Good Afternoon. Welcome to Lifeway Foods Second Quarter 2021 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 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, 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. .

Thanks, Ken, and good morning to everyone joining us today. First, as always, thank you for your interest in Lifeway Foods. I am pleased to be speaking with you today regarding our second quarter 2021 earnings results.

The second quarter represented a very strong finish to the first half of 2021 for Lifeway, marking our seventh consecutive quarter of year-over-year revenue growth. And we believe we're set to continue that strong momentum into a great second half of the year. .

Before we get into results, I would like to thank all of our employees for being flexible while staying committed to keeping our customers happy throughout these unique times. Looking forward, we are encouraged by the vaccine rollout and are very optimistic that we are equipped to deliver results regardless of the circumstances.

In the first half of this year, we consistently adapted to the landscape in order to continue enhancing and expanding our relationships with our valued retail partners and customers. In doing so, we were able to stay aligned to our Lifeway 2.0 strategy and stay on track in pursuit to drive growth and deliver value to shareholders. .

Today, I'll review our second quarter 2021 results, which I would like to reiterate, marked our seventh consecutive quarter of year-over-year net sales growth. Net sales were $29.2 million for the quarter ended June 30, 2021, an increase of $4.1 million or 16.6% versus the second quarter in 2020.

This increase was primarily driven by higher volumes of our branded drinkable kefir as we are gaining traction from our customer acquisition strategies, utilizing elevated digital engagement and new marketing campaigns..

In the second quarter, our gross profit margin decreased to 26.3% from 27.7% in the second quarter 2020. This slight decrease was driven by unfavorable milk pricing and to a lesser extent, the increased pricing of other inputs, which was partially offset by decrease in depreciation expense.

While our gross profit margin dipped slightly in the quarter for the first half of 2020, '21, our gross margin improved year-over-year to 26.9% and compared to 25.6% for the first half of 2020. This margin increase was propelled by an increase in volumes into our manufacturing platform. .

Moving on to expenses. Our selling expenses declined approximately $0.1 million or 5.7% to $2.6 million for the second quarter of 2021 from $2.7 million in the year ago period due primarily to favorable compensation expense.

G&A expenses decreased as well by $0.1 million or 4.2% to $2.6 million for the second quarter of 2021 from $2.7 million during the same period in 2020. The decline is primarily the result of lower compensation expenses due to organizational changes made in 2020 and the reduction in professional fees.

In summary, our net income during the second quarter of 2021 increased an impressive 65.1% to $1.6 million compared to $1 million in the second quarter of 2020 and reflecting an earnings per share of $0.10 versus $0.06 in a year ago period. .

growth, cost reduction and facility improvements. The growth capital spending supports new product innovations and enhancements. The cost reduction and facility improvements support manufacturing efficiencies, safety and productivity.

Our capital spending increased $0.4 million to $1.2 million for the first half of 2021, reflecting our commitment as an organization to continue growing and improving our internal efficiencies. .

In 2020, our results benefited from increased demand driven by stay-at-home home trends and the strong increase in grocery sales.

However, our strong second quarter and first half of 2021 results highlight our confidence that strong demand for our healthy products accompanied by an increase in consumer propensity to eat at home will continue to be a tailwind for Lifeway.

According to a survey conducted by the CPG sales and marketing [ pharma costa ] throughout March and April, 92% of families plan to continue eating together at home at least as often or more than they do now. Of those hold nearly 2/3 of shoppers cook at home more and it far more meals at home all the time than they did prior to COVID. .

These ongoing trends will continue to support our business, accompanied by the structural shift towards working at home and therefore, eating at home. These are tailwinds that we believe will continue to drive new purchases and retention rates of our healthy products.

According to an analysis by Mordor Intelligence, rising health consciousness, increasing purchasing power and the benefits of kefir for lactose sensitive individuals are expected to drive growth in the global kefir market by an estimated compound annual growth 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 interests. Our kefir products are healthy. They're delicious and they can act as a key ingredient in a wide variety of recipes.

And with a focus on a product variety, Lifeway continues to work with notable chefs and nutrition experts to suggest healthy ingredient swaps, recipes and staff ideas across all of our social media platforms and company website. .

As we have alluded to in past quarters, we have prioritized our customer acquisition strategy with elevated marketing campaigns to target new consumers and reengage existing and past buyers. This quarter was no different as we enhanced our digital engagement and marketing programs.

