NGVC Natural Grocers by Vitamin Cottage Inc

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read in conjunction with our unaudited consolidated financial statements and notes thereto included elsewhere in this Form 10-Q and with the audited consolidated financial statements and notes thereto in our Form 10-K. This MD&A contains forward-looking statements. Refer to “Forward-Looking Statements” at the beginning of this Form 10-Q for an explanation of these types of statements. Summarized numbers included in this section, and corresponding percentage or basis point changes, may not sum due to the effects of rounding.

Company Overview

We operate natural and organic grocery and dietary supplement stores that are focused on providing high-quality products at affordable prices, exceptional customer service, nutrition education and community outreach. We offer a variety of natural and organic groceries, body care products and dietary supplements that meet our strict quality standards. We believe we have been at the forefront of the natural and organic foods movement since our founding. We are headquartered in Lakewood, Colorado. As of June 30, 2022, we operated 162 stores in 20 states, including Colorado, Arkansas, Arizona, Idaho, Iowa, Kansas, Louisiana, Minnesota, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, Texas, Utah, Washington and Wyoming. We also operate a bulk food repackaging facility and distribution center in Golden, Colorado.

Our stores range from approximately 5,000 to 16,000 selling square feet, and average approximately 11,000 selling square feet.

The growth in the organic and natural foods industry and growing consumer interest in health and nutrition have enabled us to continue to open new stores and enter new markets. During the five fiscal years ended September 30, 2021, we increased our store count at a compound annual growth rate of 5.2%. In fiscal year 2021, we opened three new stores and relocated/remodeled five existing stores. We plan to open three to four new stores and relocate/remodel two stores in fiscal year 2022. As of the date of this report, we have signed leases or acquired property for an additional five new stores that we plan to open in fiscal years 2022 and beyond. During the nine months ended June 30, 2022, we relocated/remodeled one store, opened one new store, and closed one store. Between July 1, 2022 and the date of this Form 10-Q, we opened one new store.

Performance Highlights

Key highlights of our performance for the three and nine months ended June 30, 2022 are discussed briefly below and in further detail throughout this MD&A. Key financial metrics, including, but not limited to, daily average comparable store sales, are defined in the section “Key Financial Metrics in Our Business,” presented later in this MD&A.

Industry Trends and Economics

We have identified the following recent trends and factors that have impacted and may continue to impact our results of operations and financial condition:

During the third quarter and first nine months of fiscal 2022, the costs of certain goods we sell were impacted by levels of inflation that are higher than we have experienced in recent years. In the aggregate, management estimates that the Company has experienced annual cost inflation of approximately 6% in the third quarter of fiscal year 2022. Cost inflation estimates are based on individual like items sold during the periods being compared. The impact of inflation on our sales and profitability is influenced in part by our ability to adjust our retail prices accordingly. While we have been able to mitigate this impact to date through our pricing strategies, we are unable to predict how long the current inflationary environment will continue or the impact of inflationary trends on our sales and profitability in the future.

Outlook

We believe there are several key factors that have contributed to our success and will enable us to increase our comparable store sales and continue to profitably expand. These factors include a loyal customer base, increasing basket size, growing consumer interest in nutrition and wellness, a differentiated shopping experience that focuses on customer service, nutrition education, a convenient, clean and shopper-friendly retail environment, and our focus on high quality, affordable natural and organic groceries and dietary supplements.

We expect the rate of new store unit growth in the foreseeable future to be dependent upon economic and business conditions and other factors, including the impact of the COVID-19 pandemic and the availability of construction materials and equipment. Over the long term, we believe there are opportunities for us to continue to expand our store base, expand profitability and increase comparable store sales. However, future sales growth, including comparable store sales, and our profitability could vary due to increasing competitive conditions in the natural and organic grocery and dietary supplement industry and regional and general economic conditions, including inflationary trends. In the future, we believe there are opportunities for increased leverage of costs and increased economies of scale in sourcing products. However, due to the fixed nature of certain of our costs (in particular, our rent obligations and related occupancy costs), our ability to leverage costs may be limited.

