Landec Corporation Reports Fourth Quarter and Fiscal 2019 Results
“Both revenues and gross profit increased during the fourth quarter and fiscal year 2019 while adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) increased 19% during the fourth quarter compared to the fourth quarter of last year and increased slightly for the fiscal year compared to fiscal 2018,” stated Dr.
“Lifecore provided another year of strong performance in fiscal 2019, with revenues growing 16% and EBITDA growing 13% compared to fiscal 2018,” said
“At Curation Foods, our fiscal 2020 strategy focuses on strengthening our core brands while also continuing to mitigate the cost pressures facing our industry,” continued Bolles. “Our efforts will be on growing our higher margin products, growth that makes us better before bigger. By instituting a more focused strategy, we have a framework for revenue and EBITDA growth that is sustainable. This profitable growth path began at the end of fiscal 2019 with the simplification of our
“We are excited about our plans to drive profitable growth in fiscal 2020, as we look to deliver long-term shareholder value by executing against our profitable growth plan for
Fourth Fiscal Quarter 2019 Consolidated Results from Continuing Operations Compared to Fourth Fiscal Quarter 2018
- Revenues increased 8% to
- Gross profit increased 6% to
- Net income per share, including the impact of non-recurring charges, decreased to
$0.01per diluted share compared to $0.24per diluted share in the year ago quarter
- Adjusted EBITDA (detailed in the reconciliation table at the end of this release) increased 19% to
$11.8 millioncompared to $9.9 millionin the year ago quarter
During the fourth quarter of fiscal 2019 the Company incurred non-recurring charges from the write off of its GreenLine tradename that was being used for foodservice green bean products, the write off of assets associated with its EatSmart@Home e-commerce business and severance related expenses. These charges resulted in a
Fiscal 2019 Consolidated Results from Continuing Operations Compared to Fiscal 2018
- Revenues increased 6% to
- Gross profit increased 3% to
- Net income per share, including the impact from non-recurring charges, decreased to
$0.07per diluted share compared to $0.92per diluted share last year which included a $0.51per share tax benefit
- Adjusted EBITDA increased 1% to
$26.1 millioncompared to $25.7 millionlast year
During fiscal 2019, in addition to the
“Our capital allocation priorities remain focused on supporting the growth of both of our operating businesses while balancing that with efforts to reduce our leverage,” stated
Key Segment Results for the Fourth Quarter of Fiscal 2019
Following is a summary of key fourth quarter results from continuing operations by reportable segment. All comparisons are with the fourth quarter of fiscal 2018, unless otherwise stated.
- Revenues increased 49% to
- Gross profit increased 40% to
Lifecore’s revenues increased during the fourth quarter of fiscal 2019 due to a 17% increase in business development revenues, a 67% increase in aseptic fill revenues and from a 54% increase in fermentation revenues driven by revenues from new customers and an increase in demand from existing customers.
Lifecore’s gross profit increased during the fourth quarter of fiscal 2019 as a result of increased revenues partially offset by a shift in product mix to a higher percentage of the growth coming from lower margin aseptic filling sales.
- Revenues increased 3% to
- Gross profit decreased 11% to
See “Non-GAAP Financial Information” below and the tables at the end of this release for more information and for reconciliations of certain financial information for fiscal 2019 and fiscal 2018 results to the most directly comparable financial measures calculated in accordance with generally accepted accounting principles in the U.S. (GAAP).
Management Comments and Fiscal 2020 Guidance (see Questions & Answers section at the end of this release for further details)
Bolles stated, “During fiscal 2020, we will continue to invest in innovation while shifting our focus toward improving profitability by streamlining our project pipeline and allocating our capital expenditures to support the success of a few select projects. We will have a commitment to operational excellence with an emphasis on productivity to increase margins while fostering a culture of sustainability.”
“For fiscal 2020, we are projecting consolidated revenues from continuing operations to grow 8% to 10% driven by expectations for Lifecore to grow 10% to 12% and Curation to grow 8% to 10%,” continued Skinner. “We are projecting consolidated earnings per share for fiscal 2020 to be
“For the first quarter of fiscal 2020, we expect revenues to be
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Non-GAAP Financial Information
This press release contains non-GAAP financial information relating to adjusted EBITDA. The Company has included reconciliations of this non-GAAP financial measure to the most directly comparable financial measure calculated in accordance with GAAP. See the end of this release for these reconciliations.
