wholesale Segment) (less accumulated amortization of $ | | | ||||
Trademarks and tradenames (Retail Segment) | | | ||||
$ | | $ | | |||
Goodwill and Retail Segment trademarks and tradenames are considered to have indefinite useful lives and therefore no amortization has been taken on these assets. Goodwill recorded on the Company’s consolidated balance sheets represent amounts allocated to its wholesale reporting unit which totaled approximately $
At December 2024, identifiable intangible assets considered to have finite lives were represented by customer lists which are being amortized over
Estimated future amortization expense related to identifiable intangible assets with finite lives was as follows at December 2024:
December | |||
| 2024 | ||
Fiscal 2025 (1) | $ | | |
Fiscal 2026 | | ||
Fiscal 2027 | | ||
Fiscal 2028 | | ||
Fiscal 2029 | | ||
Fiscal 2030 and thereafter | | ||
$ | | ||
| (1) | Represents amortization for the remaining nine months of Fiscal 2025. |
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4. DIVIDENDS
The Company paid cash dividends on its common stock totaling $
5. EARNINGS PER SHARE
Basic earnings per share available to common shareholders is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding for each period. Diluted earnings per share available to common shareholders is calculated by dividing net income available to common shareholders by the sum of the weighted average number of common shares outstanding and the weighted average dilutive equity awards.
For the three months ended December | ||||||||||||
2024 | 2023 | |||||||||||
| Basic |
| Diluted |
| Basic |
| Diluted | |||||
Weighted average number of common shares outstanding | | | | | ||||||||
Weighted average net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock (1) | — | | — | | ||||||||
Weighted average number of shares outstanding | | | | | ||||||||
Net income available to common shareholders | $ | | $ | | $ | | $ | | ||||
Net earnings per share available to common shareholders | $ | | $ | | $ | | $ | | ||||
6. DEBT
The Company primarily finances its operations through
At December 2024, the Facilities had a total combined borrowing capacity of $
The amount available for use from the Facilities at any given time is subject to a number of factors, including eligible accounts receivable and inventory balances that fluctuate day-to-day, as well as the value of certain real estate collateral. Based on the collateral and loan limits as defined in the Facility agreements, the credit limit of the combined Facilities at December 2024 was $
10
The average interest rate of the Facilities was
Cross Default and Co-Terminus Provisions
Team Sledd’s two notes payable and the Team Sledd Facility contain cross default provisions. The Henry’s note payable and the Henry’s Facility contain cross default provisions. There were no such cross defaults for either Team Sledd or Henry’s at December 2024. Additionally, the Team Sledd Facility and the Henry’s Facility are non-recourse to AMCON Distributing Company, are not guaranteed by AMCON Distributing Company and have no cross default provisions applicable to AMCON Distributing Company. The Company and its subsidiaries, including Team Sledd and Henry’s, were in compliance with all of the financial covenants under the respective Facilities at December 2024.
Other
The Company has issued letters of credit totaling $
7. INCOME TAXES
The change in the Company’s effective income tax rate for the three-month period ended December 2024 as compared to the respective prior year period was primarily related to non-deductible compensation expense in relation to the amount of income from operations before income tax expense and variances in the average effective state income tax rates between the comparative periods.