Our operating results may be affected by the above-described factors as well as a variety of other internal and external factors and trends described more fully in Item 1A - “Risk Factors” in our Form 10-K and Part II, Item 1A – “Risk Factors” in this Form 10-Q.

Key Financial Metrics in Our Business

In assessing our performance, we consider a variety of performance and financial measures. The key measures are as follows:

Net sales

Our net sales are comprised of gross sales net of discounts, in-house coupons, returns, and allowances. In comparing net sales between periods, we monitor the following:

Cost of goods sold and occupancy costs

Our cost of goods sold and occupancy costs include the cost of inventory sold during the period (net of discounts and allowances), shipping and handling costs, distribution and supply chain costs (including the costs of our bulk food repackaging facility), buying costs, shrink expense, third-party delivery fees and store occupancy costs. Store occupancy costs include rent, common area maintenance and real estate taxes. Depreciation expense included in cost of goods sold relates to depreciation of assets directly used at our bulk food repackaging facility. The components of our cost of goods sold and occupancy costs may not be identical to those of our competitors, and as a result, our cost of goods sold and occupancy costs data included in this Form 10-Q may not be identical to those of our competitors and may not be comparable to similar data made available by our competitors. Occupancy costs as a percentage of net sales typically decrease as new stores mature and sales increase. Rent payments for leases classified as finance lease obligations are not recorded in cost of goods sold and occupancy costs. Rather, these rent payments are recognized as a reduction of the related obligations and as interest expense.

Gross profit and gross margin

Gross profit is equal to our net sales less our cost of goods sold and occupancy costs. Gross margin is gross profit as a percentage of net sales. Gross margin is impacted by changes in retail prices, product costs, occupancy costs and the mix of products sold, as well as the rate at which we open new stores.

Store expenses

Store expenses consist of store-level expenses, such as salary and benefits, share-based compensation, supplies, utilities, depreciation, advertising, bank credit card charges and other related costs associated with operations and purchasing support. Depreciation expense included in store expenses relates to depreciation for assets directly used at the stores, including depreciation on land improvements, leasehold improvements, fixtures and equipment and technology. Depreciation expenses on the right-of-use assets related to the finance leases of the stores are also considered store expenses. Additionally, store expenses include any gain or loss recorded on the disposal of fixed assets, primarily related to store relocations, as well as store closure and lease termination costs. Store expenses also include long-lived asset impairment charges. The majority of store expenses consist of labor-related expenses, which we closely manage and which trend closely with sales. Labor-related expenses as a percentage of net sales tend to be higher at new stores compared to comparable stores, as new stores require a minimum level of staffing in order to maintain adequate levels of customer service combined with lower sales. As new stores increase their sales, labor-related expenses as a percentage of net sales typically decrease.

Administrative expenses

Administrative expenses consist of home office-related expenses, such as salary and benefits, share-based compensation, office supplies, hardware and software expenses, depreciation and amortization expense, occupancy costs (including rent, common area maintenance, real estate taxes and utilities), professional services expenses, expenses associated with our Board, expenses related to compliance with the requirements of regulations applicable to publicly traded companies, and other general and administrative expenses. Depreciation expense included in administrative expenses relates to depreciation for assets directly used at the home office including depreciation on land improvements, leasehold improvements, fixtures and equipment, and computer hardware and software.

Pre-opening expenses

Pre-opening expenses for new stores and relocations/remodels may include rent expense, salaries, advertising, supplies, and other miscellaneous costs incurred prior to the store opening. Rent expense is generally incurred from one to four months prior to a store’s opening date for store leases classified as operating. For store leases classified as finance leases, we recognize pre-opening interest and depreciation expense. Other pre-opening expenses are generally incurred in the 60 days prior to the store opening. Certain advertising and promotional costs associated with opening a new store may be incurred both before and after the store opens. All pre-opening costs are expensed as incurred. Pre-opening expenses for remodels are incurred if the store is required to be closed due to the remodel.