The Company has disclosed this non-GAAP financial measure to supplement its consolidated financial statements presented in accordance with GAAP. This non-GAAP financial measure excludes/includes certain items that are included in the Company’s results reported in accordance with GAAP, including the loss incurred during fiscal 2019 from the acquisition of
Important Cautions Regarding Forward-Looking Statements
Except 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, the timing of regulatory approvals, the ability to successfully integrate Yucatan Foods into the Landec 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.
|At the Company:||Investor Relations:|
|Gregory S. Skinner||Jeff Sonnek|
|Executive Vice President Finance and CFO||(646) 277-1263|
|CONSOLIDATED CONDENSED BALANCE SHEETS|
|(Unaudited, in thousands)|
|Cash and cash equivalents||$||1,080||$||2,899|
|Accounts receivable, net||69,565||53,877|
|Prepaid expenses and other current assets||8,264||7,958|
|Other current assets, discontinued operations||—||510|
|Total Current Assets||133,041||97,063|
|Investment in non-public company||61,100||66,500|
|Property and equipment, net||200,027||159,624|
|Customer relationships, net||15,319||5,814|
|LIABILITIES AND STOCKHOLDERS' EQUITY|
|Other accrued liabilities||10,076||8,706|
|Line of credit||52,000||27,000|
|Current portion of long-term debt||9,791||4,940|
|Other current liabilities, discontinued operations||65||458|
|Total Current Liabilities||137,091||88,375|
|Long-term debt, less current portion||87,193||37,360|
|Capital lease obligation, less current portion||3,532||3,641|
|Other non-current liabilities||1,738||5,280|
|Additional paid-in capital||160,341||142,087|
|Accumulated other comprehensive income||64||1,148|
|Total Stockholders’ Equity||270,144||252,562|
|Total Liabilities and Stockholders’ Equity||$||519,091||$||404,703|
|CONSOLIDATED CONDENSED STATEMENTS OF INCOME|
|(In thousands, except per-share data)|
|Three Months Ended||Twelve Months Ended|
|Cost of product sales||126,568||116,267||476,556||445,889|
|Operating costs and expenses:|
|Research and development||3,461||3,596||11,466||12,800|
|Selling, general and administrative||20,271||13,139||64,062||51,951|
|Total operating costs and expenses||23,732||16,735||75,528||64,751|
|Net income from continuing operations before taxes||969||8,702||3,640||16,398|
|Income taxes (expense) benefit||(602||)||(1,989||)||(1,518||)||9,363|
|Net income from continuing operations||367||6,713||2,122||25,761|
|Loss from discontinued operations||(823||)||(850||)||(2,238||)||(1,188||)|
|Income tax benefit||194||250||527||350|
|Loss from discontinued operations||(629||)||(600||)||(1,711||)||(838||)|
|Net (loss) income||(262||)||6,113||411||24,923|
|Non-controlling interest expense||—||(4||)||—||(94||)|
|Net (loss) income available to common stockholders||$||(262||)||$||6,109||$||411||$||24,829|
|Diluted net income per share from continuing operations||$||0.01||$||0.24||$||0.07||$||0.92|
|Diluted net loss per share from discontinued operations||$||(0.02||)||$||(0.02||)||$||(0.06||)||$||(0.03||)|
|Diluted net (loss) income per share||$||(0.01||)||$||0.22||$||0.01||$||0.89|
|Shares used in diluted per share computations||29,015||28,008||28,607||27,915|
FOURTH QUARTER ENDED
QUESTIONS & ANSWERS
1) Why are you projecting a loss for the first half of fiscal 2020?
There are five primary factors impacting the first half of fiscal 2020 resulting in a projected loss for the first half whereas the second half is projected to generate substantial net income:
a. We expect Lifecore to recognize approximately 65% of its revenues and 80% of its operating income during the second half of fiscal 2020, in line with historical results based on customer order patterns. We are projecting that Lifecore will realize a loss during the first quarter of fiscal 2020 and be profitable for the remaining three quarters of fiscal 2020 due to the timing of shipments and production within the year.
b. During fiscal 2019,
c. A large majority of the planned
d. New initiatives being implemented by our new CEO, Dr. Bolles, in the area of food safety, new packaging, network optimization and information technology are going to result in increased expenses during the first half of fiscal year, particularly during the first quarter, that will benefit the Company starting in the second half of fiscal 2020 and beyond.
e. Due to the extremely heavy rains and flooding in the
In addition to the above items, which explain the majority of the timing of net income within the fiscal year, the Company’s interest expense is projected to be approximately
2) What are the expectations for Lifecore’s business development pipeline?
