Landec Corporation (Nasdaq: LNDC), a diversified health and
wellness company with two operating businesses, Curation Foods,
Inc. and Lifecore Biomedical, Inc., reported results for the fiscal
2020 second quarter and first six months ended November 24, 2019.
Landec plans to create shareholder value by delivering against its
long-term financial targets, investing in growth, strengthening its
balance sheet, implementing strategic priorities to improve
operating margins at Curation Foods and driving topline growth at
Lifecore.
FISCAL SECOND QUARTER 2020 BUSINESS
HIGHLIGHTS
- Revenues of $142.6 million increased 14% year over year, driven
by a 48% and 10% increase in Lifecore and Curation Foods revenues,
respectively
- Gross profit decreased 8% year over year, Lifecore gross profit
increased 52% year over year, partially offsetting Curation Foods’
decrease
- Lifecore net income increased 166% year-over-year, partially
offsetting Curation Foods’ net loss
- Loss per share was $0.23 and includes $0.07 per share of
restructuring fees and non-recurring charges, net of tax
- Launched transformative value creation program to strengthen
business
- Reiterated full-year fiscal 2020 guidance
“Our Lifecore business had another tremendous
quarter with impressive year-over-year growth in revenues,
operating income and EBITDA. Lifecore continues to demonstrate
success in moving customers through the product development
lifecycle to commercialization and advancing its deep pipeline of
development customers that will drive long-term, profitable
growth,” said Dr. Albert Bolles, Landec’s President and CEO.
“However, Curation Foods negatively impacted our second quarter
results due to supply chain challenges. When I assumed the helm at
Landec earlier this fiscal year, I established our strategic
priorities and promised prompt and decisive action to help us
achieve our short-term and long-term financial goals. Today, we are
launching Project SWIFT to continue to transform our business into
an agile, competitive company.”
During the second quarter, the Company completed
a strategic review of its operations to better understand strengths
and challenges within its Curation Foods business, which revealed
additional opportunities to simplify and focus the business to
drive enhanced profitability. Project SWIFT is the outcome of this
strategic review. It is a value creation program that will continue
network optimization initiatives already underway at Curation
Foods, focus the business on strategic assets and redesign the
organization to be the appropriate size to compete and thrive.
Project SWIFT is defined by five core drivers of decision-making:
Simplify, Win, Innovate, Focus and Transform. The program comprises
necessary actions and charts a focused path forward rooted in
solid, achievable goals that align the Company’s resources with its
vision. It will improve Curation Foods’ operating cost structure,
enhance profitability and strengthen the Company’s balance
sheet.
FISCAL SECOND QUARTER 2020
RESULTS
Fiscal second quarter 2020 results compared to
fiscal second quarter 2019 are as follows:
(Unaudited and in thousands,
except per-share data) |
Three Months Ended |
|
Change |
|
November 24,2019 |
|
November 25,2018 |
|
Amount |
|
% |
Revenues |
$ |
142,593 |
|
|
$ |
124,557 |
|
|
$ |
18,036 |
|
|
14 % |
Gross profit |
15,514 |
|
|
16,885 |
|
|
(1,371 |
) |
|
(8)% |
Net loss from continuing
operations |
(6,740 |
) |
|
(113 |
) |
|
(6,627 |
) |
|
N/M |
EBITDA* |
(1,547 |
) |
|
3,735 |
|
|
(5,282 |
) |
|
N/M |
Diluted net loss per
share |
$ |
(0.23 |
) |
|
$ |
0.00 |
|
|
$ |
(0.23 |
) |
|
N/M |
*See “Non-GAAP Financial Information” at the end of this release
for more information and for a reconciliation of certain financial
information.
Revenues increased during the second quarter of
fiscal 2020 compared to the second quarter of fiscal 2019,
primarily due to: (1) the $7.4 million or 48% increase in Lifecore
revenues, (2) a $6.2 million or 15% increase in salad revenues and
(3) the acquisition of Yucatan Foods on December 1, 2018, which
contributed $14.0 million in revenues. These increases were
partially offset by a $2.0 million unexpected decrease in green
bean revenues due to the extensive weather events in November,
resulting in supplies that were significantly less than
anticipated and a planned $7.9 million decrease in revenues in the
packaged vegetables bags and trays business as the Company
de-emphasizes this commoditized business and pivots toward higher
margin value-added products.
Gross profit decreased during the second quarter
of fiscal 2020 compared to the second quarter of fiscal 2019 as a
result of a $4.3 million decrease in Curation Foods gross profit
due to: (1) weather-related events impacting raw material supply,
(2) the sell-through of high-cost avocado products produced during
the fiscal fourth quarter of 2019 and fiscal first quarter of 2020
when the cost of avocados were over two times higher than current
costs and (3) a planned contraction of the packaged vegetables in
bags and trays business. These decreases were partially offset by a
$2.9 million or 52% increase in gross profit at Lifecore.
Net income decreased during the second quarter
of fiscal 2020 compared to the second quarter of fiscal 2019 due
to: (1) a $1.4 million decrease in gross profit, (2) a $1.9 million
increase in operating expenses resulting from the addition of
Yucatan Foods, (3) a $1.4 million increase in interest expense due
to the incremental debt associated with the acquisition of Yucatan
Foods, (4) a $0.2 million increase in the fair market value of the
Company’s Windset investment compared to a $0.6 million increase
during the fiscal second quarter of last year and (5) restructuring
fees and non-recurring charges of $2.4 million or $0.07 per share,
net of tax. These decreases in net income were partially offset by
a $1.6 million decrease in income tax expenses. Excluding
restructuring fees and non-recurring charges, the Company would
have recognized a loss per share of $0.16.
