Natural Alternatives International, Inc. (NAII) FY2026 Earnings: Revenue $143M (+9.7%)
NAII — FY2026 Financial Report Analysis
Full Year · Fiscal year 2026 · Published by Pham Hop
NAII grew fiscal 2026 sales 9.7% to $142.5 million, but a $10.4 million factory write-down widened its net loss to $20.7 million, and an expected loan-covenant breach has triggered a going-concern warning and plans to sell both Carlsbad properties.
Revenue
$143M
+9.7% YoY
Net income
-$21M
-52.4% YoY
Diluted EPS
$-3.43
-50.4% YoY
Operating margin
-13.2%
This period vs a year ago
Same period last year
This period
Revenue▲+9.7%
≈$130M
$143M
Year-ago figures (≈) are worked out from the growth rate the company reported. Each row has its own scale.
Overview
Natural Alternatives International (NAII) makes vitamins and supplements under contract for other brands (called "private-label contract manufacturing" — the customer's name goes on the bottle, NAII runs the factory) and earns a smaller, higher-margin stream from licensing and selling its patented beta-alanine ingredient under the CarnoSyn and TriBsyn names. In the fiscal year ended June 30, 2026, sales rose 10% to $142.5 million, but the net loss widened to $20.7 million from $13.6 million. The main reason was a $10.4 million non-cash write-down of its owned Carlsbad, California factory — the factories are running well below capacity. The bigger news sits after the numbers: the company says it expects to breach a covenant on its new bank loan at the end of September 2026, both management and the auditor flag "substantial doubt" about its ability to continue as a going concern, and it plans to sell both Carlsbad buildings.
At a glance
Sales up 9.7% to $142.5 million — driven by bigger orders from one of its largest contract customers, but in August 2026 one of its largest customers cut its fiscal 2027 order forecast, so the growth is unlikely to carry into next year in the same form.
Net loss of $20.7 million ($3.43 per share) — about half of it is the $10.4 million factory write-down, which costs no cash; stripping that out, the business still lost about $8.3 million at the operating level.
Operating cash flow swung to −$8.9 million from +$5.9 million — cash fell to $7.4 million while bank debt rose to $18.7 million, which is why the going-concern warning matters more than the income statement.
Results in figures
Metric
FY2026 (to Jun 30, 2026)
FY2025
YoY Change
Net sales
$142.5M
$129.9M
+9.7%
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– Private-label contract manufacturing
$134.6M
$121.8M
+10.5%
– Patent and trademark licensing (CarnoSyn)
$7.9M
$8.1M
−2.2%
Gross margin
6.3%
7.2%
−0.9 pts
Impairment loss (Carlsbad factory)
$10.4M
—
n/m
Operating loss
−$18.8M
−$8.7M
loss 117% larger
Operating margin
−13.2%
−6.7%
−6.5 pts
Net loss
−$20.7M
−$13.6M
loss 52.4% larger (−52.4%)
Diluted EPS
−$3.43
−$2.28
−50.4%
Operating cash flow
−$8.9M
+$5.9M
swing of −$14.8M
Largest customer, share of sales
28%
33%
−5 pts
Gross margin is the share of sales left after paying for ingredients, factory labour and overhead. Operating margin is what is left after also paying selling and administrative costs (and here, the write-down). At 6.3% gross margin, NAII keeps only about 6 cents of every sales dollar to cover $17.3 million of overheads, which is why growing sales 10% still left it loss-making.
What drove the year
Contract manufacturing volume came back, but not profitably. Contract manufacturing sales rose 11%, which the 10-K attributes "primarily due to increased orders from one of our largest customers and shipments to existing customers, partially offset by lower sales from other existing customers." US sales rose 18% to $93.3 million while sales outside the US slipped 3% to $49.2 million. The segment's gross margin was only 2.9% (3.0% a year earlier). Management lists "an unfavorable shift in product sales mix, increased manufacturing costs" and a $0.8 million reserve against the last Employee Retention Tax Credit receivable (a pandemic-era payroll tax refund the company no longer expects to collect "without substantial legal fees") as the drags, only partly offset by higher volume reducing idle factory time and favourable currency moves.
The licensing business — the profitable part — shrank. CarnoSyn licensing and ingredient sales fell 2% to $7.9 million because of "a decrease in beta-alanine-based material sales from existing customers." Its gross margin fell to 64% from 70%, and the segment's operating income fell 21% to $2.7 million from $3.4 million. Because this unit earns far higher margins than contract manufacturing, its smaller share of the total cut consolidated gross margin by 0.8 points on its own. The company launched CarnoSyn 4X (sports nutrition) in April 2026 and widened TriBsyn's uses in May 2026, so these products had at most a few weeks in the year.
Overheads rose 5%. Selling, general and administrative costs (excluding the write-down and legal settlement) rose $0.7 million to $17.3 million, mainly from a $0.4 million net charge for the same tax-credit reserve, more advertising for CarnoSyn 4X and TriBsyn, and more staff to handle the higher sales.
