Q3 2022 Lifeway Foods Inc Earnings Call

Chief Executive Officer.

By now everyone should have access to the press release that went out this morning.

If you have not received the release it is available on the Investor Relations portion.

Lifeway its website at Www Dot Lifeway foods Dot com.

A 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 as Chief Executive Officer, Julie Smolinski.

Thank you John and good morning to everyone joining us today.

As always thank you for your interest in lightweight.

I am very pleased to be speaking with you today about our third quarter.

Their 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 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 quarters record breaking topline numbers are a result of our focus on the core lifeway key for our business.

The strategy, we have 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're grateful to our customers who have made this milestone possible net.

Net sales were $38 1 million for the period ended September 32022, 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 keefer 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 Glen Oaks 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 Kiefer is the core driver of our business and the consistent growth of Lifeway keep her 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 32022.

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 bottomline erosion. Our operations team has also consistently delivered and monitoring industry trends and ensuring that we have been positioned comfortably against any potential sure.

Just 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 <unk> 4 million to $6 3 million for the period ended September 32022 from $5 9 million during the same period in 2021.

Our net income during the period ended September 32022 was $1 million, reflecting etfs of six cents per basic and diluted share compared to a net income of 5 million or three cents per diluted common share during the prior year period.

As we work to stabilize our margins and continue to execute on our outlined lifeway to point out strategy, we expect to see progress on our profitability metrics capped.

Capital spending increased approximately <unk> 9 million to $2 6 million. During the same nine month period ended September 32022, we focus our capital spend on three core areas gross capital cost reduction and facility improvement the growth capital supports new product innovation and enhancement.

And on cost reduction and facility improvements to support manufacturing efficiencies safety and productivity.

Our continued capital commitment reflects our goals as a business to continue growing and improving our internal efficiencies in.

In summary, the third quarter was a record breaking quarter for Lifeway are net sales of $38 1 million were the highest for any quarter in the company's history.

This also marked our 12th straight quarter of year over year net sales growth and furthered the exceptional performance of our brands year to date. In addition to the results. We continue to enhance our relationship with our retail partners and customers increased our investment in sales and marketing to promote retention and.

Track, New eyes to the brand and have put pen to paper on multiple new distribution deals, which I'll discuss shortly and I'm quite excited about.

We're particularly encouraged by our third quarter performance as consumer trends affected by inflation and recessionary expectation have indicated a trade down to value items and overall decrease willingness to spend.

Despite that demand for lifeway products has increased meaningfully and we have expanded distribution and seen accelerating velocities with certain key retail partners. Our strong results throughout this quarter and this year to date illustrate that our target consumers remain very focused on God health and nutrition, which is.

A strong tailwind to lifeway is addressable market.

He's done multiple market research reports, we believe this tailwind will continue to accelerate for years to come.

For September report from Brainy insights the global key for market is expected to grow from 1.46 billion in 2021 to 2.45 billion by 'twenty 30 at a CAGR of five 9% during the forecast period 2022 to 'twenty 30 cited.

Drivers include the increased preference for healthy drinks and snacks during the forecast period expanding demand.

For an August report from Mordor intelligence, the global key for market is expected to grow at a CAGR of six 4% during the forecast period of 2022 to 2027 up from their previous report this year, which cited a five 6% CAGR.

They cite the increasing demand for probiotics ranks as one of the key drivers, noting the efficacy of probiotics in treating certain health concerns such as lactose intolerance.

As the dominant market leader in the U S. Keefer industry Lifeway is extremely well positioned to capitalize on this growing market and consumer interests.

Our drinkable Kiefer is the backbone of our business and accounts for the vast majority of our sales in the 36 years. Since Lifeway was founded we have established ourselves as the leading brand and keefer and dominate the category.

While innovation and the ability to adapt to consumer trends and behaviors is crucial for our success in this industry. It's important to also recognize that consumer fad coming out we've seen money shifting dynamics in the dairy and dairy alternative space over the past years in particular, and our core Lifeway Keefer business has.

It remained steady and consistent in comparison.

So very strong years in both 2020 and 2021 our drinkable key for net sales were up 27, 1% and 14, 6% for the third quarter and nine months ended September 32022, respectively.

When compared to the same periods in 2021.