EBITDA decreased during the second quarter of
fiscal 2020 compared to the second quarter of fiscal 2019 due to:
(1) the decrease in gross profit and (2) from an increase in
operating expenses. The decrease was partially offset by an
increase in depreciation and amortization expenses. During the
three months ended November 24, 2019, the Company incurred
restructuring fees and non-recurring charges of $2.4 million.1
These charges were recorded in general and administrative
expenses. Excluding the $2.4 million in restructuring and
non-recurring charges, EBITDA would have been approximately $0.9
million in fiscal second quarter of 2020.
As of November 24, 2019, the Company is in
compliance with all of its debt covenants and expects to be in
compliance going forward.
____________1 For further details see Questions & Answers
section at the end of this release
FISCAL SIX MONTHS 2020
RESULTS
Fiscal six months 2020 results compared to
fiscal six months 2019 are as follows:
(Unaudited and in thousands,
except per-share data) |
Six Months Ended |
|
Change |
|
November 24,2019 |
|
November 25,2018 |
|
Amount |
|
% |
Revenues |
$ |
281,307 |
|
|
$ |
249,225 |
|
|
$ |
32,082 |
|
|
13 % |
Gross profit |
30,850 |
|
|
33,222 |
|
|
(2,372 |
) |
|
(7)% |
Net (loss) income from
continuing operations |
(11,524 |
) |
|
221 |
|
|
(11,745 |
) |
|
N/M |
EBITDA* |
(1,233 |
) |
|
7,036 |
|
|
(8,269 |
) |
|
N/M |
Diluted net (loss) income per
share |
$ |
(0.40 |
) |
|
$ |
0.01 |
|
|
$ |
(0.41 |
) |
|
N/M |
*See “Non-GAAP Financial Information” at the end of this release
for more information and for a reconciliation of certain financial
information.
Revenues increased during the first six months
of fiscal 2020 compared to the same period in fiscal 2019 primarily
due to: (1) a $6.8 million or 24% increase in Lifecore revenues,
(2) an $8.4 million or 9% increase in salad revenues and (3) the
acquisition of Yucatan Foods on December 1, 2018, which contributed
$30.2 million in revenues. These increases were partially offset by
a $5.3 million decrease in green bean revenues due to limited
supplies during weather events in both the fiscal first and second
quarters of 2020, and by a $9.7 million planned decrease in
revenues in the packaged vegetables in bags and trays business.
Gross profit decreased during the first six
months of fiscal 2020 compared to the same period in fiscal 2019
due to a $4.9 million decrease in the Company’s Curation Foods
segment due to: (1) weather-related events impacting raw material
supply, (2) the sell-through of high-cost avocado products produced
during the fourth quarter of fiscal 2019 and first quarter of
fiscal 2020 when the cost of avocados were over two times higher
than current costs and (3) lower gross profit resulting from a
planned contraction of the packaged vegetables in bags and trays
business. These decreases were partially offset by a $2.5 million
or 29% increase in gross profit at Lifecore driven by higher
revenues.
Net income decreased during the first six months
of fiscal 2020 compared to the first six months of fiscal 2019 due
to: (1) a $2.4 million decrease in gross profit, (2) a $4.0 million
increase in operating expenses resulting from the addition of
Yucatan Foods, (3) a $2.7 million increase in interest expense due
to incremental debt associated with the acquisition of Yucatan
Foods, (4) a $0.2 million increase in the fair market value of the
Company’s Windset investment compared to a $1.6 million increase
during the first six months of fiscal 2019 and (5) restructuring
fees and non-recurring charges of $2.4 million or $0.07 per share
net of tax2. These decreases in net income were partially offset by
a $3.1 million decrease in income tax expenses. Excluding the
restructuring fees and non-recurring charges during the first six
months of fiscal 2020, the Company would have recognized a loss per
share of $0.33.
EBITDA decreased during the first six months of
fiscal 2020 compared to the first six months of fiscal 2019 due to:
(1) the decrease in gross profit and (2) an increase in operating
expenses. The decrease was partially offset by an increase in
depreciation and amortization expenses. Excluding the $2.4 million
in restructuring and non-recurring charges, EBITDA would have been
$1.2 million for the first six months of fiscal 2020.
