Lifeway Foods, Inc. (LWAY) Q4 2015 Earnings Report, Transcript and Summary

Greetings and welcome to the Lifeway Foods Fourth Quarter and Full Year 2015 Financial Results. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Hunter Wells. Thank you. Please go ahead.

Good afternoon and welcome to Lifeway Foods earnings conference call to discuss the company's results for the fourth quarter in 2015 fiscal year. On the call with me today are Julie Smolyansky, President and Chief Executive Officer; Ed Smolyansky, Chief Operating Officer; and John Waldron, Chief Financial Officer. By now, everyone should have had access to the release which went up yesterday afternoon at approximately 4:05 PM Eastern Time. If you have not received the release, it is available on the Investor Relations portion of Lifeway's website at www.lifewaykefir.com. This call is being webcast and a replay 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. These statements do not guarantee future performance and therefore undue reliance should not be placed on them. Similarly, descriptions of Lifeway's objectives, strategies, plans, goals or targets contained herein are also considered forward-looking statements. 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 a call posted on their website. And with that, I would like to turn the call over to Lifeway's CEO, Julie Smolyansky.

Thanks, Hunter. Good morning to everyone who has joined us on the call today. I'll begin with an overview of our business for the fourth quarter and fiscal 2015, and then provide an update on our strategic initiative. Next, we'll discuss our financial results in more detail and then we'll open up the call to take your questions. Before we begin, I'd like to welcome John Waldron, who has been appointed Lifeway's new CFO at the end of last year. Our former CFO, Ed Smolyansky will remain with us as Chief Operating Officer. John brings over 25 years of financial experience, most recently as a financial business consultant at Tatum, where he consulted a large company on effective controllership capabilities. Prior to his position, he served as Vice President, Controller and Chief Accounting Officer at Campbell Soup Company, and has also held various financial leadership positions with private and public companies including Navistar, RR Donnelley, Dominick's Supermarkets, and Arthur Andersen. We are really excited for John to join our team and he looks forward to meeting with many of you at upcoming investor events. Welcome, John. Now, I'd like to discuss our recent business performance. In 2015, we achieved net sales of approximately $119 million. Our top-line results demonstrate that the continued demand for Lifeway's diverse portfolio of unique and [indiscernible] products, kefir products. And 2015 was a transformative year for us. We made strategic investments to strengthen our business, launched innovative new products, grew distribution across new and exciting and exiting retail channels and planted seeds for international expansion. Most excitingly, we believe that many of our new and upcoming product launches will enable us to enter entirely new sales channels, not previously penetrated such as [indiscernible] specialty fitness location and even schools and universities. I will share a bit more about my future vision for Lifeway later on today's call. But I'd like to review some of our highlights from this past fiscal year. In 2015, increased sale volumes of our kefir products, coupled with the benefit of lower milk prices, enabled us to achieve gross margin expansion of approximately 230 basis points to 26.6% and diluted earnings per share of $0.12. We expect milk prices to be comparable in 2016. In August, we commenced kefir production at our new facility in Waukesha, Wisconsin. This was a vital and important steps for our organization. As discussed in our third quarter call, capacity constraints in the third quarter of 2015, hindered our ability to continue to grow sales. However, as we have made in significant progress in ramping up this plant, and now we have two additional production lines up in running. This facility will also enable us to process raw milk and produce our own 32-ounce bottles. More importantly, we believe this facility will support our growth for the next several years and we will further scale our facility to meet growing demand. I'd also like to acknowledge the important contribution that our Waukesha team has made over the past several months with this initiative. It's been remarkable working with them. I would now like to provide you while with an update in our strategic plan and long-term vision for Lifeway. We continue to be focused on three key initiatives, expected to propel our growth in 2016. These initiatives include; number one, increasing Lifeway's brand awareness; number two, developing new innovative products; and finally number three, expanding distribution across sales channels and geographies. Introducing Kefir and Lifeway brands in new consumers continues to be an important component of our marketing strategy. Last year, we embarked on a series of initiatives to highlight Lifeway as a leading brand in kefir that we work for almost 30 years to grow. This year, we will be continuing that trend with messaging that will get consumers a deeper understanding of our brand and assortments of products. This