8. FAIR VALUE DISCLOSURES
Mandatorily Redeemable Non-Controlling Interest
Mandatorily redeemable non-controlling interest (“MRNCI”) recorded on the Company’s condensed consolidated balance sheets represents the fair value of the non-controlling interest in the Company’s strategic investment in Team Sledd. The Company owned approximately
A summary of the MRNCI activity is as follows:
For the Three Months Ended December 31, | ||||||
2024 | 2023 | |||||
Fair value, beginning of period | $ | | $ | | ||
Redemption of non-controlling interests | | — | ||||
Distributions to non-controlling interest | | — | ||||
Change in fair value | | | ||||
$ | | $ | | |||
11
Contingent Consideration
On April 5, 2024, the Company acquired substantially all of the net operating assets of Burklund Distributors, Inc. (“Burklund”). A portion of the consideration exchanged in the acquisition of Burklund was in the form of contingent consideration of up to $
At each reporting date, the Company reviews certain inputs, including sales thresholds and an appropriate discount rate, based on management’s knowledge and assumptions of certain events. As of December 2024, the Company determined that due to current sales trends including customer turnover, the achievement of the sales thresholds required to meet the minimum payout of any contingent consideration was not probable. As such, the Company adjusted the fair value of its contingent consideration liability and recognized operating income of approximately $
At September 2024, the difference between the estimated amount due under the contingent consideration arrangement and the fair value was approximately $
The following table presents changes in the fair value of the contingent consideration since September 2024:
Current portion of contingent consideration at fair value as of September 2024 |
| $ | |
Long-term portion of contingent consideration at fair value as of September 2024 | | ||
Fair value of contingent consideration as of September 2024 | $ | | |
( | |||
Fair value of contingent consideration as of December 2024 | $ | — |
9. EQUITY-BASED INCENTIVE AWARDS
The Company has
12
Restricted Stock Awards
At December 2024, the Compensation Committee of the Board of Directors had authorized and approved the following restricted stock awards to members of the Company’s management team pursuant to the provisions of the Company’s Omnibus Plans:
| Restricted |
| Restricted | Restricted | |||||
Date of award: |
| October 2022 | October 2023 | October 2024 | |||||
Original number of awards issued: |
| ||||||||
Service period: |
|
| |||||||
Estimated fair value of award at grant date: | $ | $ | |||||||
Non-vested awards outstanding at December 2024: | |||||||||
Fair value of non-vested awards at December 2024 of approximately: | $ | $ | |||||||
(1) |
(2) |
(3) | The |
There is
The following summarizes restricted stock award activity under the Omnibus Plans during Q1 2025:
Number | Weighted | ||||
of | Average | ||||
| Shares |
| Fair Value | ||
Nonvested restricted stock awards at September 2024 |
| | $ | | |
Granted |
| | | ||
Vested |
| ( | | ||
Expired |
| — | — | ||
Nonvested restricted stock awards at December 2024 |
| | $ | | |
Income from operations before income taxes included compensation expense related to the amortization of the Company’s restricted stock awards of approximately $
13
10. BUSINESS SEGMENTS
The Company has
Wholesale | Retail | |||||||||||
| Segment |
| Segment |
| Other |
| Consolidated | |||||
THREE MONTHS ENDED DECEMBER 2024 | ||||||||||||
External revenue: | ||||||||||||
Cigarettes | $ | | $ | — | $ | — | $ | | ||||
Tobacco | | — | — | | ||||||||
Confectionery | | — | — | | ||||||||
Health food | — | | — | | ||||||||
Foodservice & other | | — | — | | ||||||||
Total external revenue | | | — | | ||||||||
Depreciation | | | — | | ||||||||
Amortization | | — | — | | ||||||||
Operating income (loss) | | ( | ( | | ||||||||
Interest expense | — | — | | | ||||||||
Income (loss) from operations before taxes | | ( | ( | | ||||||||
Total assets | | | | | ||||||||
Capital expenditures | | | — | | ||||||||
Wholesale | Retail | |||||||||||
| Segment |
| Segment |
| Other |
| Consolidated | |||||
THREE MONTHS ENDED DECEMBER 2023 | ||||||||||||
External revenue: | ||||||||||||
Cigarettes | $ | | $ | — | $ | — | $ | | ||||
Tobacco | | — | — | | ||||||||
Confectionery | | — | — | | ||||||||
Health food | — | | — | | ||||||||
Foodservice & other | | — | — | | ||||||||
Total external revenue | | | — | | ||||||||
Depreciation | | | — | | ||||||||
Amortization | | — | — | | ||||||||
Operating income (loss) | | ( | ( | | ||||||||
Interest expense | — | — | | | ||||||||
Income (loss) from operations before taxes | | | ( | | ||||||||
Total assets | | | | | ||||||||
Capital expenditures | | | — | | ||||||||
11. SUBSEQUENT EVENT
On January 17, 2025, the Company closed on its previously disclosed acquisition of Arrowrock Supply (“Arrowrock”). The Company paid approximately $
14
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
BUSINESS UPDATE
Our business continues to be impacted by macroeconomic factors and certain manufacturer supply chain limitations. The cumulative effect of sustained inflation across various consumer product categories has impacted discretionary spending and the related retail level demand for the convenience store customers we serve. These same inflationary pressures have also increased our operating costs, particularly as it relates to labor, equipment, insurance, interest, and the cost of the products we sell.
