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, 2020.
“I am pleased to report that our growth
trajectory accelerated in the third quarter of 2020, with a 14.6%
increase in sales compared to the third quarter of 2019,” commented
Julie Smolyansky, Lifeway’s President and Chief Executive Officer.
“Our core business continues to show improved velocities and our
decision to focus on digital engagement to fuel online grocery
purchases and grocery list initiatives has paid dividends in a
retail world that has been shaped by COVID-19 buying habits. We are
still investing heavily in customer acquisition strategies as we
continue to market products that fit the needs of a growing number
of consumers. The trends for multi-serve products with immunity
supporting attributes such as probiotics, vitamin D and protein
look good for the remainder of 2020 and beyond, and we intend to
build on our messaging to tell the Lifeway story to those new to
the category. Our results show that retailers that have partnered
with Lifeway are seeing gains as we drive category growth. We look
forward to expanding those partnerships with increased variety to
create a win-win scenario for both consumers and retailers.”
Third Quarter ResultsNet
sales were $26.0 million for the third quarter of 2020, an increase
of 14.6% from $22.7 million in the third quarter of 2019.
Gross profit as a percentage of net sales was
29.1% for the second quarter of 2020, an increase of 140 basis
points from 27.7% for the second quarter of 2020. Gross profit
percentage was 22.8% in prior year period. The increase versus the
prior year was primarily due to the impact of favorable milk
pricing, and to a lesser extent favorable freight costs.
Additionally, depreciation expense increased reflecting our
continued investment in manufacturing improvements.
Third quarter of 2020 selling expenses decreased
by 21.0% to $2.1 million compared to the third quarter of 2019 at
$2.7 million. Selling expenses as a percentage of net sales were
8.1% during the third quarter compared to 11.8% for the same period
in 2019.
General and administrative expenses decreased
$0.4 million or 4.6% to $8.7 million during the nine month period
ended September 30, 2020 from $9.1 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 nine
months ended September 30, 2020 was 29.3% compared to 8.8% in the
same period last year. The increase in effective tax rate is
primarily the result of non-deductible compensation expense related
to equity incentive awards and state tax receivables reducing the
benefit associated with a pre-tax book loss in 2019, partially
offset by a benefit recognized in 2020 due to the enactment of the
“Coronavirus Aid, Relief, and Economic Security Act” (the CARES
Act). The Company consistently reflects non-deductible officer
compensation expense, non-deductible compensation expense related
to equity incentive awards and separate state tax rates from year
to year. 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 $0.12 per
diluted share for the third quarter of 2020, an increase from
earnings of $0.06 per diluted share in the second quarter of 2020,
and as compared to a break-even of $0.00 per diluted share, in the
third quarter of 2019.
Conference Call and WebcastA
pre-recorded conference call and webcast with Julie Smolyansky
discussing these results with additional comments and details will
be available today at approximately 8:00 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 November 30, 2020. North American listeners may
dial 844-512-2921 and international listeners may dial
412-317-6671. The passcode is 11142402.