will be an effort with multiple components including media placements and coordinated product demo strategy to introduce shoppers of mass retail to our – of mass retail groceries to our ProBugs for kids' line which have been traditionally been one of our top performing items at Whole Foods. As the leader of producer and producer of Kefir, we want to take steps to continue to share the healthy benefits associated with consuming probiotics through our drinkable kefir. Bacteria has become a hot topic and media trend pieces on the microbiome often referenced kefir as one of the best sources of probiotics. Lifeway even provided refreshments for a special event at the American Museum of National History's new microbiome exhibit called "The Secret World Inside You". Day-by-day new research points to the link between good health and overall health and we've established our role as thought leaders on this popular topic. This has led the partnerships with some highly influential people who've helped us share the benefits with kefir. American actress Sophia Bush was recently seen drinking Lifeway Protein Kefir for her post workout fuel. She was recently featured in U.S. Weekly shopping for Lifeway and even shared of us weekly – excuse me -- and even shared a picture of her drinking Protein Kefir with her two million fans on Instagram. Chef Seamus Mullen has incorporated lifeway Organic Whole Milk Kefir products into his menu at his New York restaurant and chef Paul Kahan's on the recipe video at Publican in Chicago that included Lifeway Farmer Cheese. Additionally in February, we teamed up with designer Cynthia Rowley to launch limited – a limited edition Hibiscus Rhubarb Pie for spring. This bottle features a bold floral pattern in celebration of Rowley's new line of fitness apparel. This collaboration has already generated press and we're recently featured in Fast Company for our successful unconventional marketing strategy and ability to make Kefir relevant and exciting. The new flavor of hitting stores now and it's just another way, we have successfully integrated both components of a healthy lifestyle across multiple platforms in affordable, fresh and fashionable ways. One of my most exciting job as CEO is working with my team to develop new flavors, products, and completely new ways to realize the benefits of probiotics. 2016 is expected to be another year of exciting product launches and we gave our first peak last week at Natural Products Expo. In addition to the Cynthia Rowley flavor I mentioned earlier, we've also introduced our new organic home milk flavors including Strawberries & Cream, Peaches & Cream, Coconut & Cream, and Lemon Meringue. Taste preferences change with the seasons and we are increasingly focused on introducing new products that are relevant to specific time of the year in order to generate excitements around the new flavor and allow us to secure additional soft base. We also believe that our new flavors not only bring variety to our existing consumer base, but also presents another way to attract consumers who have yet to discover Kefir. Our R&D department has been working diligently to develop products that we believe have the potential to leverage our brand leadership position in the probiotics state. A key area of interest for us is in the supplement IO and we are currently refining concepts that we expect to launch. Moving on to our next area of focus. We expect to continued progress in expanding our distribution. Some recent highlights include ProBugs and Protein Kefir added to over a 1,000 Wal-Mart stores. Private label distribution at two major chains. Five new SKUs of organic low fat kefir to 75 similar market basket representing a significant increase in our shop presence at that location. ProBugs less smoothies to be added at 15 Stratford School of accelerated preschool campuses in Silicon Valley. Harris Teeter and ShopRite have expanded their space. And additionally, Lifeway culture shops feature a concept that we feature at Freshy foods retail restaurants has received a national rollout authorization, and so we are expanding with one of the hottest grab and go retail outlets. We've also made important progress towards expanding our distribution internationally. Last year we announced that we've entered Mexico, and although still a small percent of our overall sales, early signs of success indicate the potential for a meaningful future growth within this market. Today in Mexico, we are selling to Suprema, Costco and Wal-Mart locations. We continue to make progress in our robust business and comprehensive marketing plan to support future expansion with Mexico. We will start distribution in Ireland in the late spring and will be distributed in roughly half of the Irish market. 2016 is expected to be an exciting year of improved performance for Lifeway and the successful changes we've instituted in fiscal 2015 have strengthened our foundation and better positioned us to achieve long-term growth and profitability. We continue to focus on our strategic initiatives and are confident in our plan for future growth will result in strong business performance and increased value for our shareholders. I'll now turn the call over to John to discuss our financial results in more detail. John? John? Hello?

Thank you, Julie. Julie can you hear me?

I can hear you now.