We continue to closely monitor regulatory actions and proposals from federal and state governmental and regulatory bodies, including the United States Food and Drug Administration (“FDA”), which is evaluating the possible prohibition and/or limitations on the sale of certain cigarette, e-cigarette, tobacco, and vaping products, including menthol cigarettes. If such further regulations or further product sale limitations were to be implemented, they may limit the range of products we are able to sell in related product categories and decrease overall consumer demand. Any such changes may negatively impact our revenues, gross margins, and financial results.
The Company continues to make targeted investments in conjunction with its long-term growth strategy. Integration work continues on the recent acquisitions of Burklund Distributors, Inc. (“Burklund”) and Richmond Master Distributors, Inc. (“Richmond Master”). These acquisitions play a central role in the Company’s long-term geographic expansion initiatives, expand the Company’s regional footprint and will provide customers with an enhanced range of products and services over time.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, including the Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections, contains forward-looking statements that are subject to risks and uncertainties and reflect management’s current beliefs and estimates of future economic circumstances, industry conditions, Company performance and financial results. Forward-looking statements include information concerning the possible or assumed future results of operations of the Company and those statements preceded by, followed by or that include the words “future,” “position,” “anticipate(s),” “expect(s),” “believe(s),” “see,” “plan,” “further improve,” “outlook,” “should” or similar expressions. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of future performance or results. They involve risks, uncertainties and assumptions.
It should be understood that the following important factors, in addition to those discussed elsewhere in this document, could affect the future results of the Company and could cause those results to differ materially from those expressed in our forward-looking statements:
| ● | risks associated with continued weakness in retail level demand within the convenience store industry, |
| ● | risks associated with workforce availability and/or wage pressures which may be impacted by economic conditions, changes in governmental policy, or other changes in the operating environment which may impact our labor force, |
| ● | risks associated with all forms of insurance renewals and the risk that the Company may not be able to renew various insurance with adequate levels of coverage, at favorable rates, or obtain insurance at all based upon market conditions within the insurance industry and/or because of the industry in which the Company operates, |
| ● | risks associated with unrest in certain global regions which could further disrupt world supply chains, manufacturing centers, and shipping routes, impacting commodity/product availability and/or cost, as well as consumer demand trends, |
| ● | risks associated with higher interest rates or prolonged periods of higher interest rates and the related impact on demand, customer credit risk, profitability and cash flows for both the Company and its customer base, particularly as it relates to variable interest rate borrowings, as well as the risk that such borrowings may not be renewed in the future on favorable terms or at all, |
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| ● | risks associated with any systemic pressures in the banking system, particularly as they relate to customer credit risk and any resulting impact on our cash flow and our ability to collect on our receivables, |
| ● | risks associated with an inflationary operating environment, particularly as it relates to wages, fuel, interest, commodity prices, and customer credit risk, which impact our operating cost structure and could impact food ingredient costs and demand for many of the products we sell, |
| ● | regulations, potential bans, limitations and/or litigation related to the manufacturing, distribution, and sale of certain cigarette, e-cigarette, tobacco, and vaping products imposed by the FDA, state or local governmental agencies, or other parties, including proposed and pending regulations and/or product approvals/authorizations related to the manufacturing, distribution, and sale of certain menthol, vaping, and flavored tobacco products, including proposed rules which would limit nicotine levels in certain cigarette and tobacco products, |
| ● | risks associated with the threat or occurrence of epidemics or pandemics (such as COVID-19 or its variants) or other public health issues, including the continued health of our employees and management, the reduced demand for our goods and services or increased credit risk from customer credit defaults resulting from an economic downturn, |