2 For further details see Questions &
Answers section at the end of this release
Segment Results
(Unaudited and in
thousands) |
Three Months Ended |
|
Change |
|
Six Months Ended |
|
Change |
|
November 24,2019 |
|
November 25,2018 |
|
Amount |
|
% |
|
November 24,2019 |
|
November 25,2018 |
|
Amount |
|
% |
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Curation Foods |
$ |
119,751 |
|
|
$ |
109,111 |
|
|
$ |
10,640 |
|
|
10 % |
|
$ |
246,424 |
|
|
$ |
221,162 |
|
|
$ |
25,262 |
|
|
11 % |
Lifecore |
22,842 |
|
|
15,446 |
|
|
7,396 |
|
|
48 % |
|
34,883 |
|
|
28,063 |
|
|
6,820 |
|
|
24 % |
Total Revenues |
$ |
142,593 |
|
|
$ |
124,557 |
|
|
$ |
18,036 |
|
|
14 % |
|
$ |
281,307 |
|
|
$ |
249,225 |
|
|
$ |
32,082 |
|
|
13 % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Curation Foods |
$ |
6,890 |
|
|
$ |
11,207 |
|
|
$ |
(4,317 |
) |
|
(39)% |
|
$ |
19,712 |
|
|
$ |
24,577 |
|
|
$ |
(4,865 |
) |
|
(20)% |
Lifecore |
8,624 |
|
|
5,678 |
|
|
2,946 |
|
|
52 % |
|
11,138 |
|
|
8,645 |
|
|
2,493 |
|
|
29 % |
Total Gross Profit |
$ |
15,514 |
|
|
$ |
16,885 |
|
|
$ |
(1,371 |
) |
|
(8)% |
|
$ |
30,850 |
|
|
$ |
33,222 |
|
|
$ |
(2,372 |
) |
|
(7)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (Loss) Income from
Continuing Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Curation Foods |
$ |
(8,348 |
) |
|
$ |
53 |
|
|
$ |
(8,401 |
) |
|
N/M |
|
$ |
(10,519 |
) |
|
$ |
1,965 |
|
|
$ |
(12,484 |
) |
|
N/M |
Lifecore |
3,459 |
|
|
1,298 |
|
|
2,161 |
|
|
166 % |
|
2,064 |
|
|
751 |
|
|
1,313 |
|
|
175 % |
Other |
(1,851 |
) |
|
(1,464 |
) |
|
(387 |
) |
|
26 % |
|
(3,069 |
) |
|
(2,495 |
) |
|
(574 |
) |
|
23 % |
Total Net (Loss) Income from
Continuing Operations |
$ |
(6,740 |
) |
|
$ |
(113 |
) |
|
$ |
(6,627 |
) |
|
N/M |
|
$ |
(11,524 |
) |
|
$ |
221 |
|
|
$ |
(11,745 |
) |
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA, excluding Windset FMV
change: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Curation Foods |
$ |
(5,764 |
) |
|
$ |
1,988 |
|
|
$ |
(7,752 |
) |
|
N/M |
|
$ |
(3,960 |
) |
|
$ |
6,203 |
|
|
$ |
(10,163 |
) |
|
N/M |
Lifecore |
5,626 |
|
|
2,708 |
|
|
2,918 |
|
|
108 % |
|
4,951 |
|
|
2,955 |
|
|
1,996 |
|
|
68 % |
Other |
(1,409 |
) |
|
(961 |
) |
|
(448 |
) |
|
47 % |
|
(2,224 |
) |
|
(2,122 |
) |
|
(102 |
) |
|
5 % |
Total EBITDA excluding Windset
FMV change |
$ |
(1,547 |
) |
|
$ |
3,735 |
|
|
$ |
(5,282 |
) |
|
N/M |
|
$ |
(1,233 |
) |
|
$ |
7,036 |
|
|
$ |
(8,269 |
) |
|
N/M |
Update on Lifecore Momentum for Topline
Growth:Lifecore is the Company’s high-growth, high-quality
CDMO business focused on product development and manufacturing of
sterile injectable products. Lifecore continues to expand its
presence in the CDMO marketplace by partnering with
biopharmaceutical and medical device companies. Its expertise in
manufacturing difficult-to-handle products creates differentiation
and high barriers to competition. Lifecore’s continued success
will be executing against its three strategic priorities: (1)
managing and expanding its business development pipeline, (2)
meeting customer demand and future commercial production needs by
expanding operations and maximizing capacity and (3) continuing to
deliver on a strong record of product commercialization from its
business development pipeline. Highlights during the second quarter
of fiscal 2020 include:
1) Managing Business
Development Pipeline:
- Business development revenue in the second quarter of fiscal
2020 increased 49% year-over-year, and contributed 36% of the
increase in the Lifecore fiscal second quarter revenues.
- Development pipeline activity continued to have 15 projects in
various stages of the product lifecycle, spanning clinical
development stage to commercialization, which aligns with the
business’ overall product development strategy.
2) Maximizing
Capacity:
- Commercial validation for the new syringe and vial
multi-purpose filler production line began as planned in the second
quarter of fiscal 2020, and when complete, the new filler
production line will increase Lifecore’s current capacity by over
20%.
3) Advancing Product
Commercialization:
- Continued to make substantial progress with advancing
customers’ late-stage product development activities by supporting
their Phase 3 clinical programs and commercial process scale-up
activities.
- Continued to target a minimum of one regulatory product
approval annually and on track to achieve this cadence beginning in
fiscal 2022.
- Currently has one product under review at the FDA with
projected approval during calendar year 2020.
Jim Hall, Lifecore’s President stated, “Lifecore
is well positioned to meet increasing customer demand for sterile
injectable products. In our current facility, we have the ability
to double our current production capacity to meet future
commercialization and development needs, with ample room for
expansion. Our team of cross-functional experts, coupled with our
best-in-class quality system and facility, enables Lifecore to
accelerate product development activities for small and large
biopharmaceutical and medical device companies. Our speed and
efficiency decreases time to market for our partners, which
has immense value in their ability to improve patient lives through
commercialization of their innovative therapies. We remain on track
to meet our 10% to 12% revenue growth goal and our $21 million to
$23 million EBITDA target, after corporate allocations, for fiscal
2020.”
Update on Curation Foods Operational
Initiatives Aligned with Company Priorities to Improve
Profitability:Curation Foods is the Company’s natural food
business. Project SWIFT aims to strengthen the Curation Foods
business by simplifying the business. Curation Foods will continue
to deliver the highest level of product quality and safety, while
executing with excellence on its customer, grower and partner
commitments.