Interest expense, net

Interest expense consists of the interest associated with finance lease obligations, net of capitalized interest, and our Credit Facility.

Income tax expense

Income taxes are accounted for in accordance with the provisions of Income Taxes (ASC 740). Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are remeasured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized. Income tax expense also includes excess tax benefits and deficiencies related to the vesting of restricted stock units.

Three months ended June 30, 2022 compared to the three months ended June 30, 2021

The following table summarizes our results of operations and other operating data for the periods presented, dollars in thousands:

Net sales

Net sales increased $7.7 million, or 3.0%, to $266.3 million for the three months ended June 30, 2022 compared to $258.6 million for the three months ended June 30, 2021, due to a $6.4 million increase in comparable store sales and a $2.1 million increase in new store sales, partially offset by a $0.8 million decrease in sales from one store that closed at the beginning of the quarter. Daily average comparable store sales increased 2.5% for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. The daily average comparable store sales increase resulted from a 2.7% increase in daily average transaction size, partially offset by a 0.2% decrease in daily average transaction count. Comparable store average transaction size was $44.66 for the three months ended June 30, 2022. The increase in net sales during the three months ended June 30, 2022 was primarily driven by retail price inflation, our customers’ response to COVID-19 pandemic trends, marketing initiatives, promotional campaigns and increased engagement in our {N}power® customer loyalty program.

Gross profit

Gross profit increased $2.0 million, or 2.8%, to $73.6 million for the three months ended June 30, 2022 compared to $71.5 million for the three months ended June 30, 2021, driven by increased sales volume. Gross profit reflects earnings after product and occupancy costs. Gross margin decreased to 27.6% for the three months ended June 30, 2022 compared to 27.7% for the three months ended June 30, 2021. The decrease in gross margin during the three months ended June 30, 2022 was primarily driven by lower product margin attributed to higher freight, distribution and shrink expenses, partially offset by store occupancy leverage.

Store expenses

Store expenses increased $3.0 million, or 5.3%, to $60.1 million for the three months ended June 30, 2022 compared to $57.1 million for the three months ended June 30, 2021. Store expenses as a percentage of net sales were 22.6% and 22.1% for the three months ended June 30, 2022 and 2021, respectively. The increase in store expenses as a percentage of net sales was primarily driven by higher labor expense as a result of increased wage rates.

Administrative expenses

Administrative expenses were $7.5 million for the three months ended June 30, 2022 compared to $7.3 million for the three months ended June 30, 2021. Administrative expenses as a percentage of net sales were 2.8% for each of the three months ended June 30, 2022 and 2021.

Pre-opening expenses

Pre-opening expenses were $0.3 million for the three months ended June 30, 2022 compared to $0.1 million for the three months ended June 30, 2021.

Interest expense, net

Interest expense, net of capitalized interest, remained flat at $0.6 million for each of the three months ended June 30, 2022 and June 30, 2021.

Income taxes

Income tax expense was $1.1 million for the three months ended June 30, 2022 compared to $1.4 million for the three months ended June 30, 2021. The Company’s effective income tax rate remained flat at approximately 22.1% for each of the three months ended June 30, 2022 and 2021.

Net income

Net income was $3.9 million, or $0.17 diluted earnings per share, for the three months ended June 30, 2022 compared to $5.0 million, or $0.22 diluted earnings per share, for the three months ended June 30, 2021.