The write-down. The company tested its owned Carlsbad manufacturing facility for impairment — an accounting check of whether an asset is still worth its book value — after seeing a fall in its market value, negative operating cash flow in fiscal 2026 and 2024, and "one of our largest customer's downward revisions of forecasted orders." The factory's expected future cash flows didn't cover its book value, so $10.4 million was written off. It uses no cash, but it is a clear statement that the factory is not earning its keep.
What the headline numbers hide
Excluding one-offs, the underlying loss got slightly worse, not better. Take out the $10.4 million write-down and legal costs ($44,000 this year, $1.4 million for a settled employment claim last year) and the operating loss was about $8.3 million versus about $7.3 million in fiscal 2025. So 10% more sales came with a roughly $1 million larger underlying loss. About $1.2 million of that came from the tax-credit reserve, which shouldn't repeat — without it, the underlying result was roughly flat.
Last year's loss was inflated by tax, this year's isn't. Fiscal 2025 included a $4.8 million charge to write off deferred tax assets (future tax savings the company no longer expects to use), which is why the tax line fell from $2.8 million to $0.4 million. Comparing net losses year to year therefore understates how much the operating picture deteriorated before the write-down.
Cash conversion was poor. Operating cash flow was −$8.9 million against a net loss of $20.7 million. Adding back the non-cash write-down, depreciation, lease charges and stock pay brings the business to roughly breakeven ($0.3 million) before working capital — the cash tied up in unpaid customer bills and stock on the shelves — which then absorbed $9.2 million. Receivables rose 41% (to $20.7 million) and inventory rose 24% (to $30.8 million), both far faster than the 10% sales growth. Days sales outstanding (how long customers take to pay) edged up to 45 from 44. After $3.7 million of capital spending, free cash flow was about −$12.6 million.
Debt is doing the work cash used to. Cash fell to $7.4 million from $12.3 million, while line-of-credit plus term-loan debt rose to $18.7 million from $10.8 million. In May 2026 NAII refinanced with Legacy Corporate Lending: an $11.0 million term loan secured by the Carlsbad powder facility and a $20.0 million borrowing-base credit line ($7.7 million drawn).
Per-share figures aren't flattered. There were no buybacks to speak of; weighted shares rose slightly to 6.03 million, so EPS fell roughly in line with net income.
Book value shrank. Shareholders' equity fell 27% to $50.0 million (about $7.97 per share on 6.27 million shares outstanding). Total assets also fell because $14.4 million of lease assets and lease liabilities were remeasured downward; those two moves offset and don't affect equity.
Takeaway: The 10% sales gain is less important than what came after the year closed: in August 2026 one of NAII's largest customers (its two biggest together were 52% of sales) cut its fiscal 2027 order forecast, the company now expects to fail its first loan covenant test at September 30, 2026, and both management and the auditor warn of substantial doubt about its ability to continue as a going concern. Fiscal 2027 depends on selling property and getting relief from its lender, not on factory volumes.
Going-concern warning and management's plan
A going-concern warning means the people preparing and auditing the accounts are not confident the company can meet its obligations for the next 12 months without further action. The 10-K lists three reasons: continued losses and negative operating cash flow; a forecast that NAII will fail the "fixed charge coverage ratio" covenant (a test of whether earnings cover loan payments and other fixed costs) when it is first measured for the nine months to September 30, 2026; and not having enough cash to repay the credit line and term loan if the lender demands repayment after a breach. The company has told Legacy about the expected breach, and "there is no assurance that a waiver, amendment, or remedy will be available."
Management's response:
Sell the Carlsbad corporate headquarters, already classified as held for sale at a $4.0 million book value, with a sale expected in fiscal 2027.
Sell the Carlsbad manufacturing facility and move that production into the leased Vista, California plant. The company says this would pay off the term loan on the property and remove "persistent excess capacity."
Cut costs and push for new and expanded customer relationships.
Review strategic alternatives, including "potential mergers, acquisitions, joint ventures, or a strategic sale of the Company."
Outlook
Management gave no numerical guidance. Its fiscal 2027 forecast "includes an expected increase in sales as compared to fiscal 2026," yet it "currently anticipate[s] we will experience a net loss for fiscal 2027." It also expects raw-material, labour, transport and tariff cost pressure to continue through fiscal 2027.
Our read: the business has two problems at once. The operating one is structural — contract manufacturing earned under a 3% gross margin even in a year of higher volume, and the licensing unit that used to cushion losses shrank. The financial one is urgent — with $7.4 million of cash, about $18.7 million of bank debt and a covenant breach expected within weeks of the filing, the next few months depend on whether Legacy grants a waiver and how quickly and at what price the two Carlsbad properties sell. Moving production into Vista should lower fixed costs if it goes as planned, but that saving would take effect only after the sale. Three things to watch in the fiscal Q1 2027 10-Q (quarter to September 30, 2026): whether a covenant waiver or amendment is disclosed, any signed property sale, and how far contract-manufacturing sales fall after the large customer's forecast cut.
This is the first NAII report on this site, so there is no earlier outlook to check against.