| ● | risks associated with the imposition of governmental orders restricting our operations and the operations of our suppliers and customers, in particular, disruptions to our supply chain or our ability to procure products or fulfill orders due to labor shortages in our warehouse operations, |
| ● | risks associated with events such as the COVID-19 pandemic, during which the Company experienced both higher sales volumes and labor costs but then subsequently experienced a decline in sales volumes, with limited ability to offset or pass on higher operating costs, |
| ● | risks associated with the acquisition of businesses or assets, capital asset expenditure projects by either of our business segments such as the development of new facilities/locations or upgrades to distribution centers or retail stores, including, but not limited to, risks associated with consummating such transactions on expected terms or timing, purchase price and business valuation and recording risks, customer turnover and retention risks, and risks related to the assumption of certain liabilities or obligations, |
| ● | risks associated with the integration of new businesses or equity investments by either of our business segments including, but not limited to, risks associated with vendor and customer turnover and retention, technology integration, and the potential loss of any key management personnel or employees, |
| ● | increasing competition and market conditions in our wholesale and retail health food businesses and any associated impact on the carrying value and any potential impairment of assets (including intangible assets) within those businesses, |
| ● | risk that our repositioning strategy for our retail business will not be successful, |
| ● | risks associated with opening new, or closing unprofitable, retail stores, |
| ● | risks to our brick and mortar retail business and potentially to our wholesale distribution business if online shopping formats such as Amazon™ continue to grow in popularity and further disrupt traditional sales channels, |
| ● | the potential impact that ongoing or proposed increases in trade tariffs and/or changes to trade policies may have on raw materials or finished goods sourced from abroad which could result in higher prices for the products we sell while also decreasing consumer disposable income and demand, |
| ● | increasing product and operational costs resulting from ongoing supply chain disruptions, an intensely competitive labor market with a limited pool of qualified workers, and higher incremental costs associated with the handling and transportation of certain product categories such as foodservice, |
| ● | increases in state and federal excise taxes on cigarette and tobacco products and the potential impact on demand, particularly as it relates to current legislation under consideration which could significantly increase such taxes, |
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| ● | risks associated with disruptions to our technology systems or those of third parties upon which we rely, including security breaches, cyber and ransomware attacks, malware, or other methods by which such information systems could or may have been compromised or impacted, |
| ● | increases in inventory carrying costs and customer credit risks, |
| ● | changes in pricing strategies and/or promotional/incentive programs offered by cigarette and tobacco manufacturers, |
| ● | changing demand for the Company’s products, particularly cigarette, tobacco and vaping products, |
| ● | risks that product manufacturers may begin selling directly to convenience stores and bypass wholesale distributors, |
| ● | changes in laws and regulations and ongoing compliance related to health care and associated insurance, |
| ● | increasing health care costs for both the Company and consumers and its potential impact on discretionary consumer spending, |
| ● | decreased availability of capital resources, |
| ● | domestic regulatory and legislative risks, |
| ● | poor weather conditions, and the adverse effects of climate change including, but not limited to, wildfires and violent storms |
| ● | consolidation trends within the convenience store, wholesale distribution, and retail health food industries, |
| ● | risks associated with labor disputes (strikes), natural disasters, domestic/political unrest and incidents of violence, or any restrictions, regulations, or security measures implemented by governmental bodies in response to these items, and |
| ● | other risks over which the Company has little or no control, and any other factors not identified herein. |
Changes in these factors could result in significantly different results. Consequently, future results may differ from management’s expectations. Moreover, past financial performance should not be considered a reliable indicator of future performance. Any forward-looking statement contained herein is made as of the date of this document. Except as required by law, the Company undertakes no obligation to publicly update or correct any of these forward-looking statements in the future to reflect changed assumptions, the occurrence of material events or changes in future operating results, financial conditions or business over time.
