Lifeway Foods, Inc. Launches Strategic Plan, “Lifeway 2.0” to Reinvigorate Growth

Focus on Expansion of Core Kefir Product Distribution 
Introduces Convenient, On-the-Go Health and Wellness Product Innovation
Builds Lifeway Brand Awareness & Consumer Loyalty
Announces Third Quarter 2018 Financial Results

MORTON GROVE, Ill., Nov. 14, 2018 (GLOBE NEWSWIRE) — Lifeway Foods, Inc. (Nasdaq: LWAY), the leading U.S. supplier of kefir fermented dairy and probiotic products to support the microbiome, today announced a new strategic plan, “Lifeway 2.0” to reinvigorate growth.  The Company also reported financial results for the three and nine months ended September 30, 2018.

Julie Smolyansky, Lifeway’s CEO commented, “We are excited to launch Lifeway 2.0, our strategic long-term plan to meaningfully reinvigorate growth. We expect to deliver sustainable top-line growth based on three core strategies. These include a focus on rebuilding our core kefir product distribution in new and existing sales channels, introducing product innovation for today’s on-the-go consumers focused on health and wellness, and enhancing Lifeway’s brand awareness and consumer loyalty. Over the last few months we have aligned our organizational structure to significantly reduce costs and create efficiencies, while also continuing to make investments in people, processes, manufacturing and sales and marketing. We believe we have the right team, strategic plan, and compelling industry fundamentals to generate the growth we are confident Lifeway is capable of achieving long-term.”

Smolyansky continued, “We believe the disciplined actions we have taken in light of the recent inflationary cost pressures and dairy industry challenges have further strengthened our foundation for growth.  Importantly, recent research from Harvard University has reinforced the benefits of fermented dairy on gut health and microbiome support, information we look forward to educating more consumers about going forward. At Lifeway, we have strong health and wellness heritage which began in the 1980s, and our team remains intently focused on providing products that are positive for digestive health, high in protein and low in sugar to help consumers maintain a healthier lifestyle.”

Lifeway 2.0 Strategic Growth Priorities
To reinvigorate growth in 2019 and over the next several years, Lifeway is focused on the following strategic growth initiatives:

  • Expand Core Kefir Product Distribution
    • Lifeway will focus on rebuilding core kefir product distribution in new and existing sales channels. This includes in existing mass, grocery and natural retail partners as well as the complementary convenience, club, foodservice, drug store, e-commerce, hospital and university sales channels. 
       
  • Introduce Convenient, Probiotic and Protein Rich-Product Innovation
    • Lifeway will introduce product innovation for today’s on-the-go consumers focused on health and wellness. This includes single-serve, 8 ounce Lifeway Kefir and newly released organic varieties. Year-to-date through September 30, 2018 Lifeway branded 8 ounce Kefir retail sales for measured channels grew approximately 39% over the prior year period off of a low-base.
    • The Company is also focused on completing the development of its dairy-free, plant-based probiotic drinks with distribution beginning in 2019.
       
  • Enhance Consumer Experience
    • Lifeway will utilize existing customer insights and technologies to increase trial and repurchase rates as it looks to expand kefir household penetration. The Company believes there is a tremendous opportunity to re-engage with existing consumers and bring new consumers to the Lifeway brand.
    • Lifeway believes these single-serve purchase opportunities, along with increased demos at traditional retail, will help support its objective to increase exposure, shopper occasions and introduce new consumers to the brand.

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 North America, Ireland and the United Kingdom. Learn how Lifeway is good for more than just you at www.lifewaykefir.com.
  
Forward-Looking Statements

All statements in 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 “gain,” “position,” “vision,” “ongoing,” “intend,” “innovate,” “continue.” 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. These statements are based on current expectations of future events and thus are inherently subject to uncertainty. If underlying assumptions prove inaccurate or known or unknown risks or uncertainties materialize, actual results could vary materially from Lifeway’s expectations and projections. These risks, uncertainties, and other factors include: price competition; the decisions of customers or consumers; the actions of competitors; changes in the pricing of commodities; the effects of government regulation; possible delays in the introduction of new products; and customer acceptance of products and services. 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, 2017, and the Company’s subsequent filings with the SEC. Copies of these filings are available online at https://www.sec.gov, http://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: [email protected]

   
LIFEWAY FOODS, INC. AND SUBSIDIARIES  
Consolidated Balance Sheets  
September 30, 2018 and December 31, 2017  
(In thousands)  
   
    September 30,
2018
(Unaudited)
    December 31,
2017
 
Current assets                
Cash and cash equivalents   $ 2,726     $ 4,978  
Investments, at fair value     500        
Accounts receivable, net of allowance for doubtful accounts and discounts & allowances of $1,550 and $2,010 at September 30, 2018 and December 31, 2017 respectively     8,073       8,676  
Inventories, net     6,837       7,697  
Prepaid expenses and other current assets     1,298       983  
Refundable income taxes     2,959       2,347  
Total current assets     22,393       24,681  
                 
Property, plant and equipment, net     25,035       24,645  
                 
Intangible assets                
Goodwill & indefinite-lived intangibles     14,068       14,068  
Other intangible assets, net     485       975  
Total intangible assets     14,553       15,043  
                 
