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spk00: Good afternoon. Welcome to Lifeway Foods' third quarter 2021 earnings conference call. On the call with me today is Julie Smolianski, 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 of Lifeway's website at www.lifewayfoods.com. A recording of this call will be available on the company's website. Before we begin, We'd 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 Swianski.
spk01: Thank you, John, and good morning to everyone joining us today. First, as always, thank you for your interest in Lifeway Boots. I am pleased to be speaking with you today regarding our third quarter 2021 earnings results. The third quarter was yet another strong period for Lifeway, marking our eighth consecutive quarter of year over year revenue growth and a firm building block for momentum as we head towards 2022. Before diving into the results, I'd first like to express my gratitude to all of our employees for their hard work and dedication to efficiently maintaining our operations and keeping our customers happy throughout these unique times. As we look ahead, I'm excited for the trajectory we are on as a business and very optimistic that we will continue to deliver results as the pandemic wanes and we enter hopefully a more normal 2022. Throughout 2021, we have successfully enhanced and expanded our relationships with our retail partners and customers. In doing so, we have continued to execute on our Lifeway 2.0 strategy and remain on track in our primary goal of driving growth and delivering value to our shareholders. Today, I'll review our third quarter 2021 results, which I'm happy to reiterate marked our eighth consecutive quarter of year-over-year net sales growth. Net sales were $29.6 million for the period ended September 30, 2021, an increase of $3.5 million, or 13.5% versus the third quarter in 2020. This increase was primarily driven by higher volumes of our branded Keeper drinks and, to a lesser extent, the contribution for the completed acquisition of Glen Oak Farms towards the end of August. The consistent increases in Keefer volume illustrate the traction that we're gaining from our customer acquisition strategies, utilizing elevated digital engagement and enhanced marketing campaigns. In addition, for the third quarter, we reported a gross profit margin of 23.7%. Moving on to expenses, our selling expenses increased approximately 0.6 million dollars to $2.7 million for the third quarter of 2021 from $2.1 million in the year-ago period due primarily to increased investments in advertising and marketing programs. G&A expenses increased by $0.4 million to $3.2 million for the third quarter of 2021 from $2.8 million during the same period in 2020. This increase is mainly the result of incentive compensation expenses. In summary, our net income during the third quarter of 2021 was $0.5 million, reflecting an EPS of $0.03 per basic and diluted common share. Year-to-date, our net income is $3.4 million, an increase of 15.3% compared to $3 million in the comparable nine months ended on September 30, 2020. Profitability is very important metric to us. As we continue to deliver on our previously outlined Lifeway 2.0 strategy, we expect continued progress in these results. At Lifeway, we focus our capital spending on three core areas, growth, cost reduction, and facility improvement. The growth capital spending supports new products, innovations, and enhancements. The cost reduction and facility improvements support manufacturing efficiency, safety, and productivity. Our capital spending increased $0.5 million to $1.7 million for the nine-month period ended September 30, 2021, reflecting our commitment as an organization to continue growing and improving our internal efficiencies. On June 24, 2021, our board authorized a plan to repurchase up to 250,000 shares of our common stock in the open market within 24 months at a maximum of $10 per share. During the third quarter, we repurchased all 250,000 shares of common stock at a price of $1.6 million and intend to hold repurchased shares in our treasury for general corporate purposes. In 2020, our results certainly benefited from COVID-induced stay-at-home trends and the strong increase in grocery sales. However, our strong results in the third quarter and outstanding results for the first nine months of 2021 illustrate our belief that a strong growth in demand for healthy products accompanied by consumers' propensity to eat at home, especially when measured against pre-COVID levels, will continue to be a tailwind for Lifeway going forward. driving new purchases and retention rate of our healthy products. This is supported by market research from reports and data, which projects that the global probiotic strength market will reach 23.9 billion by 2028. According to an analysis by Mordor Intelligence, rising health consciousness, Increasing purchasing power and the benefit of kefir for lactose-sensitive individuals are expected to drive growth in the global kefir market by an estimated compound annual growth rate of 5.8% from 2019 to 2024. As a leader in the drinkable kefir industry, this illustrates how well-positioned Lifeway is to capitalize on today's evolving consumer interest. Our keeper products are healthy, they're delicious, and can act as a key ingredient in a wide variety of recipes. And with a focus on fat product variety, Lifeway continues to work with notable chefs and nutrition experts to suggest healthy ingredient swaps, recipes, and snack ideas across all of our social media platforms and company websites. As we have consistently stated over the past year, we are extremely focused on our consumer acquisition strategy and have been aggressive this year with elevated marketing campaigns to connect with new consumers and re-engage existing or past buyers. This quarter, we saw the same level of commitment as we increased our selling expenses by $600,000 with a spend dedicated to targeted advertising and marketing programs. This year, we launched our first ever Spanish language television campaign in partnership with Telemundo. This was launched in key market areas in the United States, and as people continue to relocate throughout the country, we will be mindful and focus our spending in markets that produce the best results for LifeWay. Additionally, Lifeway began a large marketing program with the Immersive Van Gogh Experience, a national exhibition that showcases Van Gogh's artwork through light, music, movement, and imagination in 22 major U.S. cities for the coming year. We remain particularly excited about this as experiential marketing opportunities as this one allows us to connect with our consumers in person on a deeper level. Faith in-person wellness activations like this give people a chance to reconnect and feel a renewed sense of joy, which people often express through social media platforms such as