Project SWIFT will continue to be implemented throughout fiscal
2020 and 2021, centered on network and operational optimization, a
focus on maximizing strategic assets and redesigning the
organization to the appropriate size to compete and thrive. Total
annualized cost savings from these actions will be approximately
$3.7 million3. Specifically, the following decisive actions
were announced today:
1) Network & Operational
Optimization:
- Consolidating and centralizing Curation Foods offices into its
Innovation Center headquarters in Santa Maria, CA. This decision
will result in the shutting down of the leased Los Angeles, CA
Yucatan Foods headquarters, the leased Santa Clara, CA office and
the sale of the San Rafael, CA Curation Foods headquarters.
2) Focus on Strategic
Assets:
- Initiating the strategic sale of the Company’s Ontario, CA
salad dressing manufacturing facility, which had yet to become
operational. This sale aligns with the Company’s strategy of
divesting non-core assets and simplifying the business.
3) Organizational
Redesign:
- Redesigning the organization so that it is appropriate for the
Company’s future direction, focusing on strategic initiatives,
developing and elevating internal talent and reducing
headcount.
3 For further details see Questions & Answers section at the
end of this release
OUTLOOK AND FISCAL 2020
GUIDANCE4Dr. Bolles added, “We are reiterating our full
year fiscal 2020 guidance and providing our forecast for third
quarter of fiscal 2020. We continue to expect substantial profits
to be generated in the second half of the fiscal year, with greater
weight in our fourth quarter, due to the timing of revenues and
profits at Lifecore, the timing of revenues and profits from the
sale of avocado products, momentum with our Eat Smart® salad
business and the impact from our cost out initiatives, with the
large majority of cost savings occurring in the second half of
fiscal 2020. Our capital allocation priorities remain focused on
supporting the growth of both of our operating businesses while
balancing that with efforts to strengthen our balance sheet.”
Excluding restructuring and nonrecurring
charges, the Company is reiterating its full year fiscal 2020
guidance, which is detailed below:
- Revenues from continuing operations to grow 8% to 10% (range of
$602 million to $613 million) compared to fiscal 2019
- Earnings per share to be $0.28 to $0.32
- Cash flow from operations to be $26 million to $30 million
- Consolidated EBITDA to be in the range of $36 million to $40
million
The Company is introducing third quarter fiscal 2020 guidance,
excluding restructuring and non-recurring charges as follows:
- Revenues from continuing operations to be in the range of $154
million to $158 million compared to third quarter of fiscal
2019
- Net income per share of $0.06 to $0.09, due to certain
shipments for Lifecore shifting from the fiscal third quarter to
the fiscal fourth quarter, Yucatan working through the last of its
high-cost products and starting to sell more of its lower-cost
products that have been produced since October and a portion of the
cost out savings for the fiscal third quarter being delayed to the
fiscal fourth quarter
- EBITDA to be in the range of $7 million to $11 million
Dr. Bolles concluded, “We are confident in our
expectation for profitable growth starting in the fiscal third
quarter and significantly accelerating in the fiscal fourth
quarter. At Lifecore, we will continue to grow by supporting the
initiatives of both new and existing customers. At Curation Foods,
we will focus on our strategic priorities and on executing Project
SWIFT, which will strengthen our operational structure and drive
sustainable profitability. These enterprise-wide activities will
create shareholder value by yielding a greater return on our
investments, strengthening our balance sheet and delivering the
quality and innovation our customers have come to expect from
us.”
4 For further details see Questions &
Answers section at the end of this release
Conference CallThe live webcast
can be accessed directly at http://ir.Landec.com/events.cfm or
on Landec’s website on the Investor Events & Presentations
page. The webcast will be available for 30 days.
Date: Friday, January 3,
2020Time: 11:00 a.m. Eastern time (8:00 a.m.
Pacific time)Direct Webcast link:
http://ir.Landec.com/events.cfm
To participate in the conference call via
telephone, dial toll-free: (877) 407-3982 or (201) 493-6780. Please
call the conference telephone number 5-10 minutes prior to the
start time so the operator can register your name and organization.
If you have any difficulty with the webcast or connecting to the
call, please contact ICR at (646) 277-1263.
A replay of the call will be available through
Friday, January 10, 2020 by calling toll-free: (844) 512-2921 or
direct (412) 317-6671, and entering code 13697215.
About Landec CorporationLandec
Corporation (NASDAQ: LNDC) is a leading innovator of diversified
health and wellness solutions with two operating businesses:
Curation Foods, Inc. and Lifecore Biomedical, Inc. Landec
designs, develops, manufactures, and sells products for the food
and biopharmaceutical industry. Curation Foods is focused on
innovating and distributing plant-based foods with 100% clean
ingredients to retail, club and foodservice channels throughout
North America. Curation Foods is able to maximize product freshness
through its geographically dispersed family of growers,
refrigerated supply chain and patented BreatheWay® packaging
technology. Curation Foods brands include Eat Smart® fresh
packaged vegetables and salads, O Olive Oil &
Vinegar® premium artisan products, and Yucatan® and Cabo
Fresh® avocado products. Lifecore Biomedical is a fully integrated
contract development and manufacturing organization (CDMO) that
offers highly differentiated capabilities in the development, fill
and finish of sterile, injectable pharmaceutical products in
syringes and vials. As a leading manufacturer of premium,
injectable grade Hyaluronic Acid, Lifecore brings 35 years of
expertise as a partner for global and emerging biopharmaceutical
and biotechnology companies across multiple therapeutic categories
to bring their innovations to market. For more information about
the Company, visit Landec’s website at www.landec.com.
Non-GAAP Financial
InformationThis press release contains non-GAAP financial
information relating to EBITDA and EPS. The Company has included
reconciliations of these non-GAAP financial measures to the most
directly comparable financial measures calculated in accordance
with GAAP. See the end of this release for these
reconciliations.
