Overview

National Beverage Corp. innovatively refreshes America with a distinctive portfolio of sparkling waters, juices, energy drinks (Power+ Brands) and, to a lesser extent, Carbonated Soft Drinks. We believe our creative product designs, innovative packaging and imaginative flavors, along with our corporate culture and philosophy, make National Beverage unique as a stand-alone entity in the beverage industry.

Our strategy seeks the profitable growth of our products by (i) developing healthier beverages in response to the global shift in consumer buying habits and tailoring our beverage portfolio to the preferences of a diverse mix of 'crossover consumers' - a growing group desiring a healthier alternative to artificially sweetened and high-caloric beverages; (ii) emphasizing unique flavor development and variety throughout our brands that appeal to multiple demographic groups; (iii) maintaining points of difference through innovative marketing, packaging and consumer engagement and (iv) responding faster and more creatively to changing consumer trends than larger competitors who are burdened by legacy production and distribution complexity and costs.

The majority of our brands are geared to the active and health-conscious consumer including sparkling waters, energy drinks, and juices. Our portfolio of Power+ Brands includes LaCroix®, LaCroix Cúrate®, and LaCroix NiCola® sparkling water products; Clear Fruit® non-carbonated water beverages enhanced with fruit flavor; Rip It® energy drinks and shots; and Everfresh®, Everfresh Premier Varietals™ and Mr. Pure® 100% juice and juice-based products. Additionally, we produce and distribute carbonated soft drinks including Shasta® and Faygo®, iconic brands whose consumer loyalty spans more than 130 years.

Presently, our primary market focus is the United States and Canada. Certain of our products are also distributed on a limited basis in other countries and options to expand distribution to other regions are being considered. To service a diverse customer base that includes numerous national retailers, as well as thousands of smaller "up-and-down-the-street" accounts, we utilize a hybrid distribution system consisting of warehouse and direct-store delivery. The warehouse delivery system allows our retail partners to further maximize their assets by utilizing their ability to pick up product at our warehouses, further lowering their/our product costs.

Our operating results are affected by numerous factors, including fluctuations in the costs of raw materials, holiday and seasonal programming and weather conditions. Beverage sales are seasonal with higher sales volume realized during the summer months when outdoor activities are more prevalent.

Our highly innovative business, where new beverages are developed and produced for selective holidays and ceremonial dates, should not be analyzed on the common three-month (quarterly) periods, traditionally found acceptable. Today, costly development projects and seasonal weather periods, plus promotional packaging, can distort quarter-to-quarter statistics and result in decision making that is not truly beneficial for investors and shareholders alike.

Traditional and typical are not a part of an innovator's vocabulary.





RESULTS OF OPERATIONS

Three Months Ended August 1, 2020 (first quarter of fiscal 2021) compared to Three Months Ended July 27, 2019 (first quarter of fiscal 2020)

Net sales for the first quarter of fiscal 2021 increased 11.3% to $293.4 million from $263.6 million for the first quarter of fiscal 2020. The increase in sales resulted primarily from a 12.3% increase in case volume. The volume increase includes a 15.7% increase of our Power+ Brands, and 5.1% growth in Carbonated Soft Drinks. The increase in Power+ Brands volume is primarily attributable to increased consumer demand in the take-home channel. Average selling price per case was flat.

Gross profit for the first quarter of fiscal 2021 increased to $117.2 million from $96.6 million for the first quarter of fiscal 2020. The increase in gross profit is due to increased volume and reduced raw material costs. The cost of sales per case decreased 5.2% and gross margin increased to 40.0% from 36.6% for the first quarter of fiscal 2020.

Selling, general and administrative expenses for the first quarter of fiscal 2021 decreased $1.5 million to $50.5 million from $52.0 million for the first quarter of fiscal 2020. The decrease was primarily due to reduced marketing and selling costs partially offset by increased shipping costs. As a percent of net sales, selling, general and administrative expenses decreased to 17.2% from 19.7% for the first quarter of fiscal 2020.

Other income includes interest income of $276,000 for the first quarter of fiscal 2021 and $731,000 for the first quarter of fiscal 2020. The decrease in interest income is due to lower return on investments.

The Company's effective income tax rate, based upon estimated annual income tax rates, was 23.6% for the first quarter of fiscal 2021 and 23.8% for the first quarter of fiscal 2020. The difference between the effective rate and the federal statutory rate of 21% was primarily due to the effects of state income taxes.





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Table of Contents

LIQUIDITY AND FINANCIAL CONDITION

Liquidity and Capital Resources

Our principal source of funds is cash generated from operations. At August 1, 2020, we maintained $100 million unsecured revolving credit facilities, under which no borrowings were outstanding and $3.4 million was reserved for standby letters of credit. We believe existing capital resources will be sufficient to meet our liquidity and capital requirements for the next twelve months.

Cash Flows

The Company's cash position increased $48.0 million for the first quarter of fiscal 2021, which compares to an increase of $46.5 million for the first quarter of fiscal 2020.

Net cash provided by operating activities for the first quarter of fiscal 2021 amounted to $51.5 million compared to $50.6 million for the first quarter of fiscal 2020. For the first quarter of fiscal 2021, cash flow was principally provided by net income of $51.1 million, an increase in accrued and other liabilities of $10.9 million and depreciation and amortization aggregating $4.6 million, offset in part by sales volume and other related increases in trade receivables.

Net cash used in investing activities for the first quarter of fiscal 2021 reflects capital expenditures of $3.7 million, compared to capital expenditures of $4.2 million for the first quarter of fiscal 2020. We intend to continue production capacity and efficiency improvement projects in fiscal 2021, and expect capital expenditures to be comparable to fiscal 2020 levels.

Financial Position

At August 1, 2020, our working capital increased to $377.5 million from $319.0 million at May 2, 2020. The current ratio was 3.5 to 1 at August 1, 2020 compared to 3.3 to 1 at May 2, 2020. The $58.5 million increase in working capital was due to higher cash and trade receivables, partially offset by higher accrued liabilities, and income taxes payable. Trade receivables increased $18.8 million during the first quarter of 2020 due to increased sales and days sales outstanding remained unchanged at 32.2 days. Inventories decreased slightly during the first quarter of 2020 and inventory turns remained unchanged at 9.4 times.

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