Lifeway Foods, Inc. (Nasdaq: LWAY) (“Lifeway” or “the Company”),
the leading U.S. supplier of kefir and fermented probiotic
products to support the microbiome, today reported financial
results for the third quarter ended September 30, 2019.
“Our third quarter results reflect our commitment to our
strategic long-term plan to meaningfully reinvigorate growth,” said
Julie Smolyansky, CEO of Lifeway Foods, Inc. “While we continue to
implement changes in our organizational structure to build for the
future and create efficiencies, we also remain focused on
increasing brand awareness, driving new product innovation and
strengthening consumer loyalty. We are thrilled major retailers
nationwide have chosen Plantiful to enhance their healthy
consumable product offerings. We believe this increased
distribution will lead to long-term sales growth in demographics
previously unserved by Lifeway, and we look forward to adding new
distribution in the future. In addition to Plantiful, we also have
Kefir Minis that we expect to begin shipping at the end of the
fourth quarter. Looking ahead to 2020 and beyond, we are committed
to our strategic plan and confident about delivering improved
financial results.”
Third Quarter Results
Net sales were $22.7 million for the third quarter of 2019, a
decrease of 2.2% from $23.2 million in the second quarter of
2019.
Gross profit as a percentage of net sales was 22.8% for the
third quarter of 2019, a decrease of 120 basis points from 24.0%
for the second quarter of 2019. Gross profit percentage was
23.9% in prior year period. The decline versus the prior year
was primarily due to the unfavorable impact of operating leverage
that arises from lower net sales relative to fixed costs, partially
offset by a reduction in variable costs. Additionally, depreciation
expense increased reflecting the continued investment in
manufacturing improvements.
Selling expenses decreased $0.5 million or 14.6% to $2.7 million
for the third quarter of 2019 from $3.1 million during the same
period in 2018. The decrease versus prior year primarily
reflects a reduction in advertising and marketing programs with
lower efficiency, and compensation savings from organizational
changes made in 2018. Selling expenses as a percentage of net
sales were 11.8% for the third quarter of 2019 compared to 12.8%
for the same period in 2018.
General and administrative expenses decreased $0.4
million or 14% to $2.7 million for the third quarter of 2019 from
$3.1 million during the same period in 2018. The decrease is
primarily a result of lower compensation expenses due to
organization changes made in 2018, lower incentive compensation,
and lower professional fees, partially offset by increased legal
expenses.
The effective income tax rate for the third quarter
of 2019 was 19.3% compared to 20.9% in the same period last year.
The decrease in the effective tax rate was primarily due to the
non-deductible expense amounts being a higher percentage of pre-tax
income, non-deductible compensation expense related to equity
incentive awards, and adjustments to state income tax
receivable. The decrease in the effective tax rate was
partially offset due to separate state tax rates and a change in
valuation allowance.
The Company reported a net loss of $(0.00) per
diluted share for the third quarter of 2019, an increase from the
net loss of $(0.01) per diluted share in the second quarter of
2019, and as compared to a net loss of $(0.5) million, or $(0.03)
per diluted share, in the third quarter of 2018.
Conference Call and Webcast
A pre-recorded conference call and webcast with Julie Smolyansky
discussing these results with additional comments and details will
be available today at 5:00 p.m. ET. The webcast will be
available over the Internet through the “Investor Relations”
section of the Company’s website at
https://lifewaykefir.com/webinars-reports/. An audio replay will be
available through November 28, 2019. North American listeners
may dial 844-512-2921 and international listeners may dial
412-317-6671. The passcode is 1137085.
About Lifeway Foods, Inc.
Lifeway Foods, Inc., which has been recognized as one of Forbes’
Best Small Companies, is America’s leading supplier of the
probiotic, fermented beverage known as kefir. In addition to its
line of drinkable kefir, the company also produces cupped kefir and
cheese, frozen kefir, specialty cheeses, probiotic supplements and
a ProBugs line for kids. Lifeway’s tart and tangy fermented dairy
and non-dairy products are now sold across the United States,
Mexico, Ireland and the United Kingdom. Learn how Lifeway is good
for more than just you at www.lifewaykefir.com.