The Company has disclosed these non-GAAP
financial measures to supplement its consolidated financial
statements presented in accordance with GAAP. These non-GAAP
financial measures exclude/include certain items that are included
in the Company’s results reported in accordance with GAAP.
Management believes these non-GAAP financial measures provide
useful additional information to investors about trends in the
Company’s operations and are useful for period-over-period
comparisons. These non-GAAP financial measures should not be
considered in isolation or as a substitute for the comparable GAAP
measures. In addition, these non-GAAP financial measures may not be
the same as similar measures provided by other companies due to the
potential differences in methods of calculation and items being
excluded/included. It should be read in conjunction with the
Company’s consolidated financial statements presented in accordance
with GAAP.
Important Cautions Regarding
Forward-Looking StatementsExcept for the historical
information contained herein, the matters discussed in this news
release are forward-looking statements that involve certain risks
and uncertainties that could cause actual results to differ
materially, including such factors among others, as the timing and
expenses associated with operations, the ability to achieve
acceptance of the Company's new products in the market place,
weather conditions that can affect the supply and price of produce,
government regulations affecting our business, the timing of
regulatory approvals, the ability to successfully integrate Yucatan
Foods into the Curation Foods business, and the mix between
domestic and international sales. For additional information about
factors that could cause actual results to differ materially from
those described in the forward-looking statements, please refer to
our filings with the Securities and Exchange Commission (“SEC”),
including the risk factors contained in our most recent Quarterly
Report on Form 10-Q and Annual Report on Form 10-K. Forward-looking
statements represent management’s current expectations and are
inherently uncertain. Except as required by law, we do not
undertake any obligation to update forward-looking statements made
by us to reflect subsequent events or circumstances.
LANDEC
CORPORATIONCONSOLIDATED CONDENSED BALANCE
SHEETS(In thousands)
|
November 24,2019 |
|
May 26,2019 |
|
(unaudited) |
|
|
ASSETS |
|
|
|
|
|
Current Assets: |
|
|
|
|
|
Cash and cash equivalents |
$ |
1,594 |
|
|
$ |
1,080 |
|
Accounts receivable, net |
69,962 |
|
|
69,565 |
|
Inventories, net |
58,563 |
|
|
54,132 |
|
Prepaid expenses and other current assets |
10,061 |
|
|
8,264 |
|
Total Current Assets |
140,180 |
|
|
133,041 |
|
|
|
|
|
|
|
Investment in non-public
company |
61,300 |
|
|
61,100 |
|
Property and equipment,
net |
204,687 |
|
|
200,027 |
|
Operating leases |
29,779 |
|
|
— |
|
Goodwill |
77,246 |
|
|
76,742 |
|
Trademarks/tradenames,
net |
29,928 |
|
|
29,928 |
|
Customer relationships,
net |
14,294 |
|
|
15,319 |
|
Other assets |
2,583 |
|
|
2,934 |
|
Total Assets |
$ |
559,997 |
|
|
$ |
519,091 |
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY |
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
Accounts payable |
$ |
47,145 |
|
|
$ |
53,973 |
|
Accrued compensation |
8,700 |
|
|
10,687 |
|
Other accrued liabilities |
10,702 |
|
|
10,001 |
|
Current portion of lease liabilities |
3,980 |
|
|
75 |
|
Deferred revenue |
611 |
|
|
499 |
|
Line of credit |
61,500 |
|
|
52,000 |
|
Current portion of long-term debt |
11,723 |
|
|
9,791 |
|
Other current liabilities, discontinued operations |
— |
|
|
65 |
|
Total Current Liabilities |
144,361 |
|
|
137,091 |
|
|
|
|
|
|
|
Long-term debt, less current
portion |
107,470 |
|
|
87,193 |
|
Long-term lease
liabilities |
30,795 |
|
|
3,532 |
|
Deferred taxes |
17,047 |
|
|
19,393 |
|
Other non-current
liabilities |
1,248 |
|
|
1,738 |
|
|
|
|
|
|
|
Stockholders' Equity: |
|
|
|
|
|
Common stock |
29 |
|
|
29 |
|
Additional paid-in capital |
161,556 |
|
|
160,341 |
|
Retained earnings |
97,912 |
|
|
109,710 |
|
Accumulated other comprehensive (loss) income |
(421) |
|
|
64 |
|
Total Stockholders’
Equity |
259,076 |
|
|
270,144 |
|
Total Liabilities and
Stockholders’ Equity |
$ |
559,997 |
|
|
$ |
519,091 |
|
|
|
|
|
|
|
LANDEC
CORPORATIONCONSOLIDATED CONDENSED STATEMENTS OF
LOSS(In thousands, except per-share data)(unaudited)
|
Three Months Ended |
|
Six Months Ended |
|
November 24,2019 |
|
November 25,2018 |
|
November 24,2019 |
|
November 25,2018 |
Product Sales |
$ |
142,593 |
|
|
$ |
124,557 |
|
|
$ |
281,307 |
|
|
$ |
249,225 |
|
Cost of product sales |
127,079 |
|
|
107,672 |
|
|
250,457 |
|
|
216,003 |
|
Gross profit |
15,514 |
|
|
16,885 |
|
|
30,850 |
|
|
33,222 |
|
|
|
|
|
|
|
|
|
Operating costs and
expenses: |
|
|
|
|
|
|
|
Research and development |
2,822 |
|
|
2,475 |
|
|
5,643 |
|
|
5,266 |
|
Selling, general and administrative |
18,728 |
|
|
14,400 |
|
|
35,623 |
|
|
28,203 |
|
Total operating costs and
expenses |
21,550 |
|
|
16,875 |
|
|
41,266 |
|
|
33,469 |
|
Operating (loss)
income |
(6,036 |
) |
|
10 |
|
|
(10,416 |
) |
|