Okay. Apparently, I was not quite connected. But thank you, Julie. Thank you for the kind words and a warm welcome. I'm a grateful and pleased to be able to serve here at Lifeway. And it's a pleasure to be with all of you on the call this morning. I look forward to working with all of you and speaking with you over the coming months to develop our relationship with confidence and trust. I'd like to take some time now to review our financial results for the fourth quarter, and the full year ended December 31, 2015. Fourth quarter net sales decreased 2% to $29.5 million from $30.2 million in the same period last year. Fourth quarter net sales was favorably impacted by volume, which contributed 4.9% in net sales performance, and it was driven by growth in our drinkable kefir lines. The overall volume expansion was unfavorably impacted by significantly higher customer promotional allowances, which reduced net sales by approximately 6.9%. Gross margin improved to 24.2% from 22.9% in the year ago period, were approximately a 130 basis points. The margin improvement was driven primarily by lower milk prices, partially offset by increasing trade promotion and higher labor costs. Selling expenses decreased approximately 28% to $3.3 million during the fourth quarter of 2015 from $4.6 million in the year ago period, reflecting lower salaries and lower travel cost. General and administrative expenses increased $2.5 million to $4.8 million from $2.3 million, compared to the same period last year. The increase is primarily a result of higher professional fees, reflecting inefficiencies associated with the change in our certified public accountants and the legal fees associated with matters related to our delayed SEC filings. The effective tax rate was 50.6% in the fourth quarter of 2015, compared to 71.4% in the fourth quarter of 2014. The elevated tax rate in the year ago period is due in large parts the nearly breakeven performance of that quarter, coupled with the provision, we made for tax exposures in that quarter. Net income in the fourth quarter was approximately $328,000 or $0.02 per diluted share compared to a loss of $26,000 or $0.00 per diluted share in the same period last year. Turning now to our full-year results. Net sales were $118.6 million during the year-ended December 31, 2015, compared to $119 million last year. Gross margin improved 26.6% from 24.3% in the year ago period. As Julie mentioned earlier, this improvement was driven primarily by lower milk prices, partially offset by an increase in trade promotion and higher labor costs. Selling expenses decreased approximately 12% to $12.8 million in fiscal 2015 from $14.5 million in the prior year. The decline was driven by lower salaries and travel costs, partially offset by higher advertising costs. General and administrative expenses increased $4.3 million to $13.7 million in fiscal 2015, from $9.4 million last year. The increase reflects higher salaries and increased professional fees. Again the increase in professional fees is primarily associated with inefficiencies associated with the change in our certified public accountants and elevated legal fees associated with matters related to our delayed SEC filings. The 2015 effective tax rate for the full year was 50.6% compared to 53.4% last year. The higher tax rate for the 2014 period reflects provisions we made in 2014 for income tax exposures for prior periods. Net income was $2 million or $0.12 per share for the full-year ended December 31, 2015, unchanged from the $2 million or $0.12 per share we reported in fiscal 2014. Under our share repurchase program we bought back 136,000 shares of common stock during the fourth quarter of 2015. The share repurchase had no remarkable impact on earnings per share. That concludes my planned remarks and now I'd like to turn the call back over to Julie.

Thanks, John [indiscernible] transformative changes is now behind us and we are more confident than ever in our future opportunities. We're better positioned over the long-term to meet the increased demand for our products, support our continued growth, both domestically and internationally, grow our top line and bottom line and drive value for our shareholders. That concludes our overview for the fourth quarter of fiscal 2015. Ed, John and I would now like to open your call for questions. Operator?

[Operator Instructions] Our first question comes from the line of Eric Gottlieb with DA Davidson. Please go ahead with your questions.

Yes. Hi. I'm looking a little bit at SG&A, I know you gave some details there, commissions were down, advertising was down a little, employee expenses were down, salaries up. I'm curious, what's your expectations for next year, because if you look at, where it was versus where we were the rest of the remaining – prior in the year, it's a little below that growth rate?

Yeah, so Eric. This is John. Good morning and it's nice to meet you.

Thank you.