Nine months ended June 30, 2022 compared to the nine months ended June 30, 2021

The following table summarizes our results of operations and other operating data for the periods presented, dollars in thousands:

Net sales

Net sales increased $32.6 million, or 4.2%, to $815.4 million for the nine months ended June 30, 2022 compared to $782.9 million for the nine months ended June 30, 2021, due to a $27.6 million increase in comparable store sales and a $5.8 million increase in new store sales, partially offset by a $0.8 million decrease in sales from one store that closed at the beginning of the third quarter of fiscal year 2022. Daily average comparable store sales increased 3.5% for the nine months ended June 30, 2022 compared to the nine months ended June 30, 2021. The daily average comparable store sales increase resulted from a 2.0% increase in daily average transaction count and a 1.5% increase in daily average transaction size. Comparable store average transaction size was $45.27 for the nine months ended June 30, 2022. The increase in net sales during the nine months ended June 30, 2022 was primarily driven by our customers’ response to COVID-19 pandemic trends, retail price inflation, marketing initiatives, promotional campaigns and increased engagement in our {N}power® customer loyalty program.

Gross profit

Gross profit increased $12.7 million, or 5.9%, to $229.1 million for the nine months ended June 30, 2022 compared to $216.4 million for the nine months ended June 30, 2021, primarily driven by increased sales volumes. Gross profit reflects earnings after product and occupancy costs. Gross margin increased to 28.1% for the nine months ended June 30, 2022 compared to 27.6% for the nine months ended June 30, 2021. The increase in gross margin during the nine months ended June 30, 2022 was primarily driven by improved product margin and store occupancy leverage.

Store expenses

Store expenses increased $3.2 million, or 1.8%, to $179.1 million for the nine months ended June 30, 2022 compared to $175.8 million for the nine months ended June 30, 2021. In the nine months ended June 30, 2022, we recorded $0.1 million in operating lease asset impairment charges as a result of an early store relocation. In the nine months ended June 30, 2021, we recorded $0.4 million in lease exit costs, primarily related to a lease termination fee associated with one store that closed in fiscal year 2019. Store expenses as a percentage of net sales were 22.0% and 22.5% for the nine months ended June 30, 2022 and 2021, respectively. The reduction in store expenses as a percentage of net sales reflects leverage attributed to higher sales and a more normalized operating environment compared to the prior fiscal year period.

Administrative expenses

Administrative expenses were $22.9 million for the nine months ended June 30, 2022 compared to $20.9 million for the nine months ended June 30, 2021. Administrative expenses as a percentage of net sales were 2.8% and 2.7% for the nine months ended June 30, 2022 and 2021, respectively.

Pre-opening expenses

Pre-opening expenses were $0.6 million for the nine months ended June 30, 2022 compared to $0.7 million for the nine months ended June 30, 2021.

Interest expense

Interest expense, net of capitalized interest, remained flat at $1.7 million for each of the nine months ended June 30, 2022 and 2021.

Income taxes

Income tax expense was $5.6 million for the nine months ended June 30, 2022 compared to $3.9 million for the nine months ended June 30, 2021. The Company’s effective income tax rate was approximately 22.7% and 22.5% for the nine months ended June 30, 2022 and 2021, respectively.

Net income

Net income was $19.2 million, or $0.84 diluted earnings per share, for the nine months ended June 30, 2022 compared to $13.4 million, or $0.59 diluted earnings per share, for the nine months ended June 30, 2021.

Non-GAAP financial measures

EBITDA and Adjusted EBITDA

EBITDA and Adjusted EBITDA are not measures of financial performance under GAAP. We define EBITDA as net income before interest expense, provision for income taxes, depreciation and amortization. We define Adjusted EBITDA as EBITDA as adjusted to exclude the effects of certain income and expense items that management believes make it more difficult to assess the Company’s actual operating performance, including certain items such as impairment charges, store closing costs, lease exit costs, share-based compensation and non-recurring items. The adjustments to EBITDA for the nine months ended June 30, 2022 included $0.1 million in operating lease asset impairment charges as a result of an early store relocation. The adjustments to EBITDA for the nine months ended June 30, 2021 included $0.4 million in lease exit costs associated with one store that closed in fiscal year 2019.