Forward-Looking Statements
This release (and oral statements made regarding the subjects of
this release) contains “forward-looking statements” as defined in
the Private Securities Litigation Reform Act of 1995 regarding,
among other things, future operating and financial performance,
product development, market position, business strategy and
objectives. These statements use words, and variations of words,
such as “continue,” “build,” “future,” “increase,” “drive,”
“believe,” “look,” “ahead,” “confident,” “deliver,” “outlook,”
“expect,” and “predict.” Other examples of forward looking
statements may include, but are not limited to, (i) statements of
Company plans and objectives, including the introduction of new
products, or estimates or predictions of actions by customers or
suppliers, (ii) statements of future economic performance, and
(III) statements of assumptions underlying other statements and
statements about Lifeway or its business. You are cautioned not to
rely on these forward-looking statements. These statements are
based on current expectations of future events and thus are
inherently subject to uncertainty. If underlying assumptions prove
inaccurate or known or unknown risks or uncertainties materialize,
actual results could vary materially from Lifeway’s expectations
and projections. These risks, uncertainties, and other factors
include: price competition; the decisions of customers or
consumers; the actions of competitors; changes in the pricing of
commodities; the effects of government regulation; possible delays
in the introduction of new products; and customer acceptance of
products and services. A further list and description of these
risks, uncertainties, and other factors can be found in Lifeway’s
Annual Report on Form 10-K for the fiscal year ended December 31,
2018, and the Company’s subsequent filings with the SEC. Copies of
these filings are available online at https://www.sec.gov,
http://lifewaykefir.com/investor-relations/, or on request from
Lifeway. Information in this release is as of the dates and time
periods indicated herein, and Lifeway does not undertake to update
any of the information contained in these materials, except as
required by law. Accordingly, YOU SHOULD NOT RELY ON THE ACCURACY
OF ANY OF THE STATEMENTS OR OTHER INFORMATION CONTAINED IN ANY
ARCHIVED PRESS RELEASE.
Contact:
Lifeway Foods, Inc.Phone: 847-967-1010Email:
info@lifeway.net
LIFEWAY FOODS, INC. AND
SUBSIDIARIESConsolidated Balance
Sheets (In thousands)
|
|
September 30,
2019(Unaudited) |
|
|
December 31, 2018 |
|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
5,512 |
|
|
$ |
2,998 |
|
Accounts receivable, net of allowance for doubtful accounts and
discounts & allowances of $1,240 and $1,220 at September 30,
2019 and December 31, 2018 respectively |
|
|
6,572 |
|
|
|
6,276 |
|
Inventories, net |
|
|
6,758 |
|
|
|
5,817 |
|
Prepaid expenses and other current assets |
|
|
1,477 |
|
|
|
1,077 |
|
Refundable income taxes |
|
|
827 |
|
|
|
2,748 |
|
Total current
assets |
|
|
21,146 |
|
|
|
18,916 |
|
|
|
|
|
|
|
|
|
|
Property, plant and
equipment, net |
|
|
22,620 |
|
|
|
24,573 |
|
Operating lease
right-of-use asset |
|
|
839 |
|
|
|
– |
|
|
|
|
|
|
|
|
|
|
Intangible
assets |
|
|
|
|
|
|
|
|
Goodwill & indefinite-lived intangibles |
|
|
12,824 |
|
|
|
12,824 |
|
Other intangible assets, net |
