Natural Grocers by Vitamin Cottage, Inc. (NGVC) Earnings Call Transcript & Summary

Good afternoon. My name is Kemper Isely, and I am Co-President and Chairman of the Board of Natural Grocers by Vitamin Cottage. Welcome to the company's 2021 Annual Meeting of Stockholders. Due to the public health impact of the COVID-19 pandemic and consistent with our commitment to the health and safety of the communities we serve, we made the decision to hold this year's annual meeting virtually. Before I get started, I would like to recognize those of our employees who are also stockholders and thank them for their dedication and daily contributions to the company's success. An agenda that outlines the order of business for the meeting has been made available on the virtual annual meeting site. The matters on which the stockholders are voting are: first, to elect 3 Class III directors; second, to ratify the appointment KPMG as the company's independent registered public accounting firm for the fiscal year ending September 30, 2021; and third, to approve, on an advisory basis, the compensation paid to our named executive officers during fiscal 2020. I would like to begin the meeting by introducing the current members of our Board of Directors who are with us today. On the line today we have Zephyr Isely, who is also a Co-President; Heather Isely, who serves as Chairperson of our compensation Committee and also an Executive Vice President and our Corporate Secretary; Elizabeth Isely, who is also an Executive Vice President; Ed Cerkovnik, an independent Director; Richard Hallé, an independent Director; and David Rooney, an independent Director and Chairman of our Audit Committee. Also joining us is Jonathan Dhillon, our General Counsel; and Todd Dissinger, our Chief Financial Officer; Mr. Dissinger and Mr. Dhillon do not serve on our Board. Heather will serve as secretary of the meeting and will record the proceedings. She has delivered to me an affidavit of Broadridge Financial Solutions, which states that on January 21, 2021, proxy materials were distributed to all stockholders of record as of the close of business on January 12, 2021, the record date for this meeting. The Affidavit will be filed with the minutes of this meeting. Heather will now discuss the procedures for transacting the business of the meeting.

Thank you, Kemper. Good afternoon, everyone. As Kemper mentioned, the annual meeting agenda is available on the virtual annual meeting portal. The meeting will take place as described in the agenda. As discussed in our proxy statement, we will be responding to questions previously submitted by stockholders via our annual meeting voting portal in advance of the annual meeting, and we will not be taking live questions during today's meeting. You will be able to vote your shares during the annual meeting by following the voting instructions on our virtual annual meeting platform. In order to vote during the meeting, you will be required to log in with your 16-digit-control number included in your proxy materials. If you are unable to locate your control number, you will be able to participate in the virtual annual meeting as a guest, but will be unable to vote your shares during the meeting. If you have any technical difficulties during the meeting, please call 800-586-1548 for assistance. After we review the proposals to be voted on, I will invite Kemper to offer some remarks about the company and our business. When the report of the inspector of election is complete, I will announce the results. I hereby appoint Jonathan Dhillon, the company's General Counsel, as inspector of election for the meeting and any adjournment or postponement. He has signed an oath to act as inspector of election. That will be filed with the minutes of this meeting. I would like to remind you that you may vote your shares online at any time prior to the closing of the polls, which will occur following Kemper's prepared remarks. The inspector has a stockholder list of the company as of the close of business on January 12, 2021, the record date for determining the stockholders eligible to vote in this meeting. The stockholder list identifies the stockholders and the number of shares that are entitled to vote at this meeting. This list is available upon request if any stockholder wishes to examine it and will be filed with the minutes of this meeting. The inspector of the election has informed me that in excess of a majority of the outstanding shares of common stock entitled to vote are represented in person or by proxy at this meeting. A quorum is, therefore, present for the meeting. I declare the meeting duly and lawfully convened. The meeting is now open and ready for business. The first item of business is the election of 3 Class III directors of the company. As described in the proxy statement, the candidates for director, who have been nominated by the Board of Directors to serve as Class III directors are, Heather Isely, Kemper Isely and Ed Cerkovnik. In accordance with the company's bylaws, stockholders were required to provide advanced notice of their intent to nominate candidates for directors. No such notice was received. As indicated in our proxy statement, the Board of Directors recommends that the stockholders elect the director nominees. The second item of business is to ratify the appointment of KPMG as the company's independent registered public accounting firm for the fiscal year ending September 30, 2021. At this time, I would like to recognize Travis Dungan, who is participating virtually today on behalf of KPMG. Mr. Dungan worked on the audit of the company's financial statements and internal controls for the fiscal year ended September 30, 2020. There were no questions submitted for Mr. Dungan in advance of the annual meeting. As indicated in our proxy statement, the Board of Directors recommends that the stockholders vote in favor of this proposal. The third item of business is to approve, on an advisory basis, the compensation paid to our named executive officers during fiscal 2020. As indicated in our proxy statement, the Board of Directors recommends that the stockholders vote in favor of this proposal. The inspector of election will deliver a report on the preliminary results of the voting later in the meeting after tabulation has been completed. I will now invite Kemper to offer some remarks about the company and our business. Once the report of the inspector of election has been delivered, I will announce the voting results. Before Kemper offers his remarks about the company, Jonathan Dhillon, our General Counsel and inspector of election has an announcement to make.

