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
first quarter ended March 31, 2020.
“We started the first quarter off strong,
culminating in a double-digit sales increase in the month of March
compared to prior year period. This resulted in another quarter of
sales improvement, which is in-line with our expectations as we
continue to execute on our long-term strategic plan for
sustainable, profitable growth,” commented Julie Smolyansky,
Lifeway’s President and Chief Executive Officer. “During the
quarter, our operations team worked to increase production to meet
accelerated demand for retail sales and charitable donations, and
our marketing team pivoted to reach shoppers online in the absence
of in-store promotions and events. We see kefir becoming a top
choice to aid in gut health and microbiome support as consumers
focus on self-care, nutrition and wellness improvements to stay
healthy this year and beyond. Lifeway remains committed to creating
value for all stakeholders through capitalizing on the compelling
kefir industry tailwinds across distribution channels and with our
innovative product offerings to fuel future growth and
success.”
First Quarter Results
Net sales were $25.4 million for the first
quarter of 2020, an increase of 3.1% from $24.6 million in the
first quarter of 2019.
Gross profit as a percentage of net sales was
23.6% for the first quarter of 2020, an increase of 150 basis
points from 22.1% for the fourth quarter of 2019. Gross profit
percentage was 25.6% in prior year period. The decrease versus the
prior year was primarily due to the impact of increased strategic
promotional investment, 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 18%
to $2.6 million for the first quarter of 2020 from $3.1 million
during the same period in 2019. The decrease versus prior year
primarily reflects a reduction in advertising and marketing
expense, such as trade shows and other marketing events which were
postponed due to COVID-19 and the lower planned spending on
in-store demonstrations in the first quarter of 2020 compared to
the first quarter of 2019. Selling expenses as a percentage of net
sales were 10.1% for the first quarter of 2020 compared to 12.8%
for the same period in 2019.
General and administrative expenses decreased
$0.4 million or 9.9% to $3.1 million for the first quarter of 2020
from $3.5 million during the same period in 2019. The decrease is
primarily a result of lower compensation expense due to
organizational changes made in 2019 and lower incentive
compensation.
The effective income tax rate for the first
quarter of 2020 was 27.5% compared to 12.2% in the same period last
year. The increase in the effective tax rate was primarily due to
non-deductible officer compensation expense, non-deductible
compensation expense related to equity incentive awards, separate
state tax rates, and the provision for unrecognized tax benefits.
The increase was partially offset by the benefit from a net
operating loss carryback provision of the CARES Act which went into
effect during the first quarter of fiscal year 2020. The increase
in the effective tax rate from 2019 to 2020 is due to the fact that
the Company has a number of items that are nondeductible or are
discrete adjustments to tax expense. Although similar items were
reflected in 2019, the percentage effect is substantially different
due to the difference in pre-tax income in 2020 compared to the
pre-tax loss in 2019.
The Company reported earnings of $0.01 per
diluted share for the first quarter of 2020 compared to a net loss
of $(0.02) per diluted share in the first quarter of 2019.
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 “from time to time,” “intend,” “plan,”
“ongoing,” “realize,” “should,” “may,” “could,” “believe,”
“future,” “depend,” “expect,” “will,” “result,” “can,” “remain,”
“assurance,” “subject to,” “require,” “limit,” “impose,”
“guarantee,” “restrict,” “continue,” “become,” “likely,”
“opportunities,” “effect,” “change,” “estimate,” “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. Forward looking statements are based on
management’s beliefs, assumptions, estimates and observations of
future events based on information available to our management at
the time the statements are made and include any statements that do
not relate to any historical or current fact. These statements are
not guarantees of future performance and they involve certain
risks, uncertainties and assumptions that are difficult to predict.