Most notably, we launched our first ever Spanish language campaign in key market areas in the United States. As people continue to relocate throughout the United States, we will target the shifting demographics and focus our spending in markets that produce the best results.

We strongly believe that our increased marketing efforts have been an integral factor in our accelerating growth alongside improving execution of the Lifeway 2.0 strategy. .

Lifeway has also begun a monumental marketing program with the Immersive Van Gogh experience, a national exhibition that will showcase the artwork of Van Gogh through lights, music, movement and imagination in 22 major U.S. cities in the coming year.

After 17 months of Zoom fatigue, experiential marketing opportunities like this allow us to connect with consumers on a deeper level. People are demanding safe and exciting live events and Lifeway is leading the way by offering self-care experiences to validate the trauma of what we have gone through globally.

These activations give people a chance to reconnect and feel a renewed sense of joy, which many people express by posting to digital platforms such as Instagram, furthering Lifeway's brand reach in the social space. .

The Van Gogh Immersive experience has already garnered 186 million media impressions, and we've already given out over 20,000 kefir samples to attendees. In addition to our upgraded promotional efforts, I'd like to discuss 2 pivotal events that we reported in recent weeks that are a further testament to our dedication to growth.

On July 1, we announced our expansion of kefir distribution into the French market with our listing at Costco France. This is our first listing in France and a major step forward in our larger global expansion strategy. We view France as the ideal market to replicate our U.S.

success as for generations, fermented dairy foods such as kefir has been a staple of the French diet. We have also expanded our distribution in Ireland with a new listing at Tesco, which we announced last week and can now be found in Sam's and Tesco stores in Mexico. .

Moving forward, on August 3, we announced our intent to acquire the assets of GlenOaks Farms. Since 1984 from their headquarters in Laguna Beach, California, GlenOaks has been serving health-conscious consumers with their drinkable yogurt products made from fuit puree and fresh California dairy.

The company offers 6 different flavors of their popular drinkable yogurt, which contains 3.5 billion probiotic cultures per serving. We are very excited about this acquisition for a multitude of reasons.

GlenOaks probiotic products are strategically aligned and compatible to the Lifeway mission, and it will further solidify our strong position in California and the Western United States. And as the leader in the U.S.

drinkable kefir market, we are very excited to further expand into the drinkable dairy space and see a strong runway to grow the GlenOaks brand by integrating it into Lifeway sales and distribution networks. .

We will pursue growth in all avenues and plan to keep an eye out for additional M&A opportunities. We expect our acquisition of GlenOaks to close by the end of August for a purchase price of $5.8 million.

Year-to-date, through our marketing efforts and recent announcements, we have maintained a firm target on today's health oriented consumer, and it has absolutely paid dividends. .

Lifeway's kefir products provide customers with probiotics, vitamin D and proteins that help to support their gut health, immunity and mental wellbeing. The probiotics and kefir support a healthy microbiome and approximately 80% of immune defense comes from the gut.

Probiotic products such as kefir, are the focus of intense research related to the microbiomes role in stress, depression and anxiety.

We now know that up to 90% of the body serotonin come from gut cells to gut brain access, which links the emotional and cognitive centers of the brain with our intestinal function, plays a major role in happiness and well-being. .

As consumers continue to focus more on their health they will continue to care more and more about those facts and Lifeway products should continue to become more relevant. In addition to our best-selling kefir and Farmer Cheese, we have a strong innovation pipeline. And I look forward to sharing more about new products in the coming weeks.

We are very encouraged by the second quarter and the first half of 2021 results. Moreover, as we continue through 2021 and into 2022, we remain committed to delivering profitable and strategic growth and furthering our mission to provide top in class probiotic and nutritious foods and to improve the health and wellbeing of our customers. .

As a financial update, once again, net sales were $29.2 million for the quarter ended June 30, 2021, an increase of 16.6% from $25 million in the second quarter of 2020.

In addition, we reported earnings per share of $0.10 per diluted share for the second quarter of 2021, a 67% increase from earnings of $0.06 per diluted share in the second quarter of 2020.

The second quarter continued our very strong start to 2021, and we remain optimistic that we are on the path to long-term growth and value creation for our investors and are excited to continue serving healthy products to our consumers focused on 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 second quarter of 2021. We hope everyone will continue to remain safe, and we look forward to updating you on our ongoing progress and business momentum on our next call.

Have a great day and enjoy the rest of your summer..