The following table reconciles net income to EBITDA and Adjusted EBITDA, dollars in thousands:

EBITDA decreased 12.0% to $12.7 million for the three months ended June 30, 2022 compared to $14.5 million for the three months ended June 30, 2021. EBITDA increased 15.0% to $47.6 million for the nine months ended June 30, 2022 compared to $41.4 million for the nine months ended June 30, 2021. EBITDA as a percentage of net sales was 4.8% and 5.6% for the three months ended June 30, 2022 and 2021, respectively. EBITDA as a percentage of net sales was 5.8% and 5.3% for the nine months ended June 30, 2022 and 2021, respectively.

Adjusted EBITDA decreased 11.0% to $13.0 million for the three months ended June 30, 2022 compared to $14.6 million for the three months ended June 30, 2021. Adjusted EBITDA increased 14.4% to $48.6 million for the nine months ended June 30, 2022 compared to $42.5 million for the nine months ended June 30, 2021. Adjusted EBITDA as a percentage of net sales was 4.9% and 5.7% for the three months ended June 30, 2022 and 2021, respectively. Adjusted EBITDA as a percentage of net sales was 6.0% and 5.4% for the nine months ended June 30, 2022 and 2021, respectively.

Management believes some investors’ understanding of our performance is enhanced by including EBITDA and Adjusted EBITDA, which are non-GAAP financial measures. We believe EBITDA and Adjusted EBITDA provide additional information about: (i) our operating performance, because they assist us in comparing the operating performance of our stores on a consistent basis, as they remove the impact of non-cash depreciation and amortization expense as well as items not directly resulting from our core operations, such as interest expense and income taxes and (ii) our performance and the effectiveness of our operational strategies. Additionally, EBITDA is a component of a measure in our financial covenants under our Credit Facility.

Furthermore, management believes some investors use EBITDA and Adjusted EBITDA as supplemental measures to evaluate the overall operating performance of companies in our industry. Management believes that some investors’ understanding of our performance is enhanced by including these non-GAAP financial measures as a reasonable basis for comparing our ongoing results of operations. By providing these non-GAAP financial measures, together with a reconciliation from net income, we believe we are enhancing investors’ understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives. Commencing with its financial reporting for fiscal year 2021, the Company revised its definition of Adjusted EBITDA to exclude share-based compensation. The Company’s historical presentation of Adjusted EBITDA, including for the three and nine months ended June 30, 2021, did not exclude share-based compensation. However, Adjusted EBITDA for the three and nine months ended June 30, 2021, as presented in this report, has been recast to exclude share-based compensation to enhance the comparability of this measure between fiscal periods. Management believes that excluding share-based compensation from Adjusted EBITDA will enhance investors’ ability to assess period-to-period comparisons of the Company’s operating performance and make more meaningful comparisons between our operating performance and the operating performance of our competitors.

Our competitors may define EBITDA and Adjusted EBITDA differently, and as a result, our measures of EBITDA and Adjusted EBITDA may not be directly comparable to EBITDA and Adjusted EBITDA of other companies. Items excluded from EBITDA and Adjusted EBITDA are significant components in understanding and assessing financial performance. EBITDA and Adjusted EBITDA are supplemental measures of operating performance that do not represent, and should not be considered in isolation or as an alternative to, or substitute for, net income or other financial statement data presented in the consolidated financial statements as indicators of financial performance. EBITDA and Adjusted EBITDA have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of the limitations are:

Due to these limitations, EBITDA and Adjusted EBITDA should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using EBITDA and Adjusted EBITDA as supplemental information.

