Lifeway Foods, Inc.
Q3 2022 Earnings Call Transcript

Published: 14 Nov 2022

[John Waldron:]

Good afternoon. Welcome to Lifeway Foods Third Quarter 2022 Earnings Conference Call. On the call with me today is Julie Smolyansky, Chief Executive Officer. By now, everyone should have access to the press release that went out this morning. If you've not received the release, it is available on the Investor Relations portion of Lifeway's website at www.lifewayfoods.com. The recording of this call will be available on the company's website. Before we begin, we would like to remind everyone that the prepared remarks contain forward-looking statements and management may make additional forward-looking statements in response to your questions. The words, believe, expect anticipate, and other similar expressions, generally identify forward-looking statements. These statements do not guarantee future performance, and therefore undue reliance should not be placed on them. Actual results could differ materially from those projected in any forward-looking statements. Lifeway assumes no obligation to update any forward-looking projections that may be made in today's release or call. All of the forward-looking statements contained herein speak only as of the date of this call. And with that, I would like to turn the call over to Lifeway's Chief Executive Officer, Julie Smolyansky.

[Julie Smolyansky:]

Thank you, John, and good morning to everyone joining us today. First, as always, thank you for your interest in Lifeway Foods. I am very pleased to be speaking with you today about our third quarter, another strong period of growth for our business. Before discussing the results, I'd like to thank the whole Lifeway team for their impressive efforts and commitment, which have enabled us to seamlessly navigate the challenging operating environment our industry has faced this year and deliver for our valued partners and customers. Now I will review our third quarter 2022 results. This quarter's record-breaking top line numbers are a result of our focus on the core Lifeway Kefir business. The strategy we've put in place to build awareness for our flagship product has yielded our 12th consecutive quarter of year-over-year growth at Lifeway, and we are grateful to our customers who have made this milestone possible. Net sales were $38.1 million for the period ended September 30, 2022, an increase of $8.6 million, or 29.1% compared to the third quarter in 2021. The net sales increase was primarily driven by higher volumes of our branded drinkable kefir and the impact of our price increases implemented during the first quarter of 2022 and to a lesser extent the favorable impact of our acquisition of GlenOaks Farms during the third quarter of 2021. It's important to note that even though we implemented price increases this year, branded Lifeway unit sales also increased by double digits during the third quarter. Our branded drinkable kefir is the core driver of our business and the consistent growth of Lifeway Kefir illustrates both the stickiness of our active customers and the success of our customer acquisition efforts. In addition, we reported a gross profit margin of 19.9% for the period ended September 30, 2022. Like others in the industry, we are not immune to the inflationary pressures of the current economic market. We continue to incur incremental costs from our price increases on raw material, including milk, our core commodity, packaging and freight. That said, as we have disclosed previously, we have taken a price increase throughout this year to offset certain costs and maintain our growth without bottom-line erosion. Our operations team has also consistently delivered in monitoring industry trends and ensuring that we have been positioned comfortably against any potential shortages as well. We intend to continue to prioritize margins moving forward and searching for efficiencies to keep them as stable as possible. Moving on to expenses. Selling, general and administrative expenses increased $0.4 million to $6.3 million for the period ended September 30, 2022 from $5.9 million during the same period in 2021. Our net income during the period ended September 30, 2022 was $1 million, reflecting EPS of $0.06 per basic and diluted share compared to a net income of $5 million or $0.03 per diluted common share during the prior year period. As we work to stabilize our margins and continue to execute on our outlined Lifeway 2.0 strategy, we expect to see progress on our profitability metrics. Capital spending increased approximately $0.9 million to $2.6 million during the same nine-month period ended September 30, 2022. We focus our capital spend on three core areas