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Lifeway Foods, Inc. Announces First Quarter 2020 Results

Delivers Another Sequential Quarter of Sales Improvement with Strong Industry Tailwinds

First Quarter Net Sales Increase 3% In-Line with Expectations

MORTON GROVE, Ill., June 26, 2020 (GLOBE NEWSWIRE) -- Lifeway Foods, Inc. (LWAY) (“Lifeway” or “the Company”), the leading U.S. supplier of kefir and fermented probiotic products to support the microbiome, today reported financial results for the first quarter ended March 31, 2020.

“We started the first quarter off strong, culminating in a double-digit sales increase in the month of March compared to prior year period. This resulted in another quarter of sales improvement, which is in-line with our expectations as we continue to execute on our long-term strategic plan for sustainable, profitable growth,” commented Julie Smolyansky, Lifeway’s President and Chief Executive Officer. “During the quarter, our operations team worked to increase production to meet accelerated demand for retail sales and charitable donations, and our marketing team pivoted to reach shoppers online in the absence of in-store promotions and events. We see kefir becoming a top choice to aid in gut health and microbiome support as consumers focus on self-care, nutrition and wellness improvements to stay healthy this year and beyond. Lifeway remains committed to creating value for all stakeholders through capitalizing on the compelling kefir industry tailwinds across distribution channels and with our innovative product offerings to fuel future growth and success.”

First Quarter Results

Net sales were $25.4 million for the first quarter of 2020, an increase of 3.1% from $24.6 million in the first quarter of 2019.

Gross profit as a percentage of net sales was 23.6% for the first quarter of 2020, an increase of 150 basis points from 22.1% for the fourth quarter of 2019. Gross profit percentage was 25.6% in prior year period. The decrease versus the prior year was primarily due to the impact of increased strategic promotional investment, partially offset by a reduction in variable costs. Additionally, depreciation expense increased reflecting the continued investment in manufacturing improvements.

Selling expenses decreased $0.5 million or 18% to $2.6 million for the first quarter of 2020 from $3.1 million during the same period in 2019. The decrease versus prior year primarily reflects a reduction in advertising and marketing expense, such as trade shows and other marketing events which were postponed due to COVID-19 and the lower planned spending on in-store demonstrations in the first quarter of 2020 compared to the first quarter of 2019. Selling expenses as a percentage of net sales were 10.1% for the first quarter of 2020 compared to 12.8% for the same period in 2019.

General and administrative expenses decreased $0.4 million or 9.9% to $3.1 million for the first quarter of 2020 from $3.5 million during the same period in 2019. The decrease is primarily a result of lower compensation expense due to organizational changes made in 2019 and lower incentive compensation.

The effective income tax rate for the first quarter of 2020 was 27.5% compared to 12.2% in the same period last year. The increase in the effective tax rate was primarily due to non-deductible officer compensation expense, non-deductible compensation expense related to equity incentive awards, separate state tax rates, and the provision for unrecognized tax benefits. The increase was partially offset by the benefit from a net operating loss carryback provision of the CARES Act which went into effect during the first quarter of fiscal year 2020. The increase in the effective tax rate from 2019 to 2020 is due to the fact that the Company has a number of items that are nondeductible or are discrete adjustments to tax expense. Although similar items were reflected in 2019, the percentage effect is substantially different due to the difference in pre-tax income in 2020 compared to the pre-tax loss in 2019.

The Company reported earnings of $0.01 per diluted share for the first quarter of 2020 compared to a net loss of $(0.02) per diluted share in the first quarter of 2019.

About Lifeway Foods, Inc.

Lifeway Foods, Inc., which has been recognized as one of Forbes’ Best Small Companies, is America’s leading supplier of the probiotic, fermented beverage known as kefir. In addition to its line of drinkable kefir, the company also produces cupped kefir and cheese, frozen kefir, specialty cheeses, probiotic supplements and a ProBugs line for kids. Lifeway’s tart and tangy fermented dairy and non-dairy products are now sold across the United States, Mexico, Ireland and the United Kingdom. Learn how Lifeway is good for more than just you at www.lifewaykefir.com.