Actual outcomes and results may differ materially from what is
expressed, implied or forecast by our forward looking statements
due in part to the risks, uncertainties, and assumptions that
include: the decisions of consumers, our ability to
successfully implement our business strategy, changes in the
pricing of commodities, the effects of government regulations, the
impact of the COVID-19 outbreak on our business, suppliers,
consumers, customers and employees, and disruptions in our supply
chain or our manufacturing and distribution capabilities, including
those due to cyber security threats and the COVID-19
outbreak. 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, 2019,
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
SheetsMarch 31, 2020 and December 31,
2019(In thousands)
|
|
March 31,
2020(Unaudited) |
|
December 31, 2019 |
Current
assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,978 |
|
|
$ |
3,836 |
|
Accounts receivable, net of allowance for doubtful accounts and
discounts & allowances of $1,467 and $1,100 at March 31, 2020
and December 31, 2019, respectively |
|
|
8,430 |
|
|
|
6,692 |
|
Inventories, net |
|
|
6,883 |
|
|
|
6,392 |
|
Prepaid expenses and other current assets |
|
|
1,279 |
|
|
|
1,598 |
|
Refundable income taxes |
|
|
1,027 |
|
|
|
681 |
|
Total current
assets |
|
|
19,597 |
|
|
|
19,199 |
|
|
|
|
|
|
|
|
|
|
Property, plant and
equipment, net |
|
|
21,910 |
|
|
|
22,274 |
|
Operating lease
right-of-use asset |
|
|
707 |
|
|
|
738 |
|
|
|
|
|
|
|
|
|
|
Intangible
assets |
|
|
|
|
|
|
|
|
Goodwill and indefinite-lived intangibles |
|
|
12,824 |
|
|
|
12,824 |
|
Other intangible assets, net |
|
|
113 |
|
|
|
152 |
|
Total intangible
assets |
|
|
12,937 |
|
|
|
12,976 |
|
|
|
|
|
|
|
|
|
|
Other
assets |
|
|
1,800 |
|
|
|
1,800 |
|
Total
assets |
|
$ |
56,951 |
|
|
$ |
56,987 |
|
|
|
|
|
|
|
|
|
|
Current
liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
6,113 |
|
|
$ |
5,282 |
|
Accrued expenses |
|
|
2,632 |
|
|
|
4,087 |
|
Accrued income taxes |
|
|
116 |
|
|
|
154 |
|
Total current
liabilities |
|
|
8,861 |
|
|
|
9,523 |
|
Line of
credit |
|
|
2,751 |
|
|
|
2,745 |
|
Operating lease
liabilities |
|
|
427 |
|
|
|
488 |
|
Deferred income taxes,
net |
|
|
1,292 |
|
|
|
922 |
|
Other long-term
liabilities |
|
|
50 |
|
|
|
58 |
|
Total
liabilities |
|
|
13,381 |
|
|
|
13,736 |
|
|
|
|
|
|
|
|
|
|
Commitments and
contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity |
|
|
|
|
|
|
|
|
Preferred stock, no par value; 2,500 shares authorized; no shares
issued or outstanding at March 31, 2020 and December 31, 2019 |
|
|
– |
|
|
|
– |
|
Common stock, no par value; 40,000 shares authorized; 17,274 shares
issued; 15,558 and 15,710 outstanding at March 31, 2020 and
December 31, 2019, respectively |
|
|
6,509 |
|
|
|
6,509 |
|
Paid-in capital |
|
|
2,748 |
|
|
|
2,380 |
|
Treasury stock, at cost |
|
|
(12,796 |
) |
|
|
(12,601 |
) |
Retained earnings |
|
|
47,109 |
|
|
|
46,963 |
|
Total stockholders'
equity |
|
|
43,570 |
|
|
|
43,251 |
|
Total liabilities and
stockholders' equity |
|
$ |
56,951 |
|
|
$ |
56,987 |
|
LIFEWAY FOODS, INC. AND
SUBSIDIARIESConsolidated Statements of
OperationsFor the three months ended March 31,
2020 and 2019(Unaudited)(In
thousands, except per share data)
|
|
2020 |
|
2019 |
|
|
|
|
|
Net
Sales |
|
$ |
25,388 |
|
|
$ |
24,615 |
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
18,624 |
|
|
|
17,567 |
|
Depreciation expense |
|
|
767 |
|
|
|
745 |
|
Total cost of goods sold |
|
|
19,391 |
|
|
|
18,312 |
|
|
|
|
|
|
|
|
|
|
Gross
profit |
|
|
5,997 |
|
|
|
6,303 |
|
|
|
|
|
|
|
|
|
|
Selling expense |
|
|
2,575 |
|
|
|
3,139 |
|
General and administrative expense |
|
|