I would tell you, firstly, if you know, we are not yet at the point, where we are providing guidance into the future, and it’s always a little challenging to give some dimensionalities to the profile of future profits. But I can call-out a couple of items, and one in particular would be that, we have some allocated costs here in 2015 that we are clearly working towards, not recurring in the areas of professional fees. And so, we would expect there to be favorability in that dimension of the G&A line. And then, as it relates to things like advertising, I would tell you that, we are being thoughtful about, how to make investments in 2016. And we kind of got a step-up level of spending that we will step into, as of the volumes move north, right. And so, the executive here is to invest for growth, if the growth comes, we would intend to step-up things like advertising in 2016. Besides from that I think, most of the cost profile, particularly on a percent of sales basis, we would expect to, you have to see similar results to what we've reported for 2015.

Got it. Okay. The distribution gains that you talked about, have they all taken hold yet or some yet to be impactful to the fourth quarter.

Yeah.

Yeah Julie I think...

Go ahead, John.

No. I was just going to suggest that this business is one where unlike obviously the larger more mature companies where our distribution gains are in front of us for sure and some of the distribution gains that I think Julie commented on are just they are very recent. And so we do anticipate distribution gains in 2016. I can't measure it, and it couldn't give us the color that I think Julie or Ed could, but the distribution gains are on the horizon for us.

Yeah. And those rollouts there they cap in throughout the year, throughout the quarter like the Freshii deal, for example will be a rollout over the course of the year store-by-store, that's one that that takes a little more of extensive effort by multiple partners and then the retailers all rollout through the course of their product changes, shelf changes as well. So it's sort of a study built over the course of quarters, but we are looking at a lot of exciting trends. Whole Milk is really back in style, I guess, and really trending up. And so there is a lot of excitement around Whole Milk Kefir and other Whole Milk products. You might have noticed a label change that we made recently on our conventional line sort of continuously to – makes the look of the product modern and update the sponsors as our agent’s looks for labels and design changes and over the course of time. So, you'll see lots of those little changes happening, but yes distribution gains kind of happen continuously.

All right. Great. So, I'm looking at the gross sales, growth in gross sales for drinkable kefir can be outpaced with the rest of your product line. So, there are many components to drinkable kefir that we can breakout at and I'm wondering, if there is any particular product lines have been somewhat of a source of strength than any have been struggling of late?

Gosh, that's a big question. I mean, so – the category in general of kefir growth dramatically is continuing to grow, but a category within probiotics are growing globally and in the next five years will double over five years and just really as I mentioned on the call, the microbiome and the bacteria [indiscernible] really driving and pushing a lot of that growth and awareness around good health and the benefits from everything from digestion to mental health and stress and anxiety, which is all new research system in the last three years. But there is new research happening around cancer, there is research happening around obesity. So, there is a lot of science behind the push for what – why I think, that we're going to grow and we're in a position to strength with a strong foundation for 30 years, being the leader in fermented dairy products. And also have now the capacity to build out and the history and experience to lead the ship forward where a lot of companies that might be just jumping into this are going to make their 30 years of [indiscernible]. And so, I think that puts us in a strong position and capacity, this new Waukesha facility which is very critical for us to elbow and push our way out. When we knew, two years ago, let's say before we had Waukesha that we were going to be running into capacity restrains at this level, that you kind of hold the horses a little bit, and not push it hard. But now that Waukesha facility was really a key to the future of Lifeway. And so, the drinkable line is expanding, because there is a gradual awareness by Americans, but the world population around kefir, specifically kefir that was a product in the Eastern European market that has expanded globally. And in the United States, we still have a huge percentage of household that still don't know what that word is, and what the product is. So, we have still a lots of opportunities to grow that our conventional line and our organic line, because more and more consumers are looking for organic labeling, they're looking for transparency, and clean labels, they're looking for alternative plans. So, sort of those swing away from the big food companies, big dairy companies. So, looking for these alternative brands is kind of more artisan and Lifeway is definitely still a small brand. Even though we are one of the top dairies in the world, definitely in the United States and the leader in kefir. And then like so ProBugs for example, is an excellent example of a product line that has tons of opportunity to scale that we started that concept and invaded the pouch and we started that distribution in 2007. We're really the leaders on pouches and the kids probiotics capturing a whole new generation of people that will know what kefir is still comfortable with the sour cultured dairy products, and we've really expanded their taste palate, so then they'll just as they grow up, we'll move into different varieties of our line, and because of Waukesha and the new facility and the new machinery that we've invested in to expand ProBugs that gives us the opportunity to now go to Wal-Mart and go to a lot of other locations that we just simply could not even attempt to try to sell, and because we just did not have the capacity. But the difference on the machinery, we have four machines in Morton Grove that pouch, 12 pouches a minute, that's a very slow fill rate. The new machine that we invested in Waukesha is filling about a 100 pouches per minute, so that's the difference of night and day. And we know that it's successful that it's a product that drives people to the category at Whole Foods. We have the ability to capture that as stores like Target and Wal-Mart are changing their shelf offerings to reflect the changing needs of consumers. And so, these are opportunities where we can really grow. I just spent some time with the CEO of Target yesterday and listen to where they are focusing. And one of their big areas of growth is wellness and incorporating better for you foods and healthier for you foods and transparency on the foods that they are also offering. And so Lifeway just becomes a really great partner in kind of the changing patterns of consumer eating habits. There is certainly products that are not doing as well as we'd like, and we evaluate those that data all the time, and look for, look at the purpose of that line is, it might serve a different purpose than just sales "revenue" there are strategic reasons for why certain products are in our portfolio and some are not. And then like I mentioned, the pills and supplements. We know that some people are to -- are travelling too much and don't have accessibility to Lifeway all the time in their refrigerator or maybe they're just being somewhat lazy about making sure that they are eating good for you foods and may it is not the quick fix of a pill or maybe we know that so many consumers are on this various restrictive dieting from dairy free to over this or that whatever mean your current trend in diets. And so some people might not want the dairy products or are cleansing and are not doing dairy this week, they can still consume Lifeway, and we can still be the leader for them in their probiotic and their deferred choice for probiotic. So this supplement was very important in my opinion to also be a trace for consumers that they are not for some reason drinking Lifeway Kefir products. Probably it didn't answer your question, I went too far, but it's something that I'm very passionate about.