Other assets     150       150  
Total assets   $ 62,131     $ 64,519  
                 
Current liabilities                
Current maturities of notes payable   $     $ 3,166  
Accounts payable     6,263       6,848  
Accrued expenses     3,118       2,984  
Accrued income taxes     82       203  
Total current liabilities     9,463       13,201  
                 
Line of credit     5,990        
Notes payable           3,113  
Deferred income taxes, net     840       840  
Other long-term liabilities     661       775  
Total liabilities     16,954       17,929  
                 
Stockholders’ equity                
Preferred stock, no par value; 2,500 shares authorized; no shares issued or outstanding at September 30, 2018 and December 31, 2017, respectively            
Common stock, no par value; 40,000 shares authorized; 17,274 shares issued; 15,838 and 16,008 outstanding at September 30, 2018 and December 31, 2017, respectively     6,509       6,509  
Paid-in capital     2,211       2,244  
Treasury stock, at cost     (12,918 )     (11,812 )
Retained earnings     49,375       49,649  
Total stockholders’ equity     45,177       46,590  
                 
Total liabilities and stockholders’ equity   $ 62,131     $ 64,519  

   
LIFEWAY FOODS, INC. AND SUBSIDIARIES  
Consolidated Statements of Operations  
For the three months and nine months ended September 30, 2018 and 2017  
(Unaudited)  
(In thousands, except per share data)  
   
    Three Months Ended
September 30,
    Nine months Ended
September 30,
 
    2018     2017     2018     2017  
                         
Net sales   $ 24,480     $ 28,786     $ 80,318     $ 92,636  
                                 
Cost of goods sold     17,892       20,331       57,412       65,262  
Depreciation expense     738       618       2,143       1,801  
Total cost of goods sold     18,630       20,949       59,555       67,063  
                                 
Gross profit     5,850       7,837       20,763       25,573  
                                 
Selling expenses     3,136       4,010       10,537       11,648  
General and administrative     3,150       3,145       9,851       10,743  
Amortization expense     163       168       490       504  
Total operating expenses     6,449       7,323       20,878       22,895  
                                 
(Loss) income from operations     (599 )     514       (115 )     2,678  
                                 
Other income (expense):                                
Interest expense     (82 )     (62 )     (220 )     (180 )
Gain (loss) on sale of property and equipment     28       (34 )     42       (39 )
Other income, net     3             11        
Total other income (expense)     (51 )     (96 )     (167 )     (219 )
                                 
(Loss) income before provision for income taxes     (650 )     418       (282 )     2,459  
                                 
(Benefit) provision for income taxes     (136 )     175       (8 )     1,056  
                                 
Net (loss) income*   $ (514 )   $ 243     $ (274 )   $ 1,403  
                                 
(Loss) earnings per common share:                                
Basic   $ (0.03 )   $ 0.02     $ (0.02 )   $ 0.09  
Diluted   $ (0.03 )   $ 0.02     $ (0.02 )   $ 0.09  
                                 
Weighted average common shares:                                
Basic     15,872       16,093       15,886       16,123  
Diluted     16,256       16,168       16,354       16,218  
                                 

*2018 third quarter net income includes a $0.3 million non-cash inventory write-off expense due to the Company’s discontinued products and the flow through from the Probugs packaging change.

   
LIFEWAY FOODS, INC. AND SUBSIDIARIES  
Consolidated Statements of Cash Flows  
For the Nine months Ended September 30, 2018 and 2017  
(Unaudited)  
(In thousands)  
   
    2018     2017  
Cash flows from operating activities:                
Net (loss) income   $ (274 )   $ 1,403  
Adjustments to reconcile net income to operating cash flow:                
Depreciation and amortization     2,633       2,305  
Non-cash interest expense     9        
Bad debt expense     50        
Reserve for inventory obsolescence     580       320  
Stock-based compensation     827       901  
Deferred revenue     (72 )      
(Gain) loss on sale of property and equipment     (42 )     39  
(Increase) decrease in operating assets:                
Accounts receivable     553       (814 )
Inventories     280       (328 )
Refundable income taxes     (612 )     (462 )
Prepaid expenses and other current assets     (291 )     (231 )
Increase (decrease) in operating liabilities:                
Accounts payable     (586 )     1,384  
Accrued expenses     (588 )     252  
Accrued income taxes     (121 )     (580 )
Net cash provided by operating activities     2,346       4,189  
                 
Cash flows from investing activities:                
Purchases of investments     (500 )     (25 )
Purchases of property and equipment     (2,581 )     (3,932 )
Proceeds from sale of property and equipment     90       37  
Net cash used in investing activities     (2,991 )     (3,920 )
                 
Cash flows from financing activities:                
Borrowings under revolving credit facility     6,050        
Payment of deferred financing costs     (69 )      
Purchase of treasury stock     (1,309 )     (1,187 )
Repayment of notes payable     (6,279 )     (630 )
Net cash used in financing activities     (1,607 )     (1,817 )
                 
Net decrease in cash and cash equivalents     (2,252 )     (1,548 )
                 
Cash and cash equivalents at the beginning of the period     4,978       8,812  
                 
Cash and cash equivalents at the end of the period   $ 2,726     $ 7,264  
                 
Supplemental cash flow information:                
Cash paid for income taxes, net of refunds   $ 724     $ 2,098  
Cash paid for interest   $ 189     $ 180