(247 |
) |
|
|
|
|
|
|
|
|
Dividend income |
281 |
|
|
412 |
|
|
562 |
|
|
825 |
|
Interest income |
25 |
|
|
33 |
|
|
50 |
|
|
79 |
|
Interest expense |
(2,169 |
) |
|
(746 |
) |
|
(4,244 |
) |
|
(1,504 |
) |
Other income |
200 |
|
|
600 |
|
|
200 |
|
|
1,600 |
|
Other expense |
(206 |
) |
|
— |
|
|
(206 |
) |
|
— |
|
Net (loss) income from
continuing operations before taxes |
(7,905 |
) |
|
309 |
|
|
(14,054 |
) |
|
753 |
|
Income tax benefit
(expense) |
1,165 |
|
|
(422 |
) |
|
2,530 |
|
|
(532 |
) |
Net (loss) income from
continuing operations |
(6,740 |
) |
|
(113 |
) |
|
(11,524 |
) |
|
221 |
|
|
|
|
|
|
|
|
|
Discontinued operations: |
|
|
|
|
|
|
|
Loss from discontinued operations |
— |
|
|
(616 |
) |
|
— |
|
|
(806 |
) |
Income tax benefit |
— |
|
|
145 |
|
|
— |
|
|
190 |
|
Loss from discontinued
operations |
— |
|
|
(471 |
) |
|
— |
|
|
(616 |
) |
Net loss available to common
stockholders |
$ |
(6,740 |
) |
|
$ |
(584 |
) |
|
$ |
(11,524 |
) |
|
$ |
(395 |
) |
|
|
|
|
|
|
|
|
Diluted net (loss) income per
share from continuing operations |
$ |
(0.23 |
) |
|
$ |
0.00 |
|
|
$ |
(0.40 |
) |
|
$ |
0.01 |
|
Diluted net loss per share
from discontinued operations |
$ |
0.00 |
|
|
$ |
(0.02 |
) |
|
$ |
0.00 |
|
|
$ |
(0.02 |
) |
Diluted net loss per
share |
$ |
(0.23 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.40 |
) |
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
Shares used in diluted per
share computations |
29,155 |
|
|
27,764 |
|
|
29,147 |
|
|
27,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
LANDEC CORPORATIONSECOND
QUARTER ENDED NOVEMBER 24, 2019QUESTIONS &
ANSWERS
Q1) What
gives the Company confidence it can go from a loss for the fiscal
first six months of 2020 to its EPS guidance of $0.28 to $0.32 for
the fiscal year?
Management has confidence in being able to
achieve its fiscal 2020 guidance which, based on its fiscal third
quarter guidance, implies that for the fiscal fourth quarter the
Company will need to realize EPS of $0.50 to $0.53 to hit the
guided range for fiscal 2020.
- Lifecore is forecasted to recognize
operating income of $8.5 million to $8.8 million and EBITDA of $9
million to $10 million during the fourth quarter, its most
profitable quarter during fiscal 2020.
- Curation Foods is forecasted to recognize operating income in
the fourth quarter of fiscal 2020 of $14 million to $15 million and
EBITDA of $18 million to $19 million. This is driven by three
factors:
- Avocado products revenue in the
fourth quarter of fiscal 2020 is forecasted to be $18 million to
$20 million with a gross margin of 28% or greater.
- Cost out: The Company expects
approximately 45% of the projected $18 million to $20 million in
cost savings from its cost out initiatives to be recognized during
the fourth quarter.
- Eat Smart brand momentum
- Eat Smart Salads are outpacing
category growth by 600 basis points, second quarter fiscal 2020
compared to second quarter fiscal 2019, according to Nielsen 52
week ending 12/2/2019
- The Eat Smart brand re-stage is
scheduled to be in market January 2020. Based on consumer insights,
the new packaging tested extremely well with consumers, both in US
and Canada, projecting an uplift in sales velocities.
- The Company realized a gross margin
improvement in its Eat Smart products of 80 basis points during the
fiscal second quarter compared to the second quarter of last year,
as it continues to de-emphasize its core vegetable and tray
business.
These drivers of revenues and earnings will be
partially offset by Landec Corporate allocation expenses which will
reduce fiscal fourth quarter EBITDA by $3 million to $4
million.
Q2) Excluding the restructuring
fees and non-recurring expenses, why did the Company miss its
fiscal second quarter projected EPS by $0.10 cents?
Key variables affecting the relative
performance:
- The Company expected that due to
its overplant strategy, green beans would have been a meaningful
profit contributor during the second quarter. Unfortunately, the
November freeze and other weather-related events impacted green
bean and raw materials supply resulting in much lower yield than
expected. The shortages and higher cost of raw material supply
resulted in its profits being $0.08 per share lower than it had
forecasted.
- In the avocado products business,
while the Company had projected that the sales of higher-cost
products would occur over the second and third quarter, a greater
percentage was sold during the second quarter than the Company
expected. As a result, the profits for avocado products were $0.03
per share less than the Company planned.
- The Company experienced increased
healthcare costs resulting in lower-than-planned profits of $0.03
per share during the quarter.
- The Company engaged third-party
consultants, including the Hackett Group and the Dennis Group, to
assist in identifying areas to gain efficiencies and improve
Curation Foods’ operating cost structure, enhance profitability and
strengthen the Company’s balance sheet. During the second quarter,
the Company incurred consulting expenses of approximately $0.4
million or $0.01 per share, associated with these efforts.