Instagram, furthering our brand reach in the social space. Today, Van Gogh Experience has garnered over 255 million media impressions, and we have given out over 50,000 keeper samples to attendees. In 2021, Lifeway has also been featured on the Dr. Oz Show, the Drew Barrymore Show, and worked with famous ambassadors such as Joe Amdahl, a star on Bachelor in Paradise, best-selling author and registered dietitian Ilana Molstein, and artist Zach Shea. We are creating and engaging in marketing and promotional efforts designed to bring new customers to the brand and increase velocity. Our strong sales numbers and growth show that our efforts have been successful. In addition to our bolstered promotional efforts, I'd also like to discuss recent operational events that are a further testament to our commitment to growth. First and foremost, on August 18th, we announced the completion of the Glen Oak Farm acquisition for $5.8 million. This transaction was a historic moment for Lightway, and we are very excited to welcome Glen Oak Farms into the Lightway family. Glen Oaks represents our expansion outside of Keeper and into the drinkable yogurt market. It is a very valuable complement to our portfolio, as it gives us regional strength in the western United States to accompany our fresh-made brands' presence in the eastern United States, all under the umbrella of our dominant national presence with the Lifeway brand. California and the west coast of the United States is a crucial area of growth for us. and Glen Oak's drinkable yogurt acquisition will help expand our presence in key retail partners throughout this strategically important area. In addition, we expect the transaction to be accruative to our earnings per share and see multiple operational synergies, including leveraging existing selling and administrative infrastructure to increase cash flow from operations, and integrating Glen Oaks into our marketing efforts to reach new consumers, retailers, and channels that were not previously able to serve. The business benefits are clear, and we are very excited to acquire and grow the Glen Oaks brand, as it is well aligned with our business strategy. Their drinkable yogurt tastes great and stays true to our mission of supporting gut health, immunity, and mental well-being of our customers through fermented probiotic foods. As a reminder, Glen Oak yogurt contains 3.5 billion probiotic cultures per serving and is available in six different flavors. Initial results from the Glen Oak acquisition have been promising, and our team has worked hard to ensure a smooth integration process. We remain committed to growth through all avenues and plan to keep an eye out for additional accruative M&A opportunities. Another recent highlight is the announcement of our Lifeway dairy-free probiotic oat product. This new plant-based offering is very much in line with growing consumer trends, and we are very encouraged by its debut at the National Products Expo East 2021 in Philadelphia. According to Nielsen, sales of oat milk in the United States are up almost 1,200% in the last two years. We expect to capitalize on this growing market with our probiotic oat beverage, which tastes incredible, has major health benefits, and I believe we will see this line become a staple on our retailers' shelves and in consumers' bridge. Lifeway Oat will be the first nationally distributed probiotic cultured oat beverage and will debut with public distribution and the targeted on-shelf date of early December 2021. A Whole Foods debut will follow with expected on-shelf timing of January 2022. As successful category innovators, we are energized and excited to bring this incredible new probiotic option to the market. This year, our marketing efforts and business strategy have maintained a direct target on today's health-focused consumer, and it has been paying dividends. LifeWise Keeper products provide customers with probiotics, vitamin D, and protein that help to support their gut health, immunity, and mental well-being. The probiotics in Keeper support a healthy microbiome, and approximately 80% of immune defense comes from the gut. Probiotic products such as Kiefer are the focus of intense research related to the microbiome's role in stress, depression, and anxiety. We now know that up to 90% of the body's serotonin comes from gut cells and that the brain-gut access, which links emotional and cognitive centers of the brain with our intestinal functions, plays a major role in happiness and well-being. As today's consumers learn and focus more on their health, they will care even more about these facts and the probiotic cultures in their gut, which should be a great benefit to LifeWay's product portfolio. In addition to our best-selling keeper and farmer's cheese, our new Glen Oaks drinkable yogurt, we have a strong innovation pipeline, and I look forward to more exciting announcements in the coming months. Before concluding, I'd like to comment on the current supply chain issues and the global inflation affecting commodities and freight costs. As supply chain issues continue to affect brands and retailers, our operations team is working to make sure Lifeway is well positioned against any potential shortages. Additionally, as prices for raw materials and shipping increases, We expect to, like most of our industry peers, follow suit with our own prices to preserve our margin and continue to grow without bottom line erosion. We will continue to monitor industry trends and stay a step ahead of any issues that may arise. We are very encouraged by the results in the third quarter and first nine months of 2021. Moreover, as we continue through the end of 2021 and into 2022, our primary targets remain in delivering profitable and strategic growth and furthering our mission to provide best-in-class probiotic and nutritious foods to improve the health and well-being of our customers. As a financial update, once again, net sales were $29.6 million for the quarter ended September 30, 2021, an increase of 13.5% from $26 million in the third quarter of 2020. In addition, we reported earnings of 3 cents per diluted share for the third quarter of 2021 and 22 cents for the nine months ended September 30, 2021. The third quarter furthered our very strong 2021 to date, and I remain confident that we are on path for long-term growth and value creation for our investors. We're excited to continue serving healthy products to our consumers focused in improved self-care, immunity, and gut health. To close, thank you all for listening to the call today and for your interest in Lifeway Foods. This concludes our overview for the third quarter of 2021. We hope everyone will continue to remain safe, And we look forward to updating you on our ongoing process and business momentum on our next call. Have a great day and enjoy the upcoming holidays.
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