CRITICAL ACCOUNTING ESTIMATES
Certain accounting estimates used in the preparation of the Company’s condensed consolidated unaudited financial statements (“financial statements”) require us to make judgments and estimates and the financial results we report may vary depending on how we make these judgments and estimates. Our critical accounting estimates are set forth in our annual report on Form 10-K for the fiscal year ended September 30, 2024, as filed with the Securities and Exchange Commission. There have been no significant changes with respect to these estimates and related policies during the three months ended December 2024.
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FIRST FISCAL QUARTER 2025 (Q1 2025)
The following discussion and analysis includes the Company’s results of operations for the three months ended December 2024 and December 2023:
Wholesale Segment
Our Wholesale Segment is one of the largest wholesale distributors in the United States, serving approximately 7,900 retail outlets including convenience stores, grocery stores, liquor stores, drug stores, and tobacco shops. We currently distribute over 20,000 different consumer products, including cigarettes and tobacco products, candy and other confectionery products, beverages, groceries, paper products, health and beauty care products, frozen and refrigerated products and institutional foodservice products. We have licenses, and operate, in 34 states, and are the third (3rd) largest convenience store distributor by geographic territory served.
Our Wholesale Segment offers retailers the ability to take advantage of manufacturer- and Company-sponsored sales and marketing programs, merchandising and product category management services, and the use of information systems and data services that are focused on minimizing retailers’ investment in inventory, while seeking to maximize their sales and profits. In addition, our wholesale distribution capabilities provide valuable services to both manufacturers of consumer products and convenience retailers. Manufacturers benefit from our broad retail coverage, inventory management, efficiency in processing small orders, and frequency of deliveries. Convenience retailers benefit from our distribution capabilities by gaining access to a broad product line, inventory optimization and merchandising expertise, information systems, and accessing trade credit.
Our Wholesale Segment operates 14 distribution centers located in Colorado, Idaho, Illinois, Indiana, Minnesota, Missouri, Nebraska, North Dakota, South Dakota, Tennessee and West Virginia. These distribution centers, combined with cross-dock facilities, include approximately 1.7 million square feet of permanent floor space. Our principal suppliers include Altria, RJ Reynolds, ITG Brands, Hershey, Kellanova, Kraft Heinz, and Mars Wrigley. We also market private label lines of water, candy products, batteries, and other products. We do not maintain any long-term purchase contracts with our suppliers.
Retail Segment
Our Retail Segment, through our Healthy Edge Retail Group subsidiary, is a specialty retailer of natural/organic groceries and operates 15 retail health food stores under the Chamberlin’s Natural Foods, Akin’s Natural Foods, and Earth Origins Market banners. We operate within the natural products retail industry, which is a subset of the United States grocery industry. This industry includes conventional, natural, gourmet and specialty food markets, mass and discount retailers, warehouse clubs, health food stores, dietary supplement retailers, drug stores, farmers markets, mail order and online retailers, and multi-level marketers. These stores carry over 32,000 different nationally and regionally branded and private label products including high-quality natural, organic, and specialty foods consisting of produce, baked goods, frozen foods, nutritional supplements, personal care items, and general merchandise.