3,145 |
|
|
|
3,492 |
|
Amortization expense |
|
|
39 |
|
|
|
73 |
|
Total operating
expenses |
|
|
5,759 |
|
|
|
6,704 |
|
|
|
|
|
|
|
|
|
|
Income (loss) from
operations |
|
|
238 |
|
|
|
(401 |
) |
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
Interest expense |
|
|
(39 |
) |
|
|
(69 |
) |
Gain on sale of property equipment |
|
|
5 |
|
|
|
25 |
|
Other income, net |
|
|
(3 |
) |
|
|
3 |
|
Total other income
(expense) |
|
|
(37 |
) |
|
|
(41 |
) |
|
|
|
|
|
|
|
|
|
Income (loss) before
provision for income taxes |
|
|
201 |
|
|
|
(442 |
) |
|
|
|
|
|
|
|
|
|
Provision (benefit) for income
taxes |
|
|
55 |
|
|
|
(54 |
) |
|
|
|
|
|
|
|
|
|
Net income
(loss) |
|
$ |
146 |
|
|
$ |
(388 |
) |
|
|
|
|
|
|
|
|
|
Earnings (loss) per
common share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.01 |
|
|
$ |
(0.02 |
) |
Diluted |
|
$ |
0.01 |
|
|
$ |
(0.02 |
) |
|
|
|
|
|
|
|
|
|
Weighted average
common shares: |
|
|
|
|
|
|
|
|
Basic |
|
|
15,623 |
|
|
|
15,767 |
|
Diluted |
|
|
15,737 |
|
|
|
15,767 |
|
LIFEWAY FOODS, INC. AND
SUBSIDIARIESConsolidated Statements of Cash
Flows(Unaudited)(In
thousands)
|
|
Three Months Ended March 31, |
|
|
2020 |
|
2019 |
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
146 |
|
|
$ |
(388 |
) |
Adjustments to reconcile net income (loss) to operating
cash flow: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
806 |
|
|
|
818 |
|
Non-cash interest expense |
|
|
6 |
|
|
|
6 |
|
Non-cash rent expense |
|
|
(11 |
) |
|
|
– |
|
Bad debt expense |
|
|
1 |
|
|
|
– |
|
Deferred revenue |
|
|
(24 |
) |
|
|
(24 |
) |
Stock-based compensation |
|
|
117 |
|
|
|
353 |
|
Deferred income taxes |
|
|
370 |
|
|
|
– |
|
(Gain) on sale of property and equipment |
|
|
(5 |
) |
|
|
(25 |
) |
Reserve for inventory obsolescence |
|
|
– |
|
|
|
30 |
|
(Increase) decrease in operating assets: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(1,739 |
) |
|
|
(1,099 |
) |
Inventories |
|
|
(491 |
) |
|
|
(727 |
) |
Refundable income taxes |
|
|
(346 |
) |
|
|
1,490 |
|
Prepaid expenses and other current assets |
|
|
312 |
|
|
|
(57 |
) |
Increase (decrease) in operating liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
833 |
|
|
|
1,031 |
|
Accrued expenses |
|
|
(981 |
) |
|
|
(207 |
) |
Operating lease asset amortization/liability |
|
|
(11 |
) |
|
|
– |
|
Accrued income taxes |
|
|
(38 |
) |
|
|
(19 |
) |
Net cash (used in) provided by operating
activities |
|
|
(1,055 |
) |
|
|
1,182 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(403 |
) |
|
|
(137 |
) |
Proceeds from sale of property and equipment |
|
|
5 |
|
|
|
31 |
|
Purchase of investments |
|
|
– |
|
|
|
(15 |
) |
Net cash used in investing activities |
|
|
(398 |
) |
|
|
(121 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Purchase of treasury stock |
|
|
(405 |
) |
|
|
(205 |
) |
Repayment of line of credit |
|
|
– |
|
|
|
(1,330 |
) |
Net cash used in financing activities |
|
|
(405 |
) |
|
|
(1,535 |
) |
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(1,858 |
) |
|
|
(474 |
) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the beginning of the period |
|
|
3,836 |
|
|
|
2,998 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the
period |
|
$ |
1,978 |
|
|
$ |
2,524 |
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for income taxes, net of (refunds) |
|
$ |
65 |
|
|
$ |
(1,525 |
) |
Cash paid for interest |
|
$ |
35 |
|
|
$ |
84 |
|
|
|
|
|
|
|
|
|
|
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 |
|
$ |
113 |
|
|
$ |
242 |
|
|
|
|
|
|
|
|
|
|
Non-cash financing activities |
|
|
|
|
|
|
|
|
Issuance of common stock under equity incentive plans |
|
$ |
516 |
|
|
$ |
– |
|
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