|
|
192 |
|
|
|
344 |
|
Total intangible
assets |
|
|
13,016 |
|
|
|
13,168 |
|
|
|
|
|
|
|
|
|
|
Other
assets |
|
|
165 |
|
|
|
150 |
|
Total
assets |
|
$ |
57,786 |
|
|
$ |
56,807 |
|
|
|
|
|
|
|
|
|
|
Current
liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
6,968 |
|
|
$ |
4,570 |
|
Accrued expenses |
|
|
3,402 |
|
|
|
2,777 |
|
Accrued income taxes |
|
|
63 |
|
|
|
106 |
|
Total current
liabilities |
|
|
10,433 |
|
|
|
7,453 |
|
Line of
credit |
|
|
4,224 |
|
|
|
5,995 |
|
Operating lease
liabilities |
|
|
527 |
|
|
|
– |
|
Deferred income taxes,
net |
|
|
390 |
|
|
|
390 |
|
Other long-term
liabilities |
|
|
76 |
|
|
|
564 |
|
Total
liabilities |
|
|
15,650 |
|
|
|
14,402 |
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity |
|
|
|
|
|
|
|
|
Preferred stock, no par value; 2,500 shares authorized; no shares
issued or outstanding at September 30, 2019 and December 31, 2018,
respectively |
|
|
– |
|
|
|
– |
|
Common stock, no par value; 40,000 shares authorized; 17,274 shares
issued; 15,706 and 15,814 outstanding at September 30, 2019 and
December 31, 2018, respectively |
|
|
6,509 |
|
|
|
6,509 |
|
Paid-in capital |
|
|
2,348 |
|
|
|
2,303 |
|
Treasury stock, at cost |
|
|
(12,630 |
) |
|
|
(12,970 |
) |
Retained earnings |
|
|
45,909 |
|
|
|
46,563 |
|
Total stockholders'
equity |
|
|
42,136 |
|
|
|
42,405 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders' equity |
|
$ |
57,786 |
|
|
$ |
56,807 |
|
|
|
|
|
|
|
|
|
|
LIFEWAY FOODS, INC. AND
SUBSIDIARIESConsolidated Statements of
Operations (Unaudited)(In
thousands, except per share data)
|
|
Three Months Ended September
30, |
|
|
Nine Months Ended September
30, |
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
22,729 |
|
|
$ |
24,480 |
|
|
$ |
70,497 |
|
|
$ |
80,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
16,813 |
|
|
|
17,892 |
|
|
|
51,223 |
|
|
|
57,412 |
|
Depreciation expense |
|
|
743 |
|
|
|
738 |
|
|
|
2,235 |
|
|
|
2,143 |
|
Total cost of goods sold |
|
|
17,556 |
|
|
|
18,630 |
|
|
|
53,458 |
|
|
|
59,555 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit |
|
|
5,173 |
|
|
|
5,850 |
|
|
|
17,039 |
|
|
|
20,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses |
|
|
2,679 |
|
|
|
3,136 |
|
|
|
8,509 |
|
|
|
10,537 |
|
General and
administrative |
|
|
2,710 |
|
|
|
3,150 |
|
|
|
9,100 |
|
|
|
9,851 |
|
Amortization expense |
|
|
39 |
|
|
|
163 |
|
|
|
152 |
|
|
|
490 |
|
Total operating
expenses |
|
|
5,428 |
|
|
|
6,449 |
|
|
|
17,761 |
|
|
|
20,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from
operations |
|
|
(255 |
) |
|
|
(599 |
) |
|
|
(722 |
) |
|
|
(115 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(65 |
) |
|
|
(82 |
) |
|
|
(202 |
) |
|
|
(220 |
) |
Gain on sale of property and
equipment |
|
|
154 |
|
|
|
28 |
|
|
|
183 |
|
|
|
42 |
|
Other income, net |
|
|
77 |
|
|
|
3 |
|
|
|
82 |
|
|
|
11 |
|
Total other income
(expense) |
|
|
166 |
|
|
|
(51 |
) |
|
|
63 |
|
|
|
(167 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision
for income taxes |
|
|
(89 |
) |
|
|
(650 |
) |
|
|
(659 |
) |
|
|
(282 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit for income taxes |
|
|
(17 |
|
|
|
(136 |
) |
|
|
(58 |
) |
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(72 |
) |
|
$ |
(514 |
) |
|
$ |
(601 |
) |
|
$ |
(274 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per common