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RESULTS OF OPERATIONS – THREE MONTHS ENDED DECEMBER:
| 2024 |
| 2023 |
| Incr (Decr) |
| % Change | ||||
CONSOLIDATED: | |||||||||||
Sales (1) | $ | 711,273,256 | $ | 644,959,073 | $ | 66,314,183 |
| 10.3 | |||
Cost of sales |
| 664,379,704 |
| 601,658,151 |
| 62,721,553 |
| 10.4 | |||
Gross profit |
| 46,893,552 |
| 43,300,922 |
| 3,592,630 |
| 8.3 | |||
Gross profit percentage |
| 6.6 | % |
| 6.7 | % |
| ||||
Operating expense | $ | 43,223,231 | $ | 39,477,845 | $ | 3,745,386 |
| 9.5 | |||
Operating income |
| 3,670,321 |
| 3,823,077 |
| (152,756) |
| (4.0) | |||
Interest expense |
| 2,846,621 |
| 2,311,513 |
| 535,108 |
| 23.1 | |||
Change in fair value of mandatorily redeemable non-controlling interest | 194,812 | 199,744 | (4,932) | (2.5) | |||||||
Income tax expense |
| 392,000 |
| 804,000 |
| (412,000) |
| (51.2) | |||
Net income available to common shareholders |
| 348,419 |
| 1,070,961 |
| (722,542) |
| (67.5) | |||
BUSINESS SEGMENTS: | |||||||||||
Wholesale | |||||||||||
Sales | $ | 700,747,921 | $ | 634,269,644 | $ | 66,478,277 |
| 10.5 | |||
Gross profit |
| 43,103,716 |
| 39,353,558 |
| 3,750,158 |
| 9.5 | |||
Gross profit percentage |
| 6.2 | % |
| 6.2 | % |
| ||||
Retail | |||||||||||
Sales | $ | 10,525,335 | $ | 10,689,429 | $ | (164,094) |
| (1.5) | |||
Gross profit |
| 3,789,836 |
| 3,947,364 |
| (157,528) |
| (4.0) | |||
Gross profit percentage |
| 36.0 | % |
| 36.9 | % |
| ||||
| (1) | Sales are reported net of costs associated with incentives provided to retailers. These incentives totaled $10.0 million in Q1 2025 and $9.5 million in Q1 2024. |
SALES
Changes in sales are primarily driven by:
| (i) | changes to selling prices, which are largely controlled by our product suppliers, and excise taxes imposed on cigarettes and tobacco products by various states; |
| (ii) | changes in the volume and mix of products sold to our customers, either due to a change in purchasing patterns resulting from shifting consumer preferences or the fluctuation in the comparable number of business days in our reporting period; and |
SALES – Q1 2025 vs. Q1 2024
Sales in our Wholesale Segment increased $66.5 million during Q1 2025 as compared to Q1 2024. Significant items impacting sales during Q1 2025 included an increase of $56.7 million related to the combined acquisitions of Burklund and Richmond Master during Q3 2024, a $29.2 million increase in sales related to price increases implemented by cigarette manufacturers and a $9.7 million increase in sales related to the volume and mix of products in our tobacco, confectionery, foodservice, and other categories (“Other Products”), partially offset by a $29.1 million decrease in sales related to the volume and mix of cigarette cartons sold. Sales in our Retail Segment decreased $0.2 million during Q1 2025 as compared to Q1 2024. This decrease was due to approximately a $0.8 million decrease related to the closure of three stores between the comparative periods, partially offset by a $0.4 million increase related to the opening of our new Lakewood Ranch, Florida store in Q3 2024 and a $0.2 million increase related to higher sales volumes in our existing stores.
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GROSS PROFIT – Q1 2025 vs. Q1 2024
Our gross profit does not include fulfillment costs and costs related to the distribution network, which are included in selling, general and administrative costs, and may not be comparable to those of other entities. Some entities may classify such costs as a component of cost of sales. Cost of sales, a component used in determining gross profit, for the wholesale and retail segments includes the cost of products purchased from manufacturers, less incentives we receive which are netted against such costs.
Gross profit in our Wholesale Segment increased $3.8 million during Q1 2025 as compared to Q1 2024. Significant items impacting gross profit during Q1 2025 included an increase of $3.2 million related to the combined acquisitions of Burklund and Richmond Master during Q3 2024, a $0.5 million increase in gross profit related to the mix of volumes and promotions in our Other Products category, and a $0.1 million increase in gross profit due to the timing and related benefits of cigarette manufacturer price increases. Gross profit in our Retail Segment decreased $0.2 million during Q1 2025 as compared to Q1 2024. This change was primarily related to a $0.3 million decrease related to the closure of three stores between the comparative periods, partially offset by a $0.1 million increase related to the opening of our new Lakewood Ranch store in Q3 2024.