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, 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
SheetsSeptember 30, 2020 and December 31,
2019(In thousands)
|
|
September 30,
2020(Unaudited) |
|
|
December 31, 2019 |
|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
7,616 |
|
|
$ |
3,836 |
|
Accounts receivable, net of allowance for doubtful accounts and
discounts and allowances of $1,410 and $1,100 at September 30, 2020
and December 31, 2019, respectively |
|
|
8,159 |
|
|
|
6,692 |
|
Inventories, net |
|
|
6,472 |
|
|
|
6,392 |
|
Prepaid expenses and other current assets |
|
|
1,339 |
|
|
|
1,598 |
|
Refundable income taxes |
|
|
189 |
|
|
|
681 |
|
Total current
assets |
|
|
23,775 |
|
|
|
19,199 |
|
|
|
|
|
|
|
|
|
|
Property, plant and
equipment, net |
|
|
21,082 |
|
|
|
22,274 |
|
Operating lease
right-of-use asset |
|
|
380 |
|
|
|
738 |
|
|
|
|
|
|
|
|
|
|
Intangible
assets |
|
|
|
|
|
|
|
|
Goodwill and indefinite-lived intangibles |
|
|
12,824 |
|
|
|
12,824 |
|
Other intangible assets, net |
|
|
35 |
|
|
|
152 |
|
Total intangible
assets |
|
|
12,859 |
|
|
|
12,976 |
|
|
|
|
|
|
|
|
|
|
Other
assets |
|
|
1,800 |
|
|
|
1,800 |
|
Total
assets |
|
$ |
59,896 |
|
|
$ |
56,987 |
|
|
|
|
|
|
|
|
|
|
Current
liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
6,036 |
|
|
$ |
5,282 |
|
Accrued expenses |
|
|
2,890 |
|
|
|
4,087 |
|
Accrued income taxes |
|
|
176 |
|
|
|
154 |
|
Total current
liabilities |
|
|
9,102 |
|
|
|
9,523 |
|
Line of
credit |
|
|
2,763 |
|
|
|
2,745 |
|
Operating lease
liabilities |
|
|
198 |
|
|
|
488 |
|
Deferred income taxes,
net |
|
|
1,292 |
|
|
|
922 |
|
Other long-term
liabilities |
|
|
35 |
|
|
|
58 |
|
Total
liabilities |
|
|
13,390 |
|
|
|
13,736 |
|
|
|
|
|
|
|
|
|
|
Commitments and
contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity |
|
|
|
|
|
|
|
|
Preferred stock, no par value; 2,500 shares authorized; no shares
issued or outstanding at September 30, 2020 and December 31,
2019 |
|
|
– |
|
|
|
– |
|
Common stock, no par value; 40,000 shares authorized; 17,274 shares
issued; 15,605 and 15,710 outstanding at September 30, 2020 and
December 31, 2019, respectively |
|
|
6,509 |
|
|
|
6,509 |
|
Paid-in capital |
|
|
2,532 |
|
|
|
2,380 |
|
Treasury stock, at cost |
|
|
(12,450 |
) |
|
|
(12,601 |
) |
Retained earnings |
|
|
49,915 |
|
|
|
46,963 |
|
Total stockholders'
equity |
|
|
46,506 |
|
|
|
43,251 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders' equity |
|
$ |
59,896 |
|
|
$ |
56,987 |
|
|
|
|
|
|
|
|
|
|
LIFEWAY FOODS, INC. AND
SUBSIDIARIESConsolidated Statements of
OperationsFor the three and nine Months Ended
September 30, 2020 and
2019(Unaudited)(In thousands,
except per share data)
|
|
Three Months Ended September
30, |
|
|
Nine Months Ended September
30, |
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
26,039 |
|
|
$ |
22,729 |
|
|
$ |
76,441 |
|
|
$ |
70,497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
17,710 |
|
|
|
16,813 |
|
|
|
53,613 |
|
|
|
51,223 |
|
Depreciation expense |
|
|
752 |
|
|
|
743 |
|
|
|
2,326 |
|
|
|
2,235 |
|
Total cost of goods sold |
|
|
18,462 |
|
|
|
17,556 |
|
|
|
55,939 |
|
|
|
53,458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit |
|
|
7,577 |
|
|
|
5,173 |
|
|
|
20,502 |
|
|
|
17,039 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses |
|
|
2,116 |
|
|
|
2,679 |
|
|
|
7,411 |
|
|
|
8,509 |
|
General and administrative |
|
|
2,805 |
|
|
|
2,710 |
|
|
|
8,681 |
|
|
|
9,100 |
|
Amortization expense |
|
|
39 |
|
|
|
39 |
|
|
|
117 |
|
|
|
152 |
|
Total operating
expenses |
|
|
4,960 |
|
|
|
5,428 |
|
|
|
16,209 |
|
|
|
17,761 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
operations |
|
|
2,617 |
|
|
|
(255 |
