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
second quarter ended June 30, 2020.
“I am pleased to report that our strong business momentum
continued in the second quarter of 2020, with an 8% increase in
sales compared to the second quarter of 2019,” commented Julie
Smolyansky, Lifeway’s President and Chief Executive Officer. “We
benefited from robust consumer demand during the quarter both
through our retail and e-commerce sales channels. Our team executed
incredibly well in a dynamic operating environment, truly
demonstrating the strength and resiliency of our organization. We
believe research and trends around probiotics, vitamin D and
immunity supporting foods continues to attract consumers,
particularly in light of the ongoing pandemic. As consumers place
greater emphasis on self-care, health and nutrition, Lifeway will
be there to meet the demand for natural, probiotic products that
taste great and offer a range of benefits. Going forward, we expect
to maintain our growth trajectory as we benefit from increases in
velocity and distribution, as well as new product innovation.”
Second Quarter Results
Net sales were $25.0 million for the second quarter of 2020, an
increase of 8.0% from $23.2 million in the second quarter of
2019.
Gross profit as a percentage of net sales was 27.7% for the
second quarter of 2020, an increase of 410 basis points from 23.6%
for the first quarter of 2020. Gross profit percentage was 24.0% in
prior year period. The increase versus the prior year was primarily
due to the impact of favorable milk pricing, partially offset by an
increase in salaries associated with hourly commitment award wage
premiums implemented during 2020 due to COVID-19. Additionally,
depreciation expense increased reflecting our continued investment
in manufacturing improvements.
Second quarter of 2020 selling expenses were consistent with the
second quarter of 2019 at $2.7 million. Selling expenses as a
percentage of net sales were 10.9% during the second quarter
compared to 11.6% for the same period in 2019.
General and administrative expenses decreased
$0.5 million or 8.0% to $5.9 million for the first half of 2020
from $6.4 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, partially offset by increased professional fee
expense.
The effective income tax rate for the first half of 2020 was
29.0% compared to (7.2%) 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. 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 $0.06 per diluted share for the
second quarter of 2020, an increase from earnings of $0.01 per
diluted share in the first quarter of 2020, and as compared to a
net loss of $0.01 per diluted share, in the second quarter of
2019.
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 approximately 7:00 a.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 August 27, 2020. North American listeners may
dial 844-512-2921 and international listeners may dial
412-317-6671. The passcode is 11141231.
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
SheetsJune 30, 2020 and December 31,
2019(In thousands)
|
|
June 30,
2020(Unaudited) |
|
|
December 31, 2019 |
|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
4,619 |
|
|
$ |
3,836 |
|
Accounts receivable, net of allowance for doubtful accounts and
discounts and allowances of $1,300 and $1,100 at June 30, 2020 and
December 31, 2019 respectively |
|
|
7,737 |
|
|
|
6,692 |
|
Inventories, net |
|
|
6,653 |
|
|
|
6,392 |
|
Prepaid expenses and other current assets |
|
|
1,086 |
|
|
|
1,598 |
|
Refundable income taxes |