As we aim of head to Lifeway is continued expansion within the growing market. We're focused on doing what we do well over and over again and that is selling are keefer.

Our products are healthy delicious and can be incorporated very dynamically amongst a variety of recipes, which have consistently received positive attention from customers and in the press.

To continue delivering lifeway to more and more consumers we plan to consistently deliver on our customer acquisition strategy through advertising and marketing program and to focus on our distribution network to increase access.

I'll now touch on some of our marketing and advertising strategies.

In the middle of 2021 we initiated a large marketing program with the immersive van Gogh experience a national exhibition showcases ban goes artwork through light music and movement and imagination in 'twenty two major U S cities.

This in person marketing opportunity emphasizes wellness and allows us to connect with our consumers on a deep level.

To date van Gogh experience hasn't added over 275 million impressions and we've distributed over 250000, lifeway keefer samples to attendees.

In Q3 of 2020 to Lifeway received 60 media placements and target outlets, resulting in a potential reach of more than 875 million impressions, including prominent features with Fox business.

Good housekeeping Mind-body Green women's health and much more.

To demonstrate the versatility of Lifeway Keefer unexplained reach we've continued our work with notable influencers shafts and nutrition experts to suggest healthy ingredients swaps recipes and snack ideas incorporating our product we distribute these across lifeway social media platforms and website, which have both seen large increases this year.

Lifeway social channels have now amassed over 1 million followers and brand website sessions were up 26, 5% year over year for Q3 of 2022.

Moving forward, we will continue to evaluate all potential marketing and promotional opportunities to onboard new customers and increase the velocity of our brand.

Now I'll touch on some operational highlights as we mentioned previously in the first half of this year.

We had two big wins lifeway regained distribution at the fresh market. After a three year absence and was awarded a rotation at Costco Midwest stores.

Lifeway also converted food lion from a private label to branded products, increasing our brand recognition and building consumer awareness for our leadership position in the category.

The grocery channel has long been our traditional approach our first large customer was whole foods, we grew with during the Ninety's and along the way we have picked up distribution.

Through multiple other large grocery chains.

Yet as we alluded to previously we have been evaluating options to increase our presence in high visibility away from home locations, such as small format convenient stores universities and health care setting with that said I'm pleased to announce two new distribution deals that we have recently secured.

First we received authorization with Plaid pantry, and Oregon based chain, which represents lifeway is expansion into the Pacific Northwest a region, we see as a potential growth area.

Second we plan to begin shipping to Wawa in late Q4 Wawa is the dominant convenience chain in the northeast with over 900 stores and we are energized and optimistic about our opportunities with such an amazing partner.

These new placements represent a strong gain into the convenience segment. We're very excited about the prospects of both new opportunities as they serve both sales and marketing functions for the brand because of their high visibility.

I believe both of these deals and our activity throughout 2020 to illustrate lightweight clear commitment to growth and will continue to search for and evaluate expansion opportunities across all of our distribution channels.

Please keep her product provide customers with probiotics vitamin D and protein that helped to support their God health immunity and mental well being.

The probiotics and Keefer support a healthy microbiome and approximately 80% of immune defense comes from the gut.

Probiotic products, such as Keefer are the focus of intense research related to the microbiome role and stress depression and anxiety.

We now know that up to 90% of the body serotonin comes from got Salt and the gut brain access, which links the emotional and cognitive centers of the brain with our intestinal function plays a major role in happiness and wellbeing.

As today's consumer learns and focuses on their house, they will care, even more about those bags and the probiotic culture in their got which should be of great benefit to lightweight product portfolio.

In addition to our best selling keefer, and farmers cheese, or new Glen Oaks Drinkable yogurt.

We are evaluating innovation opportunities and I look forward to more exciting announcements in the coming months.

Lightweight performance in 2022 so far highlighted by the record breaking third quarter has our team very encouraged and we believe we're currently on the right path, achieving our primary targets delivering profitable and strategic growth our investors, while furthering our mission to provide best in class probiotic and nutritious food.

Improving the health and wellbeing of our customers.

To close thank you all very much for listening to the call today and of course for your interest in Lifeway foods.

We look forward to updating you on our progress and our business momentum on our next earnings call and finally I wanted to wish you and your families a happy and healthy holiday season. Thank you.