) |
|
|
4,293 |
|
|
|
(722 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(27 |
) |
|
|
(65 |
) |
|
|
(96 |
) |
|
|
(202 |
) |
Gain on investments |
|
|
– |
|
|
|
– |
|
|
|
4 |
|
|
|
– |
|
(Loss) gain on sale of property and equipment |
|
|
– |
|
|
|
154 |
|
|
|
(28 |
) |
|
|
183 |
|
Other income, net |
|
|
– |
|
|
|
77 |
|
|
|
2 |
|
|
|
82 |
|
Total other income
(expense) |
|
|
(27 |
) |
|
|
166 |
|
|
|
(118 |
) |
|
|
63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before
provision for income taxes |
|
|
2,590 |
|
|
|
(89 |
) |
|
|
4,175 |
|
|
|
(659 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income
taxes |
|
|
764 |
|
|
|
(17 |
) |
|
|
1,223 |
|
|
|
(58 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss) |
|
$ |
1,826 |
|
|
$ |
(72 |
) |
|
$ |
2,952 |
|
|
$ |
(601 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per
common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.12 |
|
|
$ |
(0.00 |
) |
|
$ |
0.19 |
|
|
$ |
(0.04 |
) |
Diluted |
|
$ |
0.12 |
|
|
$ |
(0.00 |
) |
|
$ |
0.19 |
|
|
$ |
(0.04 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
common shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
15,602 |
|
|
|
15,740 |
|
|
|
15,595 |
|
|
|
15,761 |
|
Diluted |
|
|
15,642 |
|
|
|
15,740 |
|
|
|
15,621 |
|
|
|
15,761 |
|
LIFEWAY FOODS, INC. AND
SUBSIDIARIESConsolidated Statements of Cash
Flows(Unaudited)(In
thousands)
|
|
Nine months ended September 30, |
|
|
|
2020 |
|
|
2019 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
2,952 |
|
|
$ |
(601 |
) |
Adjustments to reconcile net income (loss) to operating
cash flow: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
2,443 |
|
|
|
2,387 |
|
Non-cash interest expense |
|
|
17 |
|
|
|
17 |
|
Non-cash rent expense |
|
|
(38 |
) |
|
|
– |
|
Bad debt expense |
|
|
(3 |
) |
|
|
20 |
|
Deferred revenue |
|
|
(73 |
) |
|
|
(73 |
) |
Stock-based compensation |
|
|
274 |
|
|
|
714 |
|
Deferred income taxes |
|
|
369 |
|
|
|
– |
|
Loss (gain) on sale of property and equipment |
|
|
28 |
|
|
|
(183 |
) |
Reserve for inventory obsolescence |
|
|
– |
|
|
|
177 |
|
(Increase) decrease in operating assets: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(1,464 |
) |
|
|
(316 |
) |
Inventories |
|
|
(80 |
) |
|
|
(1,118 |
) |
Refundable income taxes |
|
|
492 |
|
|
|
1,921 |
|
Prepaid expenses and other current assets |
|
|
248 |
|
|
|
(399 |
) |
Increase (decrease) in operating liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
756 |
|
|
|
2,397 |
|
Accrued expenses |
|
|
(595 |
) |
|
|
53 |
|
Accrued income taxes |
|
|
22 |
|
|
|
(43 |
) |
Net cash provided by operating activities |
|
|
5,348 |
|
|
|
4,953 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(1,168 |
) |
|
|
(610 |
) |
Proceeds from sale of property and equipment |
|
|
5 |
|
|
|
513 |
|
Purchase of investments |
|
|
– |
|
|
|
(15 |
) |
Net cash used in investing activities |
|
|
(1,163 |
) |
|
|
(112 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Purchase of treasury stock |
|
|
(405 |
) |
|
|
(538 |
) |
Repayment of line of credit |
|
|
– |
|
|
|
(1,789 |
) |
Net cash used in financing activities |
|
|
(405 |
) |
|
|
(2,327 |
) |
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
3,780 |
|
|
|
2,514 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the beginning of the period |
|
|
3,836 |
|
|
|
2,998 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the
period |
|
$ |
7,616 |
|
|
$ |
5,512 |
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for income taxes, net of (refunds) |
|
$ |
335 |
|
|
$ |
(1,937 |
) |
Cash paid for interest |
|
$ |
82 |
|
|
$ |
214 |
|
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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