|
|
615 |
|
|
|
681 |
|
Total current
assets |
|
|
20,710 |
|
|
|
19,199 |
|
|
|
|
|
|
|
|
|
|
Property, plant and
equipment, net |
|
|
21,394 |
|
|
|
22,274 |
|
Operating lease
right-of-use asset |
|
|
431 |
|
|
|
738 |
|
|
|
|
|
|
|
|
|
|
Intangible
assets |
|
|
|
|
|
|
|
|
Goodwill and indefinite-lived intangibles |
|
|
12,824 |
|
|
|
12,824 |
|
Other intangible assets, net |
|
|
74 |
|
|
|
152 |
|
Total intangible
assets |
|
|
12,898 |
|
|
|
12,976 |
|
|
|
|
|
|
|
|
|
|
Other
assets |
|
|
1,800 |
|
|
|
1,800 |
|
Total
assets |
|
$ |
57,233 |
|
|
$ |
56,987 |
|
|
|
|
|
|
|
|
|
|
Current
liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
5,108 |
|
|
$ |
5,282 |
|
Accrued expenses |
|
|
3,066 |
|
|
|
4,087 |
|
Line of credit – current |
|
|
2,757 |
|
|
|
– |
|
Accrued income taxes |
|
|
92 |
|
|
|
154 |
|
Total current
liabilities |
|
|
11,023 |
|
|
|
9,523 |
|
Line of
credit |
|
|
– |
|
|
|
2,745 |
|
Operating lease
liabilities |
|
|
239 |
|
|
|
488 |
|
Deferred income taxes,
net |
|
|
1,292 |
|
|
|
922 |
|
Other long-term
liabilities |
|
|
42 |
|
|
|
58 |
|
Total
liabilities |
|
|
12,596 |
|
|
|
13,736 |
|
|
|
|
|
|
|
|
|
|
Commitments and
contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity |
|
|
|
|
|
|
|
|
Preferred stock, no par value; 2,500 shares authorized; no shares
issued or outstanding at June 30, 2020 and December 31, 2019 |
|
|
– |
|
|
|
– |
|
Common stock, no par value; 40,000 shares authorized; 17,274 shares
issued; 15,592 and 15,710 outstanding at June 30, 2020 and December
31, 2019, respectively |
|
|
6,509 |
|
|
|
6,509 |
|
Paid-in capital |
|
|
2,587 |
|
|
|
2,380 |
|
Treasury stock, at cost |
|
|
(12,548 |
) |
|
|
(12,601 |
) |
Retained earnings |
|
|
48,089 |
|
|
|
46,963 |
|
Total stockholders'
equity |
|
|
44,637 |
|
|
|
43,251 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders' equity |
|
$ |
57,233 |
|
|
$ |
56,987 |
|
|
|
|
|
|
|
|
|
|
LIFEWAY FOODS, INC. AND
SUBSIDIARIESConsolidated Statements of
OperationsFor the six months ended June 30, 2020
and 2019(Unaudited)(In thousands,
except per share data)
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
25,014 |
|
|
$ |
23,153 |
|
|
$ |
50,402 |
|
|
$ |
47,768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
17,279 |
|
|
|
16,843 |
|
|
|
35,903 |
|
|
|
34,410 |
|
Depreciation expense |
|
|
807 |
|
|
|
747 |
|
|
|
1,574 |
|
|
|
1,492 |
|
Total cost of goods sold |
|
|
18,086 |
|
|
|
17,590 |
|
|
|
37,477 |
|
|
|
35,902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit |
|
|
6,928 |
|
|
|
5,563 |
|
|
|
12,925 |
|
|
|
11,866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses |
|
|
2,720 |
|
|
|
2,691 |
|
|
|
5,295 |
|
|
|
5,830 |
|
General and administrative |
|
|
2,731 |
|
|
|
2,898 |
|
|
|
5,876 |
|
|
|
6,390 |
|
Amortization expense |
|
|
39 |
|
|
|
40 |
|
|
|
78 |
|
|
|
113 |
|
Total operating
expenses |
|
|
5,490 |
|
|
|
5,629 |
|
|
|
11,249 |
|
|
|
12,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
operations |
|
|
1,438 |
|
|
|
(66 |
) |
|
|
1,676 |
|
|
|
(467 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(30 |
) |
|
|
(68 |
) |
|
|
(69 |
) |
|
|
(137 |
) |
Gain on investments |
|
|
4 |
|
|
|
– |
|
|
|
4 |
|
|
|
– |
|
(Loss) gain on sale of property and equipment |
|
|
(33 |
) |
|
|
4 |
|
|
|
(28 |
) |
|
|
29 |
|
Other income, net |
|
|
5 |
|
|
|
2 |
|
|
|
2 |
|
|
|
5 |
|
Total other income
(expense) |
|
|
(54 |
) |
|
|
(62 |
) |
|
|
(91 |
) |
|
|
(103 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before
provision for income taxes |
|
|