No. I appreciate the – the color. That was very good. One last question, promotions as a percentage were most higher than I expected. I think you said in the last quarter that we should expect roughly the same level going forward. Is there – do you still view that like why the uptick this quarter and then what do you think we can look forward to?

Yeah. I mean I think promotions are really important. It shows a retailer that we are interested in working with them, all the marketing support that you got out of running a promotion is important. And of course, we're not – I'm not naïve to not see that there is going to be competition in this space. We're doing so well, we have 95% of the market share, people, it's a hot space, people are going to want to chump a little bit away at that, and so our goal is to continue to own the market share to be the category leader and to stride our way for additional space, when there are new things coming into the space. And so, we are very conscious of that and we know that we have to be strategic, but we also are the value – we are the high premium product, we don't want to over-discount, because we are a premium product. And people should pay for a premium product. So, we look at that balance and try to strike it based on all various things happening in the environment from raw milk prices to other promotions, that other companies are running or things happening on the shelf, and all various components that make those – that we make decisions around, but we're conscious of it and looking at it very – with a very microscope I think.

Okay. Great. Thank you. With that I'll pass it on.

Thank you. Our next question comes from the line of Howard A. Halpern, with Taglich Brothers. Please proceed with your question.

Good morning, guys.

Good morning.

Good morning.

I guess we don't ask a question of, little more color on the promotional allowances, again I know you just talked about it, but going forward, do you – would you hope to be able to achieve gross sales growth and not have promotional allowances take net sales to flat or down in the future quarters?

All right.

Let me just give a little bit better color on the promotion side. So, last year, we have promotions at about 14% to 15%. Historically, we've – we've targeted between 9% and 11%. And last year it was and the normal year for us, and what we try to do and what we've tried to do, with other years in the past is play around with this – with the promotions. And what we've seen is that, we made in – large investment last year in promotion that's already started to payoff very nicely in 2016, but we're going to bring that number back down, we're going to go back to target normal kind of historical levels of between 9% and 11%. And as competition does increase, the fact Julie alluded to, may be in 2017 or 2018, it will again ramp up promotions and kind of bringing more customers into the tent and then pull it back. So, I think, what we saw last year, was an increase in investment, if you will and then, I think in 2016, we're bringing you back down to our headed more historical levels.

Okay. Could you talk a little bit about, I guess, I was in Canada and how brand awareness maybe driving customers to purchase more as time has gone on?

Julie, do you want to take that?