OPERATING EXPENSE – Q1 2025 vs. Q1 2024
Operating expense includes selling, general and administrative expenses and depreciation and amortization. Selling, general, and administrative expenses primarily consist of costs related to our sales, warehouse, delivery and administrative departments, including purchasing and receiving costs, warehousing costs and costs of picking and loading customer orders. Our most significant expenses relate to costs associated with employees, facility and equipment leases, transportation, fuel, and insurance. Our Q1 2025 operating expenses increased $3.7 million as compared to Q1 2024. Significant items impacting operating expenses during Q1 2025 included an increase of $2.7 million related to the combined acquisitions of Burklund and Richmond Master during Q3 2024, a $1.1 million increase in other Wholesale Segment operating costs, a $1.0 million increase in health insurance costs, a $0.2 million increase related to employee compensation and benefit costs, and a $0.2 million increase in operating expense costs in our Retail Segment, partially offset by a $1.5 million decrease related to the fair value adjustment of a contingent consideration liability. The increase in our Retail Segment was primarily due to a $0.3 million increase related to the opening of our new Lakewood Ranch store in Q3 2024, an increase of $0.2 million in our existing stores, partially offset by a $0.3 million decrease related to the closure of three stores between the comparative periods.
INTEREST EXPENSE – Q1 2025 vs. Q1 2024
Interest expense increased $0.5 million in Q1 2025 as compared to Q1 2024, primarily related to higher outstanding debt balances in the current period related to the acquisitions of Burklund and Richmond Master in Q3 2024 and increased capital expenditures.
OTHER INCOME – Q1 2025 vs. Q1 2024
The change in other income between the comparative periods was primarily related to an insurance recovery in the prior year period.
INCOME TAX EXPENSE – Q1 2025 vs. Q1 2024
The change in the Q1 2025 income tax rate as compared to Q1 2024 was primarily related to non-deductible compensation expense in relation to the amount of income from operations before income tax expense and variances in the average effective state income tax rates between the comparative periods.
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LIQUIDITY AND CAPITAL RESOURCES
Overview
The Company’s variability in cash flows from operating activities is dependent on the timing of inventory purchases and seasonal fluctuations. For example, periodically we have inventory “buy-in” opportunities which offer more favorable pricing terms. As a result, we may have to hold inventory for a period longer than the payment terms. This generates a cash outflow from operating activities that we expect to reverse in later periods. Additionally, during our peak time of operations in the warm weather months, we generally carry higher amounts of inventory to ensure high fill rates and customer satisfaction.
The Company primarily finances its operations through three credit facility agreements (a) a facility that is an obligation of AMCON Distributing Company (the “AMCON Facility”), (b) a facility that is an obligation of Team Sledd, LLC (“Team Sledd” and, the “Team Sledd Facility”) and (c) a facility that is the obligation of Henry’s (the “Henry’s Facility”) (collectively, the “Facilities”) and long-term debt agreements with banks. The Team Sledd Facility and the Henry’s Facility are non-recourse to AMCON Distributing Company, are not guaranteed by AMCON Distributing Company and have no cross default provisions applicable to AMCON Distributing Company. In Q1 2025, the Company amended the Henry’s Facility, increasing its aggregate borrowing capacity from $40.0 million to $45.0 million and extending the maturity date to February 2028. In Q1 2025, the Company amended the Team Sledd Facility to designate the Secured Overnight Financing Rate (“SOFR”) as the primary borrowing rate.
At December 2024, the Facilities had a total combined borrowing capacity of $305.0 million, which includes provisions for up to $30.0 million in credit advances for certain inventory purchases, which are limited by accounts receivable and inventory qualifications, and the value of certain real estate collateral. The AMCON Facility matures in June 2027, the Henry’s Facility matures in February 2028, and the Team Sledd Facility matures in March 2028, each without a penalty for prepayment. Obligations under the Facilities are collateralized by substantially all of the Company’s respective equipment, intangibles, inventories, accounts receivable, and certain real estate. The Facilities each feature an unused commitment fee and springing financial covenants. Borrowings under the Facilities bear interest at SOFR, plus any applicable spreads.