Liquidity and Capital Resources

Our ongoing primary sources of liquidity are cash generated from operations, current balances of cash and cash equivalents and borrowings under our Revolving Facility. Our Credit Facility consists of the $50.0 million Revolving Facility and the fully drawn $35.0 million Term Loan Facility. Our primary uses of cash are for purchases of inventory, operating expenses, capital expenditures predominantly in connection with opening, relocating and remodeling stores, debt service, cash dividends and corporate taxes. As of June 30, 2022, we had $19.9 million in cash and cash equivalents and $48.7 million available for borrowing under our Revolving Facility. On November 18, 2020, we entered into the $35.0 million Term Loan Facility maturing November 13, 2024.

In May 2016, our Board authorized a two-year share repurchase program pursuant to which the Company may repurchase up to $10.0 million in shares of the Company’s common stock. Our Board subsequently extended the share repurchase program, including most recently in May 2022, and the program will terminate on May 31, 2024. We did not repurchase any shares during the nine months ended June 30, 2022. The dollar value of the shares of the Company’s common stock that may yet be repurchased under the share repurchase program is $8.3 million. Potential future share repurchases under the share repurchase program could be funded by operating cash flow, excess cash balances or borrowings under our Revolving Facility. The timing and the number of shares repurchased, if any, will be dictated by our capital needs and stock market conditions.

On August 3, 2022, our Board approved the payment of a quarterly cash dividend of $0.10 per share of common stock to be paid on September 14, 2022 to stockholders of record as of the close of business on August 29, 2022. We paid quarterly cash dividends of $0.10 per share of common stock in each of the first three quarters of fiscal year 2022.

We plan to continue to open new stores in the future, which may require us to borrow additional amounts under the Revolving Facility from time to time. We believe that cash and cash equivalents, together with the cash generated from operations and the borrowing availability under our Revolving Facility, will be sufficient to meet our working capital needs and planned capital expenditures, including capital expenditures related to new store needs, repayment of debt, stock repurchases and dividends for the next 12 months and foreseeable future. Our working capital position benefits from the fact that we generally collect cash from sales to customers the same day or, in the case of credit or debit card transactions, within days from the related sale.

The following is a summary of our operating, investing and financing activities for the periods presented, dollars in thousands:

Operating Activities

Net cash provided by operating activities consists primarily of net income adjusted for non-cash items, including depreciation and amortization, share-based compensation, and changes in deferred taxes, and the effect of working capital changes. Cash provided by operating activities decreased $1.5 million, or 4.9%, to $29.5 million for the nine months ended June 30, 2022 compared to $31.0 million for the nine months ended June 30, 2021. The decrease in cash provided by operating activities was primarily due to an increase in cash used for working capital requirements, partially offset by an increase in cash provided by net income as adjusted for non-cash items.

Investing Activities

Net cash used in investing activities increased $1.2 million, or 7.3%, to $18.0 million for the nine months ended June 30, 2022 compared to $16.8 million for the nine months ended June 30, 2021. This increase was primarily the result of increases of $0.4 million and $0.9 million in property and equipment and other intangibles acquisitions during the nine months ended June 30, 2022 compared to the nine months ended June 30, 2021, respectively, due to the impact of the timing of new store openings, relocations/remodels, and software projects under development.

We plan to spend approximately $10.0 million to $17.0 million on capital expenditures during the remainder of fiscal year 2022 in connection with two to three new store openings, one store relocation/remodel, and one real property acquisition. We anticipate that our new stores will require, on average, an upfront capital investment of approximately $2.2 million per store.

Acquisition of property and equipment not yet paid increased $0.6 million to $3.6 million for the nine months ended June 30, 2022 compared to $3.0 million for the nine months ended June 30, 2021 due to the timing of payments related to new store openings and relocations/remodels.

Financing Activities

Net cash used in financing activities consists primarily of borrowings and repayments under our Credit Facility and dividends paid to stockholders. Net cash used in financing activities was $15.2 million for the nine months ended June 30, 2022 compared to $28.2 million for the nine months ended June 30, 2021.