Forward-Looking Statements

This release (and oral statements made regarding the subjects of this release) contains “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995 regarding, among other things, future operating and financial performance, product development, market position, business strategy and objectives. These statements use words, and variations of words, such as “from time to time,” “intend,” “plan,” “ongoing,” “realize,” “should,” “may,” “could,” “believe,” “future,” “depend,” “expect,” “will,” “result,” “can,” “remain,” “assurance,” “subject to,” “require,” “limit,” “impose,” “guarantee,” “restrict,” “continue,” “become,” “likely,” “opportunities,” “effect,” “change,” “estimate,” “continue,” “build,” “future,” “increase,” “drive,” “believe,” “look,” “ahead,” “confident,” “deliver,” “outlook,” “expect,” and “predict.” Other examples of forward looking statements may include, but are not limited to, (i) statements of Company plans and objectives, including the introduction of new products, or estimates or predictions of actions by customers or suppliers, (ii) statements of future economic performance, and (iii) statements of assumptions underlying other statements and statements about Lifeway or its business. You are cautioned not to rely on these forward-looking statements. Forward looking statements are based on management’s beliefs, assumptions, estimates and observations of future events based on information available to our management at the time the statements are made and include any statements that do not relate to any historical or current fact. These statements are not guarantees of future performance and they involve certain risks, uncertainties and assumptions that are difficult to predict. Actual outcomes and results may differ materially from what is expressed, implied or forecast by our forward looking statements due in part to the risks, uncertainties, and assumptions that include: the decisions of consumers, our ability to successfully implement our business strategy, changes in the pricing of commodities, the effects of government regulations, the impact of the COVID-19 outbreak on our business, suppliers, consumers, customers and employees, and disruptions in our supply chain or our manufacturing and distribution capabilities, including those due to cyber security threats and the COVID-19 outbreak. A further list and description of these risks, uncertainties, and other factors can be found in Lifeway’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, and the Company’s subsequent filings with the SEC. Copies of these filings are available online at https://www.sec.govhttp://lifewaykefir.com/investor-relations/, or on request from Lifeway. Information in this release is as of the dates and time periods indicated herein, and Lifeway does not undertake to update any of the information contained in these materials, except as required by law. Accordingly, YOU SHOULD NOT RELY ON THE ACCURACY OF ANY OF THE STATEMENTS OR OTHER INFORMATION CONTAINED IN ANY ARCHIVED PRESS RELEASE.

Contact:

Lifeway Foods, Inc.
Phone: 847-967-1010
Email: info@lifeway.net

LIFEWAY FOODS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 2020 and December 31, 2019
(In thousands)
  

    March 31,
2020
(Unaudited)
  December 31,
2019
Current assets                
Cash and cash equivalents   $ 1,978     $ 3,836  
Accounts receivable, net of allowance for doubtful accounts and discounts & allowances of $1,467 and $1,100 at March 31, 2020 and December 31, 2019, respectively     8,430       6,692  
Inventories, net     6,883       6,392  
Prepaid expenses and other current assets     1,279       1,598  
Refundable income taxes     1,027       681  
Total current assets     19,597       19,199  
                 
Property, plant and equipment, net     21,910       22,274  
Operating lease right-of-use asset     707       738  
                 
Intangible assets                
Goodwill and indefinite-lived intangibles     12,824       12,824  
Other intangible assets, net     113       152  
Total intangible assets     12,937       12,976  
                 
Other assets     1,800       1,800  
Total assets   $ 56,951     $ 56,987  
                 
Current liabilities                
Accounts payable   $ 6,113     $ 5,282  
Accrued expenses     2,632       4,087  
Accrued income taxes     116       154  
Total current liabilities     8,861       9,523  
Line of credit     2,751       2,745  
Operating lease liabilities     427       488  
Deferred income taxes, net     1,292       922  
Other long-term liabilities     50       58  
Total liabilities     13,381       13,736  
                 