Yeah, if you would like. Okay. So, we launched in Canada in the middle of the 2015 and we're really starting to get really attraction in Canada and of course, utilizing our social media and other different advertising avenues that we have, we're really starting to see good portion of Canada as well as Mexico. And I think obviously those two countries being our neighbors are not really kind of very international, but they're not overseas and anything like that to give us a really good ability to leverage what we've done in the states and bring that over across the borders. So, I think we'll slowly start to see Canada and Mexico be a really good addition to our portfolio.

Yeah, but I also want to give perspective, specifically in Canada. Canada in general is a small market though, I mean it's the size of the United States with a population of California. So, you just to give perspective, Canada is not any magic unicorn by any means. Actually, I'm more excited about Mexico, because of the share volume is phenomenal, it's a very useful market, lots of young children and young parents and families, which gives us a huge opportunity for our children, Brian, we know that obesity and diabetes are the big problem for the Mexican consumer in the market and there is a big attention on bringing healthier products to the Mexican people. So, that could give us a strong position and they're very excited to work with us. They were looking for higher quality dairy products and they're excited to work with us and it's been just a really wonderful pleasure to work with the Mexican people.

Okay. And in talking I guess about Mexico, how many SKUs I guess do you have in Mexico now and then once it takes hold there, what's the potential – how many SKUs do you hope to have maybe by the end of 2016?

Well, each retailer is different. So some retailers are stocking like 8-ounce bottles and they have 8 phasings, 4 SKUs, 8 phasings, some have like in the club channel we are doing like these box unit. So they're bigger facings, larger shelf space. So each account is different, but there they've got our 8-ounce product and they are looking to expand into a variety of other ones over the next three years. We still had a – have a rollout plan to expand with ProBugs and a whole bunch of other products. But it's definitely growing and the excitement is building around it.

Okay. And I guess I'm curious what is the sales cycle or time of the year, if you're going after schools and universities in the United States?

And it's pretty much all year. It's not like particularly other cycle like there is always ongoing meetings and appointments and rollout that's it's all throughout the year. It sound like a particular cycle.

Okay. One final one for John, I guess. Do you have maybe a range what we could expect for the tax rate going forward?

Yeah. Sure. So I think in the last quarter, we talked about the IPA that the company was experiencing an elevated tax rate in some of that. We thought we could mitigate with some tax filing strategies which impact. We've now implemented at least some of those. And so from a rate perspective, I would expect this to go back to something in the very low 40s for 2016.

Okay. Thanks a lot, guys.

Thank you. And our next question comes from the line of Ivan Bajic [ph] who's a private investor. Please go ahead with your questions.

Yes. My first question has to do with a couple of filings you've made, I want to be sure I totally understand and then I have a question on your growth going forward. You had a filing on this bonus arrangement, if you achieve certain levels, I believe on revenues it was 50% in the quarter and on EBITDA it was 50% over a six-month period. And then, you also had a filing this morning that 10-K that will be filed later, I want a little comment on that also. Can you...

Okay. Let me -- let me take the -- Ivan, good morning. Good question. Thank you. I'll just take the linked filing reference that you made. Did something that we would rather have not had to file, but in fact if you look at the SEC's website, you'll see both the 10-K and the [indiscernible] KNP and that was simply a mechanical problem, we have last evening in getting the 10-K file that pushed us beyond the 4:30 cutoff in fact by 5:30 last night. All the documents were filed. So, there is no future filings that is yet to come with regards to the 10-K, it's there and it's filed.

Okay. I want to make sure that was no. I just know cost was and what about the bonus arrangement, am I correct on them the way I understand?

Yeah. I mean, it's there for you, I would tell you that, I think what's important about this right is that we've now got a program that we're more clearly aligned performance with executive compensation, whereas in the past, and I think it wasn't as tight. And so, so I think that's the positive way to think about the compensation program. And then I would tell you from a performance perspective, elevated performance will yield higher executive compensation [Technical Difficulty] the executive compensation will remain flat. And so things are tied to performance which I think is a good thing.

Well, I don't have a problem with that. If those goals could be achieved, a 50% increase in sales in the quarter. It's going to change the whole complex into the company. And so, I have no problem with that compensation. I just want to be sure that I understood it clearly.

Ivan, I don't think – I don't think you are reading these filings correctly. It's not saying that the – the incentive – incentivization is at 50% in revenue or 50% increase in EBITDA. I think it is a different way. John, can you bit maybe better explain that.