Credit Facility

The revolving commitment amount under the Revolving Facility is $50.0 million, including a $5.0 million sub-limit for standby letters of credit. We borrowed $35.0 million under the Term Loan Facility in December 2020. The operating company is the borrower under the Credit Facility and its obligations under the Credit Facility are guaranteed by the holding company and Vitamin Cottage Two Ltd. Liability Company (VC2). The Credit Facility is secured by a lien on substantially all of the Company’s assets. The Company has the right to borrow, prepay and re-borrow amounts under the Revolving Facility at any time prior to the maturity date without premium or penalty. On November 18, 2020, we entered into the Fourth Amendment to provide for the Term Loan Facility and permit payment of a one-time dividend of up to $50.0 million no later than December 31, 2020.

Base rate borrowings under the Credit Facility bear interest at a fluctuating base rate as determined by the lenders’ administrative agent based on the most recent compliance certificate of the operating company and stated at the highest of (i) the federal funds rate plus 0.50%, (ii) the prime rate, and (iii) the Eurodollar rate plus 1.00%, less the lender spread based upon the Company’s consolidated leverage ratio. Eurodollar rate borrowings under the Credit Facility bear interest based on the London Interbank Offered Rate, or its successor rate (LIBOR), for the interest period plus the lender spread based upon the Company’s consolidated leverage ratio. The unused commitment fee is also based upon the Company’s consolidated leverage ratio. The Company is required to repay principal amounts outstanding under the Term Loan Facility in equal quarterly installments of approximately $0.4 million on the last day of each fiscal quarter, commencing on March 31, 2021 and ending on September 30, 2024. Amounts repaid on the Term Loan Facility may not be reborrowed.

The Credit Facility requires compliance with certain customary operational and financial covenants, including a consolidated leverage ratio. The Credit Facility also contains certain other customary limitations on the Company’s ability to incur additional debt, guarantee other obligations, grant liens on assets and make investments or acquisitions, among other limitations. Additionally, the Credit Facility prohibits the payment of cash dividends to the holding company from the operating company without the required lenders’ consent, provided that so long as no default exists or would arise as a result thereof, the operating company may pay cash dividends to the holding company in an amount sufficient to allow the holding company to: (i) pay various audit, accounting, tax, securities, indemnification, reimbursement, insurance and other reasonable expenses incurred in the ordinary course of business and (ii) repurchase shares of common stock and pay dividends on our common stock in an aggregate amount not to exceed $10.0 million during any fiscal year.

We had no amounts outstanding under the Revolving Facility as of each of June 30, 2022 and September 30, 2021. As of June 30, 2022 and September 30, 2021, we had undrawn, issued and outstanding letters of credit of $1.3 million and $1.0 million, respectively, which were reserved against the amount available for borrowing under the Revolving Facility. We had $48.7 million and $49.0 million available for borrowing under the Revolving Facility as of June 30, 2022 and September 30, 2021, respectively. We had $17.7 million of outstanding borrowings under the fully drawn Term Loan Facility as of June 30, 2022.

As of each of June 30, 2022 and September 30, 2021, the Company was in compliance with the financial covenants under the Credit Facility.

Share Repurchases

Certain information about the Company's share repurchases is set forth under the heading "Share Repurchases" in Note 6 of Notes to Unaudited Interim Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

Recent Accounting Pronouncements

See Note 2 to the consolidated financial statements included in this Form 10-Q.

Critical Accounting Policies

The preparation of our consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures of contingent assets and liabilities. Actual amounts may differ from these estimates. We base our estimates on historical experience and on various other assumptions and factors that we believe to be reasonable under the circumstances. We evaluate our accounting policies and resulting estimates on an ongoing basis to make adjustments we consider appropriate under the facts and circumstances.

Critical accounting policies that affect our more significant judgments and estimates used in the preparation of our financial statements include accounting for income taxes, accounting for impairment of long-lived assets and accounting for leases, which are discussed in more detail under the caption “Critical Accounting Policies” under Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Form 10-K.