LWAY - NASDAQ

Good morning. Welcome to Lifeway Foods' Second Quarter 2024 Conference Call. On the call with me today is Julie Smolyansky, President and 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 would like to remind everyone that the prepared remarks contain forward-looking statements. 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.

Thanks, John, and good morning to everyone joining us today. As always, we greatly appreciate your interest in Lifeway Foods. It's a pleasure to speak with you today, and I'm excited to share that our business momentum continued strongly in the second quarter as we, once again, delivered monumental results, highlighted by robust topline growth. Remarkably, for the fifth consecutive quarter, we surpassed the company record for quarterly net sales, growing more than 25% year-over-year, driven by volume growth of our flagship Lifeway drinkable kefir. Before diving deeper into the results, I'd like to thank the whole team for their flawless execution as it has allowed us to offer superior service to our value customers and clients. Over the last few years, we have faced unprecedented times with a volatile macro environment and a global pandemic, yet through the hard work of our whole team, we haven't skipped a beat and consistently delivered stellar growth. With that said, I will now review our extraordinary results for the second quarter of 2024. Our record high net sales were $49.2 million for the period ended June 30, 2024, an increase of $10 million or 25.3% compared to the second quarter of 2023. The strong growth was primarily driven by higher volumes of our branded drinkable kefir. Impressively, we outperformed our previous record high sales, which occurred in the first quarter of this year by more than 10%. This result gets us extremely close to the company milestone that we've circled for some time now, which is that $50 million quarter. We are pleased to continue delivering immense, volume-led growth as it further demonstrates the effectiveness of our strategic sales and marketing investments at driving velocities and capturing new customers for our key product offerings. I'd like to remind everyone that 2023 was an unbelievable record-breaking year for the company, which makes this monumental growth for the first half of 2024 even more incredible. For the six months ended June 30, 2024, our net sales were $93.8 million, a 21.6% increase compared to the first six months of 2023. We have great business momentum and a loyal growing customer base, and we're well on pace to set another Lifeway high for annual sales in 2024. We reported a gross profit margin of 27% for the period ended June 30, 2024. On a sequential basis, when compared to the first quarter of this year, our margins improved 120 basis points. Additionally, for the six months ended June 30, 2024, our gross profit margin has improved 110 basis points when compared to the first six months of 2023. We are pleased with the progress we've made on our margins, and we continuously look to proactively manage the supplies and transportation of our products to seamlessly meet our growing demand. As shipment volumes of our Lifeway-branded products continue to grow nicely, we will continue to improve our productivity and position ourselves for even stronger margins. Now to expenses. Selling, general and administrative expenses were $7.8 million for the period ended June 30, 2024. We continue to invest behind our core products through strategic marketing, which has been very effective in driving velocities and customer retention, as evidenced by our consistently strong sales results. Our net income for the period ended June 30, 2024 was $3.8 million, reflecting an EPS of $0.26 per basic share and $0.25 per diluted common share compared to the net income of $3.2 million or $0.22 per basic share and $0.21 per diluted common share during the second quarter of 2023. Our strong topline performance continues to flow through smoothly to the bottom line indicating our growing profitability profile. Capital spending increased approximately $2 million to $3.9 million during the six-month period ended June 30, 2024, compared to the first six months of 2023. This increase in cash was used as expected and reflects our planned increase during 2024 compared to 2023 to support our continued business growth. Our capital spending is focused on three core areas: supporting growth, cost reductions and facility improvements. Our spend is very efficient, and we consistently generate strong returns when installing additional tanks as we leverage existing infrastructure to scale the business. With our efficient capital spend, we are very prepared and have the capacity and operations in place for continued sales tailwind. We have now published 19 consecutive quarters of year-over-year net revenue growth. And as I mentioned before, five consecutive quarters, setting a Lifeway record in quarterly net sales, both of which we are incredibly proud of and excited to pursue further. While many businesses in the broader space have called out a more cautious consumer, Lifeway has continued to excel, and we are not seeing a slowdown within our business. It is no secret that consumers continue to face macro headwinds, including inflation and high interest rates, yet our growing customer base is proving resilient and very loyal as we continue to grow rapidly, led by volume growth, and we believe that this is because our premium better-for-you offerings come with exceptional value. Lifeway Kefir is accessible, nutrient-dense, and research suggests that consuming it regularly improves overall health and well-being. Lifeway products, such as Kefir and Farmer Cheese offer consumers a high-quality protein, probiotics, calcium, vitamin D, and are a great way to close the nutrition gap throughout life stages for everyone from children to more aging populations. Studies also show that people who consume fermented dairy tend to make healthier lifestyle choices overall. Gut health and its connection to brain health and skin health is interesting even to Gen