1,384 |
|
|
|
(128 |
) |
|
|
1,585 |
|
|
|
(570 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income
taxes |
|
|
404 |
|
|
|
13 |
|
|
|
459 |
|
|
|
(41 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss) |
|
$ |
980 |
|
|
$ |
(141 |
) |
|
$ |
1,126 |
|
|
$ |
(529 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per
common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.06 |
|
|
$ |
(0.01 |
) |
|
$ |
0.07 |
|
|
$ |
(0.03 |
) |
Diluted |
|
$ |
0.06 |
|
|
$ |
(0.01 |
) |
|
$ |
0.07 |
|
|
$ |
(0.03 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
common shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
15,560 |
|
|
|
15,775 |
|
|
|
15,591 |
|
|
|
15,771 |
|
Diluted |
|
|
15,586 |
|
|
|
15,775 |
|
|
|
15,607 |
|
|
|
15,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIFEWAY FOODS, INC. AND
SUBSIDIARIESConsolidated Statements of Cash
Flows(Unaudited)(In
thousands)
|
|
Six Months Ended June 30, |
|
|
|
2020 |
|
|
2019 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
1,126 |
|
|
$ |
(529 |
) |
Adjustments to reconcile net income (loss) to operating
cash flow: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
1,652 |
|
|
|
1,605 |
|
Non-cash interest expense |
|
|
12 |
|
|
|
12 |
|
Non-cash rent expense |
|
|
(38 |
) |
|
|
– |
|
Bad debt expense |
|
|
(4 |
) |
|
|
3 |
|
Deferred revenue |
|
|
(48 |
) |
|
|
(48 |
) |
Stock-based compensation |
|
|
232 |
|
|
|
535 |
|
Deferred income taxes |
|
|
369 |
|
|
|
– |
|
Loss (gain) on sale of property and equipment |
|
|
28 |
|
|
|
(29 |
) |
Reserve for inventory obsolescence |
|
|
– |
|
|
|
210 |
|
(Increase) decrease in operating assets: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(1,041 |
) |
|
|
(1,297 |
) |
Inventories |
|
|
(262 |
) |
|
|
(1,235 |
) |
Refundable income taxes |
|
|
65 |
|
|
|
1,470 |
|
Prepaid expenses and other current assets |
|
|
502 |
|
|
|
(308 |
) |
Increase (decrease) in operating liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
(172 |
) |
|
|
888 |
|
Accrued expenses |
|
|
(448 |
) |
|
|
774 |
|
Accrued income taxes |
|
|
(62 |
) |
|
|
(43 |
) |
Net cash provided by operating activities |
|
|
1,911 |
|
|
|
2,008 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(728 |
) |
|
|
(290 |
) |
Proceeds from sale of property and equipment |
|
|
5 |
|
|
|
36 |
|
Purchase of investments |
|
|
– |
|
|
|
(15 |
) |
Net cash used in investing activities |
|
|
(723 |
) |
|
|
(269 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Purchase of treasury stock |
|
|
(405 |
) |
|
|
(385 |
) |
Repayment of line of credit |
|
|
– |
|
|
|
(1,330 |
) |
Net cash used in financing activities |
|
|
(405 |
) |
|
|
(1,715 |
) |
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
783 |
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the beginning of the period |
|
|
3,836 |
|
|
|
2,998 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the
period |
|
$ |
4,619 |
|
|
$ |
3,022 |
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for income taxes, net of (refunds) |
|
$ |
82 |
|
|
$ |
(1,469 |
) |
Cash paid for interest |
|
$ |
61 |
|
|
$ |
149 |
|
|
|
|
|
|
|
|
|
|
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 |
|
Increase (decrease) in right-of-use assets and operating lease
liabilities recognized after ASU 2016-02 transition |
|
$ |
(58 |
) |
|
$ |
280 |
|
|
|
|
|
|
|
|
|
|
Non-cash financing
activities |
|
|
|
|
|
|
|
|
Issuance of common stock under equity incentive plans |
|
$ |
522 |
|
|
$ |
– |
|
|
|
|
|
|
|
|
|
|
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