Lifeway Foods Inc

Previous wording

Since 2022, we experienced inflationary and cost pressures due to volatility and disruption in the global economy which have increased our production and distribution costs. We have begun to see some moderation of inflationary pressures and have experienced pricing declines in certain of our input costs, such as milk, during 2023. We expect inflationary pressures to be moderate during 2024.

Current wording

Since 2022, we experienced inflationary and cost pressures due to volatility and disruption in the global economy which have increased our production and distribution costs. We experienced some moderation of inflationary pressures and pricing declines in certain of our input costs, such as milk, during 2023. We expect overall inflationary pressures to be moderate during 2024.

Previous wording

We have not experienced significant supply chain disruptions or labor supply shortages and have continued to satisfy customer and consumer demand for our products. Management continues to proactively manage the supply and transportation of materials used to make and package our products, staffing, and transportation of our products to customers. This proactive planning has allowed the Company to meet increased demand.

Current wording

We have not experienced significant supply chain disruptions or labor supply shortages and have continued to satisfy customer and consumer demand for our products. Management continues to proactively manage the supply and transportation of materials used to produce and package our products, staffing, and transportation of our products to customers. This proactive planning has allowed the Company to meet increased demand.

Previous wording

Net sales were at $44,634 for the three-month period ended March 31, 2024, an increase of $6,731 or 17.8% versus prior year. The net sales increase was primarily driven by higher volumes of our branded drinkable kefir.

Current wording

Net sales were $49,157 for the three-month period ended June 30, 2024, an increase of $9,927 or 25.3% versus prior year. The net sales increase was primarily driven by higher volumes of our branded drinkable kefir.

Previous wording

The provision for income taxes was $1,082 and $508 during the three months ended March 31, 2024 and 2023, respectively.

Current wording

The provision for income taxes was $1,576 and $1,529 during the three months ended June 30, 2024 and 2023, respectively.

Previous wording

The effective income tax rate for the three months ended March 31, 2024 was 30.8% compared to 37.9% in the same period last year. The statutory Federal and state tax rates remained consistent from 2024 to 2023. The Company has items that are nondeductible or are discrete adjustments to tax expense. The Company consistently reflects non-deductible officer compensation expense, non-deductible compensation expense related to equity incentive awards and separate state tax rates from period to period. Although similar items were reflected in 2023, the percentage effect is different due to the difference in pre-tax income in 2024 compared to 2023.

Current wording

The effective income tax rate for the three months ended June 30, 2024 was 29.4% compared to 32.6% in the same period last year. The statutory Federal and state tax rates remained consistent from 2024 to 2023. The Company has items that are nondeductible or are discrete adjustments to tax expense. The Company consistently reflects non-deductible officer compensation expense, non-deductible compensation expense related to equity incentive awards and separate state tax rates from period to period. Although similar items were reflected in 2023, the percentage effect is different due to the difference in pre-tax income in 2024 compared to 2023.

Previous wording

Gross profit as a percentage of net sales was 25.8% during the three-month period ended March 31, 2024. Gross profit percentage was 21.7% in the first quarter of the prior year. The increase versus the prior year was primarily due to the higher volumes of our branded products, and to a lesser extent a favorable impact to transportation costs.

Current wording

Gross profit as a percentage of net sales was 26.4% and 25.3% during the six-month period ended June 30, 2024 and 2023, respectively. The increase versus the prior year was primarily due to the higher volumes of our branded products, which provided manufacturing efficiencies and favorable fixed cost absorption.

Previous wording

Selling expenses increased by $181 to $3,700 during the three-month period ended March 31, 2024 from $3,519 during the same period in 2023. Selling expenses as a percentage of net sales decreased to 8.3% in the three-month period ended March 31, 2024 from 9.3% during the same period in 2023.

Current wording

Selling expense increased by $1,187 to $7,277 during the six-month period ended June 30, 2024 from $6,090 during the same period in 2023. Selling expenses as a percentage of net sales decreased to 7.8% in the three-month period ended June 30, 2024 from 7.9% during the same period in 2023.

Previous wording

General and administrative expenses increased $1,001 to $4,136 during the three-month period ended March 31, 2024 from $3,135 during the same period in 2023. The increase is primarily driven by incentive compensation and non-routine stockholder action expense.

Current wording

General and administrative expense increased $1,370 to $8,313 during the six-month period ended June 30, 2024 from $6,943 during the same period in 2023. The increase is primarily driven by stock-based incentive compensation and non-routine stockholder action expense.

Previous wording

Management assesses the Company's liquidity in terms of its ability to generate cash to fund its operating, investing, and financing activities. The Company remains in a strong financial position, and while it has been impacted by the macroeconomic challenges with commodity inflation and other input cost increases, the Company believes that its cash flow from operations, revolving credit and term loan facility, and cash and cash equivalents will continue to provide sufficient liquidity for its working capital needs, capital resource requirements, and growth initiatives and to ensure the continuation of the Company as a going concern.

Current wording

Management assesses the Company's liquidity in terms of its ability to generate cash to fund its operating, investing, and financing activities. The Company remains in a strong financial position, and while it has been impacted by the macroeconomic challenges with commodity inflation and other input cost increases, the Company believes that its cash flow from operations, revolving credit, and cash and cash equivalents will continue to provide sufficient liquidity for its working capital needs, capital resource requirements, and growth initiatives and to ensure the continuation of the Company as a going concern.