The amount available for use from the Facilities at any given time is subject to a number of factors, including eligible accounts receivable and inventory balances that fluctuate day-to-day, as well as the value of certain real estate collateral. Based on the collateral and loan limits as defined in the Facility agreements, the credit limit of the combined Facilities at December 2024 was $247.5 million, of which $165.9 million was outstanding, leaving $81.6 million available.
The average interest rate of the Facilities was 5.96% at December 2024. For the three months ended December 2024, the peak borrowings under the Facilities was $197.1 million, and the average borrowings and average availability under the Facilities was $162.1 million and $73.4 million, respectively.
Cross Default and Co-Terminus Provisions
Team Sledd’s two notes payable and the Team Sledd Facility contain cross default provisions. The Henry’s note payable and the Henry’s Facility contain cross default provisions. There were no such cross defaults for either Team Sledd or Henry’s at December 2024. Additionally, the Team Sledd Facility and the Henry’s Facility are non-recourse to AMCON Distributing Company, are not guaranteed by AMCON Distributing Company and have no cross default provisions applicable to AMCON Distributing Company. The Company and its subsidiaries, including Team Sledd and Henry’s, were in compliance with all of the financial covenants under the respective Facilities at December 2024.
Dividend Payments
The Company paid cash dividends on its common stock totaling $0.1 million in each of the three-month periods ended December 2024 and December 2023. During Q1 2025, the Company declared a $0.28 per share special dividend totaling approximately $0.2 million that will be paid in Q2 2025. During Q1 2024, the Company declared a $0.28 per share special dividend totaling approximately $0.2 million that was paid in Q2 2024.
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Other
The Company has issued letters of credit totaling $2.0 million to its workers’ compensation insurance carriers as part of its self-insured loss control program.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.
Liquidity Risk
The Company’s liquidity position is significantly influenced by its ability to maintain sufficient levels of working capital. For our Company and our industry in general, customer credit risk and ongoing access to bank credit heavily influence liquidity positions.
The Company does not currently hedge its exposure to interest rate risk or fuel costs. Accordingly, significant price movements in these areas can and do impact the Company’s profitability.
While the Company believes its liquidity position going forward will be adequate to sustain operations in both the short- and long-term, a precipitous change in operating environment could materially impact the Company’s future revenue streams as well as its ability to collect on customer accounts receivable or secure bank credit.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in company reports filed or submitted under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s (“SEC”) rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
As required by Rules 13a-15(b) and 15d-15(b) under the Exchange Act, an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2024 was made under the supervision and with the participation of our senior management, including our principal executive officer and principal financial officer. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls and procedures will prevent all errors and fraud. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. Further, the design of a control system must reflect the fact that there are resource constraints, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management’s override of the control.
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The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended December 2024, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
There have been no material changes to the Company’s risk factors as previously disclosed in Item 1A “Risk Factors” of the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2024.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The Company issued unregistered securities to certain members of the Company’s management team during the quarterly period ended December 31, 2024, in relation to the vesting and granting of equity awards as described in Note 9 of Part I, Item 1 of this quarterly report on Form 10-Q. These issuances were exempt from registration under Section 4(a)(2) of the Securities Act of 1933.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
During the three months ended December 31, 2024, none of the Company’s directors or officers
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
AMCON DISTRIBUTING COMPANY | |
(registrant) | |
Date: January 21, 2025 | /s/ Christopher H. Atayan |
Christopher H. Atayan, | |
Chief Executive Officer and Chairman | |
Date: January 21, 2025 | /s/ Charles J. Schmaderer |
Charles J. Schmaderer, | |
Vice President, Chief Financial Officer and Secretary | |
(Principal Financial and Accounting Officer) |
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