Yeah. All I can tell you is, I think if there is what you're referencing is a waiting factor with regards to the performance. The performance window is from 0% bonus effectively to 200% bonus, and it's a graduated level of performance rewards that goes in tandem with the growth. And so, for example, as I said a minute ago with the zero growth, there is no bonus opportunity. And it – it elevates as we move up to the 20% level, and I don't think there is an expectation of 20% lift at least with this next coming year. So I think the performance will be wider to that – the compensation will be wider to that level of performance, and we'll comment down that matter as we proceed through the quarters.

Okay. So then – then I have misinterpreted what I read there. In other words...

Yeah.

As much as if you'd love to see 50% lift in the first quarter, that's not the way to read that.

Well, the way that Edward commented on that probably growth of 9% to 11%, I didn't see ...

Yeah.

...how that was doable?

Yeah.

But I did when I asked the question.

Yeah.

Now I have a question on growth, and I think as Julie and Ed would probably know. I want all of our competitive athletes who competes in weight lifting and there is Protein Kefir that you have which I've tasted. I think it has a tremendous potential. I know 00:42:16 has a tremendous amount of members. So I think there is a lot of people in that area today and more and more of health awareness becomes more important. And I think that the Protein Kefir has big legs so to speak. And I wanted to know just how the tender really promoting, I know I've tell to some people about myself -- it's not – it's not in our area and I want to know just how you're going to promote it, because I think – I think that could be a super product in your -- one of your SKUs?

Right. Well, as I mentioned, we are looking at insulins there in the health space, to the brand ambassadors like Sophia Bush who actually was part – being -- was photographed walking out and drinking her Protein Kefir. So there are things like that really relying on those [indiscernible]. There is a global growth and global demand for protein. So, we know that we're in the right place with a product that we develops. And the – connecting health and wellness lifestyle to the protein, messaging a little bit more with the men because traditionally yogurt like products have been marketed towards women as they still tend to be the person making the buying decisions. But with the protein we do, we have that opportunity protein and something that men actually do, spend no time thinking about buying and shopping for. So, messaging a little bit more to our male consumer base and expanding in growing that as an opportunity as well and – yeah, it's really reaching out supporting different athletic events from yoga to bicycle events to tennis we sponsor, for example, Tastes of Tennis, food festival with celebrity tennis players who then were introduced to our line and who really haven incorporated into their workout and diets, so things like that.

Okay. All right. Well, a lots of – a lot going forward next year and I hope to see some improved growth in this year. And I think that…?

Yeah, definitely. It's sort of like a pushpull, push pull, pushpull, it's a stepping ladder over with a long-term trajectory, I mean, if you look at where we were. With 30 years ago, when our dad started – mom and dad started our company, that was a different time, and when I came to work at Lifeway, we had $6 million in revenue. And when my dad – our dad passed away, we were a $12 million revenue company and look at where we are 13.5 years later. So, it is sort of a long-term growth and one that we are always conscious about remaining and keeping strong foundation and thinking about things with that view.

Well, I know when I first got involved with your company, I think, your quarter was $3 million quarter, it still was a little over 20 that was long 00:45:51?

Okay. So, there has been a lot of building – lot of building.

And also, I think the thing Wisconsin will make a huge difference, because I realized you didn't have the capacity for the additional benefit at that point in time...?

Yeah. Because if you start pushing so hard, and then you realized what we really can't shut more than a few hundred cases more out of this facility. We better not push so hard, got to relax a little bit. So now, when you have that knowledge, that's kind of you're bumping up against that capacity restrain. This was really important and – yeah, so it's exciting and, I think, there is a lot of great excitements around the whole category in Lifeway specifically.

Well, thanks for answering the questions, and I probably will try to get a whole of this, because I have some ideas on the protein kefir, because I...

Okay.

... and maybe stimulated. Okay.

Okay. Great. Thanks.

Great. Thank you.

Thanks, Ivan.

Thank you. We have no further questions at this time. I would like to turn the floor back to management.

Great. Well, thank you all for participating in today's call. We appreciate the hard work and dedication of our entire team and employees and all the support of our loyal customers and shareholders. We look forward to sharing our 2016 first quarter results with you in the coming months. Thank you very much.

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.