These misses were partially offset by $0.05 per
share better-than-planned performance at Lifecore and from
lower-than-planned operating expenses at Curation Foods and Landec
Corporate.
Q3) What are
the expected annual savings and restructuring fees associated with
Landec’s Project SWIFT?
Project SWIFT is a value creation program that
will continue network optimization initiatives at Curation Foods,
as well as focus the business on strategic assets and redesign the
organization to be the appropriate size to compete and thrive. As a
result of Project SWIFT, the Company has made several strategic
decisions surrounding its operations that will provide total
annualized cost savings from these actions of approximately $3.7
million.
- Network and Operational
Optimization: As part of the consolidation activities
during the second quarter of fiscal 2020, the Company consolidated
its R&D and centralized business activities into its new Santa
Maria location. As a result, the Company will close its
leased Santa Clara office and its leased Los Angeles office, which
was acquired in the Yucatan acquisition. The Company sold its San
Rafael office and innovation center for $2.4 million, net of
commissions. The sale closed on December 24, 2019, and proceeds
were used to improve the Company’s balance sheet. The sale resulted
in a loss of $0.4 million which was included in general and
administrative expenses during the second quarter. The Company
expects annual non-personnel cost savings of approximately $0.9
million from shutting down these offices.
- Focus on Strategic
Assets: The Company will sell its yet to be
operational salad dressing plant in Ontario, CA. The Company is
unable to estimate the expected financial impact from the sale at
this time. The Company expects to finalize the sale during the
second half of fiscal 2020 and use the proceeds to improve our
balance sheet.
- Organizational
Redesign: The Company has taken action to right size and
redesign the organization so that it is appropriate for the
Company’s size, focusing on strategic initiatives, developing and
elevating internal talent and reducing headcount. With this
rightsizing, the Company expects annual cost savings of
approximately $2.8 million.
In summary, the Company expects to realize total
annualized cost savings from these actions of $3.7 million and
recorded approximately $0.4 million of restructuring fees during
the second quarter of fiscal 2020, in general and administrative
expenses.
Q4) What
actions comprise Landec’s non-recurring charges in fiscal second
quarter 2020?
- Cost Out Program:
As part of the previously announced $18 to $20 million cost out
initiatives, the Company has taken action to consolidate from two
labor contractors to one labor contractor in the second quarter,
which streamlined its Guadalupe facility. The new labor contract
will result in year one annual savings of approximately $1.7
million. The labor contractor the Company is no longer using owes
the Company $1.2 million. Since the full collectability of this
loan is now in doubt, the Company elected to fully reserve the loan
and recorded a reserve of $1.2 million during the fiscal second
quarter. The Company intends to use all legal recourse to collect
the full amount owed.
- Yucatan Foods Related
Expenses: As Landec is disclosing in its second quarter
Form 10-Q, the Company discovered and reported to U.S. regulators a
compliance issue at its Yucatan Foods production facility in
Guanajuato, Mexico. The conduct at issue began prior to
Landec’s acquisition of Yucatan Foods in December 2018 and relates
to potential environmental and foreign corrupt practices act
compliance matters associated with regulatory permitting at the
facility. The Company has taken appropriate remedial measures
and is cooperating in the U.S. government investigation that
followed the Company’s disclosure. Because this is an ongoing legal
matter, the Company is not able to provide more details at this
time. However, the issue does not relate to the health, safety or
quality of the food the Company sells. The Company incurred
expenses of approximately $0.8 million this quarter which are
primarily related to legal expenses associated with this matter,
and it expects to incur additional expenses in future quarters
until the matter is resolved. The Company intends to pursue
recovery for those expenses in future quarters. At this time, the
Company cannot predict the amount of these expenses or the
recovery, if any. The Company considers these expenses to be
non-recurring expenses and not part of its ordinary course of
business.
In summary, in the second quarter and first six
months of fiscal 2020, the Company incurred non-recurring charges
associated with cost out initiatives and the acquisition of Yucatan
Foods of $2.0 million.
Q5) What
action has been taken against strategic priorities at Curation
Foods?
The Company’s top priorities over the next 12-24
months are:
- Focus: Manage fewer, high-impact
projects that will drive positive EBITDA growth.
- Innovation: Commit to the consumer
with on-trend, plant-based food with 100% clean-ingredients from
Curation Foods core growth platforms: Eat Smart® salads and green
beans, Cabo Fresh® and Yucatan® avocado products and O Olive Oil
& Vinegar® premium artisan products.
- Productivity: Deliver ongoing
savings by creating a culture of trust, respect and continuous
improvement by clarifying people’s roles and building highly
accountable, productive teams.
- Operational Excellence: Commit to
the customer by creating a Project Management Office to improve
efficiencies throughout operations and the supply chain, with a
concentration on network optimization. Initial focus will be on the
integration and improvement of Yucatan and Cabo Fresh operations in
Mexico.
- Sustainability: As a mission-based
company, continue to institute and follow business practices that
respect people and the planet as part of everyday culture to
further differentiate the Company in the market.
The Company has made progress against its
strategic priorities in fiscal second quarter of 2020 as
follows:
Innovation:
- Yucatan Guacamole® Squeeze:
Expanded sales of the Company’s new, first-of-its-kind packaged
guacamole product in a flexible squeeze pouch, which allows for
greater usage and convenience, as well as extended shelf life for
reduced waste. Looking ahead, the Company’s Cabo Fresh brand will
use this packaging technology beginning in the third quarter of
fiscal 2020. The Company has category exclusivity with the
packaging company that has exclusive distribution rights in North
America.