Commitments and contingencies                
                 
Stockholders' equity                
Preferred stock, no par value; 2,500 shares authorized; no shares issued or outstanding at March 31, 2020 and December 31, 2019            
Common stock, no par value; 40,000 shares authorized; 17,274 shares issued; 15,558 and 15,710 outstanding at March 31, 2020 and December 31, 2019, respectively     6,509       6,509  
Paid-in capital     2,748       2,380  
Treasury stock, at cost     (12,796 )     (12,601 )
Retained earnings     47,109       46,963  
Total stockholders' equity     43,570       43,251  
Total liabilities and stockholders' equity   $ 56,951     $ 56,987  

LIFEWAY FOODS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the three months ended March 31, 2020 and 2019
(Unaudited)
(In thousands, except per share data)

    2020   2019
         
Net Sales   $ 25,388     $ 24,615  
                 
Cost of goods sold     18,624       17,567  
Depreciation expense     767       745  
Total cost of goods sold     19,391       18,312  
                 
Gross profit     5,997       6,303  
                 
Selling expense     2,575       3,139  
General and administrative expense     3,145       3,492  
Amortization expense     39       73  
Total operating expenses     5,759       6,704  
                 
Income (loss) from operations     238       (401 )
                 
Other income (expense):                
Interest expense     (39 )     (69 )
Gain on sale of property equipment     5       25  
Other income, net     (3 )     3  
Total other income (expense)     (37 )     (41 )
                 
Income (loss) before provision for income taxes     201       (442 )
                 
Provision (benefit) for income taxes     55       (54 )
                 
Net income (loss)   $ 146     $ (388 )
                 
Earnings (loss) per common share:                
Basic   $ 0.01     $ (0.02 )
Diluted   $ 0.01     $ (0.02 )
                 
Weighted average common shares:                
Basic     15,623       15,767  
Diluted     15,737       15,767  


LIFEWAY FOODS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)

    Three Months Ended March
31,
    2020   2019
Cash flows from operating activities:                
Net income (loss)   $ 146     $ (388 )
Adjustments to reconcile net income (loss) to operating cash flow:                
Depreciation and amortization     806       818  
Non-cash interest expense     6       6  
Non-cash rent expense     (11 )      
Bad debt expense     1        
Deferred revenue     (24 )     (24 )
Stock-based compensation     117       353  
Deferred income taxes     370        
(Gain) on sale of property and equipment     (5 )     (25 )
Reserve for inventory obsolescence           30  
(Increase) decrease in operating assets:                
Accounts receivable     (1,739 )     (1,099 )
Inventories     (491 )     (727 )
Refundable income taxes     (346 )     1,490  
Prepaid expenses and other current assets     312       (57 )
Increase (decrease) in operating liabilities:                
Accounts payable     833       1,031  
Accrued expenses     (981 )     (207 )
Operating lease asset amortization/liability     (11 )      
Accrued income taxes     (38 )     (19 )
Net cash (used in) provided by operating activities     (1,055 )     1,182  
                 
Cash flows from investing activities:                
Purchases of property and equipment     (403 )     (137 )
Proceeds from sale of property and equipment     5       31  
Purchase of investments           (15 )
Net cash used in investing activities     (398 )     (121 )
                 
Cash flows from financing activities:                
Purchase of treasury stock     (405 )     (205 )
Repayment of line of credit           (1,330 )
Net cash used in financing activities     (405 )     (1,535 )
                 
Net decrease in cash and cash equivalents     (1,858 )     (474 )
                 
Cash and cash equivalents at the beginning of the period     3,836       2,998  
                 
Cash and cash equivalents at the end of the period   $ 1,978     $ 2,524  
                 
Supplemental cash flow information:                
Cash paid for income taxes, net of (refunds)   $ 65     $ (1,525 )
Cash paid for interest   $ 35     $ 84  
                 
Non-cash investing activities                
Right-of-use assets recognized at ASU 2016-02 transition   $     $ 944  
Operating lease liability recognized at ASU 2016-02 transition   $     $ 997  
Right-of-use assets and operating lease liabilities recognized after ASU 2016-02 transition   $ 113     $ 242  
                 
Non-cash financing activities                
Issuance of common stock under equity incentive plans   $ 516     $