share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.00 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.02 |
) |
Diluted |
|
$ |
(0.00 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.02 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
common shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
15,740 |
|
|
|
15,872 |
|
|
|
15,761 |
|
|
|
15,886 |
|
Diluted |
|
|
15,740 |
|
|
|
16,256 |
|
|
|
15,761 |
|
|
|
16,354 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIFEWAY FOODS, INC. AND
SUBSIDIARIESConsolidated Statements of Cash
Flows (Unaudited)(In
thousands)
|
|
Nine Months Ended September 30, |
|
|
|
2019 |
|
|
2018 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(601 |
) |
|
$ |
(274 |
) |
Adjustments to reconcile net loss to operating cash
flow: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
2,387 |
|
|
|
2,633 |
|
Bad debt expense |
|
|
20 |
|
|
|
50 |
|
Reserve for inventory obsolescence |
|
|
177 |
|
|
|
580 |
|
Stock-based compensation |
|
|
714 |
|
|
|
827 |
|
Non-cash interest expense |
|
|
17 |
|
|
|
9 |
|
Deferred revenue |
|
|
(73 |
) |
|
|
(72 |
) |
(Gain) on sale of property and equipment |
|
|
(183 |
) |
|
|
(42 |
) |
(Increase) decrease in operating assets: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(316 |
) |
|
|
553 |
|
Inventories |
|
|
(1,118 |
) |
|
|
280 |
|
Refundable income taxes |
|
|
1,921 |
|
|
|
(612 |
) |
Prepaid expenses and other current assets |
|
|
(399 |
) |
|
|
(291 |
) |
Increase (decrease) in operating liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
2,397 |
|
|
|
(586 |
) |
Accrued expenses |
|
|
53 |
|
|
|
(588 |
) |
Accrued income taxes |
|
|
(43 |
) |
|
|
(121 |
) |
Net cash provided by operating activities |
|
|
4,953 |
|
|
|
2,346 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(610 |
) |
|
|
(2,581 |
) |
Proceeds from sale of property and equipment |
|
|
513 |
|
|
|
90 |
|
Purchase of investments |
|
|
(15 |
) |
|
|
(500 |
) |
Net cash used in investing activities |
|
|
(112 |
) |
|
|
(2,991 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Purchase of treasury stock |
|
|
(538 |
) |
|
|
(1,309 |
) |
Borrowings under revolving credit facility |
|
|
– |
|
|
|
6,050 |
|
Repayment of line of credit |
|
|
(1,789 |
) |
|
|
– |
|
Payment of deferred financing costs |
|
|
– |
|
|
|
(69 |
) |
Repayment of notes payable |
|
|
– |
|
|
|
(6,279 |
) |
Net cash used in financing activities |
|
|
(2,327 |
) |
|
|
(1,607 |
) |
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash
equivalents |
|
|
2,514 |
|
|
|
(2,252 |
) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the beginning of the period |
|
|
2,998 |
|
|
|
4,978 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the
period |
|
$ |
5,512 |
|
|
$ |
2,726 |
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for income taxes, net of (refunds) |
|
$ |
(1,937 |
) |
|
$ |
724 |
|
Cash paid for interest |
|
$ |
214 |
|
|
$ |
189 |
|
|
|
|
|
|
|
|
|
|
Non-cash investing activities |
|
|
|
|
|
|
|
|
Right-of-use assets recognized at ASU 2016-02 transition |
|
$ |
944 |
|
|
$ |
– |
|
Operating lease liability recognized at ASU 2016-02 transition |
|
$ |
997 |
|
|
$ |
– |
|
Right-of-use assets and operating lease liabilities recognized
after ASU 2016-02 transition |
|
$ |
280 |
|
|
$ |
– |
|
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