If you have not already voted online, please do so at this time as Kemper will close the polls after his remarks. Before Kemper begins, a few quick reminders. Certain information discussed today are forward-looking statements based on current expectations and assumptions and are subject to risks and uncertainties. Actual results could differ materially from those described in the forward-looking statements due to a variety of factors, including the risks and uncertainties detailed in the company's most recently filed forms 10-Q and 10-K. The company undertakes no obligation to update forward-looking statements. Kemper?

Thank you, Jonathan. Fiscal 2020 was an unprecedented year. The COVID-19 pandemic presented many challenges and affected everyone's daily life. We are extremely proud of how Natural Grocers responded to these circumstances to support our customers and communities. We adapted quickly to the pandemic with robust safety measures that met or exceeded government mandates to support both our customers and crew members. We also maintained our focus on our founding principles to deliver the highest quality natural and organic products. During fiscal 2020, we provided over $10 million in hero pay, in the form of increased hourly wages and discretionary bonuses to our crew, in recognition of their extraordinary efforts during these challenging times. These additional investments in our crew were substantial, considering that our net income for fiscal 2020 was approximately $20 million. Our rapid response to the pandemic resonated with our customers and contributed to a record-setting year. During fiscal 2020, Natural Grocers achieved over $1 billion in net sales for the first time, and delivered our 17th consecutive year of positive comparable store sales growth. Here are a few additional highlights for fiscal 2020. Our net income increased by 112.5%, and we delivered diluted earnings per share of $0.89 compared to $0.42 in the prior year. Daily average comparable store sales increased 12%. We opened 6 new stores and relocated one store during fiscal 2020, representing a 3.9% unit growth. We plan to open 5 to 6 new stores and relocate 3 to 5 stores in fiscal 2021. We believe our {N}power program continues to drive loyalty and provide incremental opportunities to market to and connect with our customers. We ended the first quarter of fiscal 2021 with 1.3 million members. Also, during fiscal 2020, we were proud to launch over 50 new Natural Grocers brand products. These products have been developed consistent with our core values and are positioned as a premium quality brand at an always affordable price. We believe that Natural Grocers brand products have significant long-term potential, and we plan to continue to focus on their growth and expansion. In November 2020, we announced the declaration of a $2 per share special dividend, which was paid in December. We also declared a quarterly cash dividend of $0.07 per share during each quarter of fiscal 2020 and the first quarter of fiscal 2021. Our capital allocation strategy demonstrates our continued commitment to driving enhanced shareholder value. It also reflects our strong financial position, robust operating cash flow and confidence in our business outlook. As we look forward to the opportunities fiscal 2021 presents, we will continue to drive sales by focusing on our in-store customer experience, providing world-class customer service and building customer loyalty. In addition, we will remain focused on our strategy of balancing new store expansion with a focus on enhancing existing store operations. We are very pleased with our solid start to fiscal 2021. Our unwavering commitment to our founding principles continue to differentiate us and drive our business forward with our unsurpassed quality standards, always affordable prices, nutritional education, our commitment to the communities we serve and our good4u crew. Since there were no relevant questions received in advance of the annual meeting, we will now proceed with the voting results. So let me now declare the polls closed. I understand that the votes have been counted and the preliminary report of the inspector of election has been delivered to the company. Heather, will you please announce the preliminary results of the shareholders vote?

Yes, Kemper. I will. The preliminary report of the Inspector of Election indicates that Heather Isely, Kemper Isely and Edward Cerkovnik have been elected as Class III directors by the stockholders. Ms. Isely received 15,247,070 affirmative votes. Mr. Isely received 15,351,562 affirmative votes. And Mr. Cerkovnik received 19,281,005 affirmative votes. Plus, each received more than a plurality of the votes cast at the meeting. Ratification of the appointment of KPMG LLP as the company's independent registered public accounting firm for the fiscal year ending September 30, 2021, has been approved by the stockholders by the affirmative vote of 21,390,381 votes, representing more than a majority of the votes cast at the meeting. The compensation paid to our named executive officers during fiscal 2020 has been approved by the stockholders on an advisory basis by the affirmative vote of 20,265,777 votes, representing more than a majority of the votes cast at the meeting. Back to you, Kemper.

Thank you, Heather. I request that the final report of the inspector of election be filed with the minutes of this meeting. Details of the voting results will be available to all stockholders in our filings with the SEC within 4 business days. You have now heard the results of the voting and the complete -- and that this completes the business to be conducted at the meeting. Since there are no other matters to come before the meeting, the annual meeting is now adjourned. Thank you for attending our meeting today. We wish all of you a safe and healthy 2021, and we look forward to engaging with you at next year's annual meeting.

Thank you, ladies and gentlemen. This concludes today's conference call. Thank you for participating, and you may now disconnect.