Financial Performance Overview

NAI’s business consists of two main segments - private-label contract manufacturing and patent and trademark licensing. For the three months ended September 30, 2024, the company reported total net sales of $33.15 million, a 2% decrease compared to the same period in 2023.

The private-label contract manufacturing segment saw a 5% decrease in sales to $30.63 million, primarily due to reduced orders from one of NAI’s larger customers. However, this was partially offset by increased shipments to most of NAI’s other existing customers as well as new customers. The patent and trademark licensing segment, which includes direct raw material sales and royalty income, grew 42% to $2.52 million, driven by decreased volume rebates and higher orders from existing customers.

Segment Performance

The table below summarizes NAI’s segment performance for the three months ended September 30, 2024 and 2023:

The private-label contract manufacturing segment reported an operating loss of $645,000 in Q3 2024, compared to operating income of $1.01 million in Q3 2023. This decline was primarily due to reduced sales volume and higher manufacturing costs. The patent and trademark licensing segment saw operating income increase 125% to $997,000, benefiting from the higher revenue.

Geographic Performance

NAI’s products are sold both in the U.S. and international markets, with Europe and Asia being the primary non-U.S. regions. The table below shows net sales by geographic region:

Products manufactured by NAI’s Swiss subsidiary accounted for 81% of net sales in markets outside the U.S. in Q3 2024, compared to 89% in Q3 2023. This indicates a slight shift towards increased sales from the company’s U.S. operations.

Strengths and Weaknesses

Strengths:

• Diversified revenue streams from private-label manufacturing and patent/trademark licensing
• Strong market position in beta-alanine products (CarnoSyn®, SR CarnoSyn®, TriBsyn™)
• Ongoing investment in R&D to expand product offerings

Weaknesses:

• Reliance on a few large private-label manufacturing customers
• Increased manufacturing costs impacting profitability
• Limited market acceptance of SR CarnoSyn® product

Outlook and Future Prospects

NAI anticipates experiencing a net loss in the first half of fiscal 2025, followed by net income in the second half, resulting in an overall net loss for the full fiscal year. This outlook is driven by several factors:

• Continued investment in R&D and sales/marketing for CarnoSyn®, SR CarnoSyn®, and TriBsyn™ products to drive future growth
• Ongoing manufacturing cost pressures from higher labor, supplies, rent, and freight expenses
• Potential disruptions from the Israel-Hamas war and Hezbollah conflict, which could impact raw material sourcing and customer demand

However, the company remains optimistic about the long-term growth potential of its patent and trademark licensing business, particularly as it works to expand distribution and market acceptance of its newer product offerings. Successful commercialization of TriBsyn™ and further development of the CarnoSyn® brand could help offset the challenges in the private-label manufacturing segment.

Overall, NAI is navigating a period of transition, as it works to diversify its revenue streams and position itself for future growth. While the near-term financial outlook is challenging, the company’s investments in innovation and intellectual property protection suggest it is taking the necessary steps to strengthen its competitive position over the long run.