Previous wording

Long-term cash requirements primarily relate to funding long-term debt repayments (see Note 7, Debt) and deferred income taxes (see Note 10, Income Taxes, in our Annual Report on Form 10-K).

Current wording

Long-term cash requirements primarily relate to funding deferred income taxes (see Note 10, Income Taxes, in our Annual Report on Form 10-K).

Previous wording

Net cash provided by operating activities was $1,546 during the three-month period ended March 31, 2024 compared to $3,027 in the same period in 2023. The decrease was primarily due to the change in working capital, partially offset by higher cash earnings driven by increased product volumes and declines in certain input costs.

Current wording

Net cash provided by operating activities was $8,090 during the six-month period ended June 30, 2024 compared to $5,455 in the same period in 2023. The increase is primarily due to higher cash earnings driven by increased product volumes.

Previous wording

Net cash used in investing activities was $2,469 during the three-month period ended March 31, 2024 compared to $1,762 in the same period in 2023. The increase in cash used reflects our planned capital spending increase during 2024 compared to 2023. Our capital spending is focused in three core areas: growth, cost reduction, and facility improvements. Growth capital spending supports capacity expansion and new product innovation and enhancements. Cost reduction and facility improvements support manufacturing efficiency, safety, and productivity.

Current wording

Net cash used in investing activities was $3,905 during the six-month period ended June 30, 2024 compared to $1,950 in the same period in 2023. The increase in cash used reflects our planned capital spending increase during 2024 compared to 2023. Our capital spending is focused in three core areas: growth, cost reduction, and facility improvements. Growth capital spending supports capacity expansion and new product innovation and enhancements. Cost reduction and facility improvements support manufacturing efficiency, safety, and productivity. We continue to make capital expenditures primarily to modernize manufacturing facilities and support productivity initiatives.

Previous wording

Net cash used in financing activities was $250 and $500 during the three-month period ended March 31, 2024 and 2023, respectively. The cash used represents the quarterly principal payments under the term loan.

Current wording

Net cash used in financing activities was $2,750 and $500 during the six-month period ended June 30, 2024 and 2023, respectively. The cash used represents the quarterly principal payments under the term loan. The Company paid the outstanding term loan balance of $2,250 in full during the second quarter of 2024.

Previous wording

The Company is party to an Amended and Restated Loan and Security Agreement (as amended and modified from time to time, the “Credit Agreement”) with its existing lender and certain of its subsidiaries. The Credit Agreement provides for, among other things, a $5 million term loan to be repaid in quarterly installments of principal and interest over a term of five years, a revolving line of credit up to a maximum of $5 million (the “Revolving Credit Facility”) and an incremental facility not to exceed $5 million. The termination date of the term loan is August 18, 2026, unless earlier terminated. The termination date of the revolving credit facility is June 30, 2025, unless earlier terminated.

Current wording

The Company is party to an Amended and Restated Loan and Security Agreement (as amended and modified from time to time, the “Credit Agreement”) with its existing lender and certain of its subsidiaries. The Credit Agreement provides for, among other things, a $5 million term loan to be repaid in quarterly installments of principal and interest over a term of five years, a revolving line of credit up to a maximum of $5 million (the “Revolving Credit Facility”) and an incremental facility not to exceed $5 million. The termination date of the term loan is August 18, 2026, unless earlier terminated. The term loan was terminated during the second quarter of 2024 upon payment of the outstanding loan balance in full. The termination date of the revolving credit facility is June 30, 2025, unless earlier terminated.

Previous wording

As of March 31, 2024, the Company had $0 outstanding under the Revolving Credit Facility and $2,485 outstanding under the note payable, net of $15 of unamortized deferred financing fees. The Company had $5,000 available for future borrowings under the Revolving Credit Facility as of March 31, 2024.

Current wording

As of June 30, 2024, the Company had $0 outstanding under the Revolving Credit Facility and note payable. The Company had $5,000 available for future borrowings under the Revolving Credit Facility as of June 30, 2024.

Previous wording

All outstanding amounts under the loans bear interest at the Secured Overnight Financing Rate (“SOFR”), plus 2.07%. The Company’s interest rate on debt outstanding under the note payable as of March 31, 2024 was 7.39%. Interest is payable monthly in arrears. Lifeway is also required to pay a quarterly unused line fee of 0.20% on the Revolving Credit Facility, and in conjunction with the issuance of any letters of credit, a letter of credit fee of 0.20%.

Current wording

All outstanding amounts under the loans bear interest at the Secured Overnight Financing Rate (“SOFR”), plus 2.07%. Interest is payable monthly in arrears. Lifeway is also required to pay a quarterly unused line fee of 0.20% on the Revolving Credit Facility, and in conjunction with the issuance of any letters of credit, a letter of credit fee of 0.20%.

Previous wording

A description of the Company's critical accounting policies and estimates is contained in its Annual Report on Form 10-K for the year ended December 31, 2023. There were no material changes to the Company’s critical accounting policies and estimates in the three months ended March 31, 2024.

Current wording

A description of the Company's critical accounting policies and estimates is contained in its Annual Report on Form 10-K for the year ended December 31, 2023. There were no material changes to the Company’s critical accounting policies and estimates in the six months ended June 30, 2024.