- BreatheWay® Technology: Grew
distribution of BreatheWay patented packaging technology to go
beyond maintaining optimal atmosphere for individually packaged
produce to offering a full supply chain packaging solution for
perishable products, reducing shrink for retailers and extending
shelf life for consumers. The BreatheWay packaging solution is
being used to wrap pallets of raspberries for Driscoll’s and has
moved from a successful test in its California distribution centers
to a full rollout for Driscoll’s in North America. The Company
plans to scale this business by testing several other adjacent
perishable product categories.
Operational Excellence and
Productivity:
- Operational Excellence: Significant
improvements in operational efficiency has been achieved by
initiating lean manufacturing practices at the Yucatan and Cabo
Fresh manufacturing operations located in Tanok, Mexico.
Enhancements include a 40% improvement in production conversion
cost and 50% lower raw fruit costs, reducing projected overall
costs by 28% in the second half of fiscal 2020.
- Cost Out: On track to achieve
fiscal 2020 goals of $18 million to $20 million in cost savings for
Curation Foods as the Company invests in automation and
productivity.
- Enhancing Food Quality and Safety:
Successful integration of the Curation Foods standard quality
systems in Yucatan and Cabo fresh operations in Mexico and O brand
operations in Petaluma, CA.
Q6) What is
the Company’s current leverage ratio and borrowing
capacity?
At the end of the second quarter of fiscal 2020,
the Company’s debt-to-equity ratio was 70% and its debt-to-tangible
assets ratio was 41%. Its fixed coverage ratio at the end of the
second quarter of fiscal 2020 was 1.5, which is well above its
covenant of 1.2 or greater. The Company’s leverage ratio at the end
of the second quarter of fiscal 2020 was 4.9, and its debt covenant
is 5.0 or less. Over the remainder of fiscal 2020 the Company
expects to have adequate liquidity to continue to grow its business
and invest in capital to advance both the Curation Foods and
Lifecore businesses.
Q7) What are
the expectations for Lifecore’s business development pipeline as a
source for Landec growth?
Lifecore currently has approximately 15
FDA-regulated drug and medical device products in its business
development pipeline that are in various stages of development
ranging from early-phase formulation and product development,
pre-clinical work to late-phase, pivotal clinical studies. It is
important to understand that Lifecore is the CDMO partner for the
biopharmaceutical companies that own the regulatory submission
process and the Design History File of the products Lifecore is
formulating and developing and will manufacture. Lifecore actively
supports the submission process for new products by providing the
necessary CMC documentation requested by its partners.
Lifecore is routinely inspected by the FDA and regulatory agencies
from Europe, Brazil and other international markets that audit
Lifecore as part of drug and medical device products regulatory
approval process (Pre-Approval Inspections) and ongoing
surveillance audits. Lifecore anticipates at least one to two
of the current products under development will be approved and
begin to generate commercial revenues within the next 24 months.
Moving forward, Lifecore is working towards having a pipeline that
provides an average of one to two products that receive regulatory
approval annually and subsequently contribute to future revenue
growth.
Non-GAAP Financial Information and
Reconciliations
The tables below present the reconciliation of
non-GAAP financial measures to the most directly comparable
financial measures calculated in accordance with GAAP and other
supplemental information. See “Non-GAAP Financial Information”
above for further information regarding the Company’s use of
non-GAAP financial measures.
(Unaudited and in
thousands) |
Three Months Ended |
|
Six Months Ended |
|
November 24,2019 |
|
November 25,2018 |
|
November 24,2019 |
|
November 25,2018 |
Net (loss) income from continuing operations |
$ |
(6,740 |
) |
|
$ |
(113 |
) |
|
$ |
(11,524 |
) |
|
$ |
221 |
|
FMV change in Windset
investment |
(200 |
) |
|
(600 |
) |
|
(200 |
) |
|
(1,600 |
) |
Net interest expense |
2,144 |
|
|
713 |
|
|
4,194 |
|
|
1,425 |
|
Taxes |
(1,165 |
) |
|
422 |
|
|
(2,530 |
) |
|
532 |
|
Depreciation and
amortization |
4,414 |
|
|
3,313 |
|
|
8,827 |
|
|
6,458 |
|
Total EBITDA excluding Windset FMV change |
$ |
(1,547 |
) |
|
$ |
3,735 |
|
|
$ |
(1,233 |
) |
|
$ |
7,036 |
|
Significant non-recurring
charges |
2,434 |
|
|
— |
|
|
2,434 |
|
|
— |
|
Total adjusted EBITDA excluding significant non-recurring
charges |
$ |
887 |
|
|
$ |
3,735 |
|
|
$ |
1,201 |
|
|
$ |
7,036 |
|
(Unaudited) |
Three Months Ended |
|
Six Months Ended |
|
November 24,2019 |
|
November 25,2018 |
|
November 24,2019 |
|
November 25,2018 |
Diluted net (loss) income per share from continuing operations |
$ |
(0.23 |
) |
|
$ |
0.00 |
|
|
$ |
(0.40 |
) |
|
$ |
0.01 |
|
Significant non-recurring
charges, net of tax |
$ |
0.07 |
|
|
$ |
0.00 |
|
|
$ |
0.07 |
|
|
$ |
0.00 |
|
Adjusted diluted net (loss)
income per share from continuing operations |
$ |
(0.16 |
) |
|
$ |
0.00 |
|
|
$ |
(0.33 |
) |
|
$ |
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contact
Information: |
|
Investor
Relations: |
Jeff Sonnek |
(646) 277-1263 |
jeff.sonnek@icrinc.com |
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