Lifecore currently has approximately fifteen
3) What are the projected cost savings in fiscal 2020 from the Curation Foods’ cost out initiatives?
The cost savings realized during fiscal 2020 from the cost out initiatives will be used to offset projected price increases, primarilydue to increased labor, freight and raw material sourcing costs. In addition, we have set aside in our plan and guidance a contingency for unforeseeable produce sourcing issues which is considerably higher than the contingency we have set aside in prior years.
4) What is the Company’s current leverage ratio and borrowing capacity?
At the end of fiscal 2019 the Company’s debt-to-equity ratio was 55% and our debt-to-tangible assets ratio was 38%. Our fixed coverage ratio at the end of fiscal 2019 was 2.2 which is well above our covenant of 1.2 or greater. Our leverage ratio at the end of fiscal 2019 was 3.7, and our debt covenant is 4.5 or less, which means we had additional borrowing capacity of approximately
5) What is the Company’s plan for reducing its leverage ratio and/or debt during fiscal 2020?
The Company is currently in discussions with its banks and a new bank not currently part of the syndicate to refinance its debt. We are discussing a financing structure that will extend the overall term of our debt and result in a meaningful reduction in the average interest rate on all of our debt. We will disclose in a separate press release if we consummate a new bank arrangement.
6) Why did the investment in Windset decrease to
During the fourth quarter of fiscal year 2019, we exercised our put option and sold back all 70,000 shares of Senior B preferred shares to Windset for
7) What are the fiscal year 2019 losses from discontinued operations related to?
In order to simplify our
8) Why was the earnout liability from the O acquisition reduced by
The earnout payment for the O acquisition is based on the EBITDA for the O business for the three years ended
Despite the sourcing challenges in fiscal 2019, O revenues increased 38% in fiscal 2019 compared to fiscal 2018.
9) What are Landec’s top priorities for the next 12 to 24 months?
Our top priorities over the next 12-24 months are:
- Focus: Manage fewer, high-impact projects that will drive positive EBITDA growth.
- Innovation: Commitment to the consumer with on-trend plant-based food with 100% clean-ingredients from Curation Foods’ core 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: Commitment to the customer by implementing an enterprise-wide operations management system to improve efficiencies throughout the supply chain and operations, with a concentration on network optimization. Initial focus will be on the integration and improvement of
Yucatanand Cabo Freshoperations in Mexico.
- Sustainability: As a mission-based company, continuing to institute and follow business practices that respect people and the planet as part of everyday culture through evolving goals and publishing achievements, in order to further differentiate the company in the market.
10) How do the results by line of business for the three and twelve months ended
|Three Months Ended||Twelve Months Ended|
|May 26, 2019||May 27, 2018||May 26, 2019||May 27, 2018|
|Curation Foods (a)||$||128,672||$||124,885||$||481,686||$||458,800|
|Total Gross Profit||26,212||24,809||81,003||78,338|
|Research and Development:|
|Selling, General and Administrative:|
|Operating (Loss) Income before Allocation of Corporate Expenses|
|Total Operating Income before Allocation of Corporate Expenses||2,480||8,074||5,475||13,587|
|Corporate Expenses Allocation:|
|Operating (Loss) Income after Allocations of Corporate Expenses:|
|Total Operating Income after Allocations of Corporate Expenses||2,480||8,074||5,475||13,587|
|EBITDA excluding Windset FMV Change:|
|Total EBITDA excluding Windset FMV Change||$||7,616||$||11,822||$||22,355||$||27,649|
|(a) Includes Curation Foods acquisition and integration related expenses from the acquisition of Yucatan.|
|(b) Includes the O earnout reversal.|
Non-GAAP Financial Information and Reconciliations
The table below presents the reconciliation of a non-GAAP financial measure to the most directly comparable financial measure calculated in accordance with GAAP and other supplemental information. See “Non-GAAP Financial Information” above for further information regarding the Company’s use of non-GAAP financial measures.
|Three Months Ended||Twelve Months Ended|
|May 26, 2019||May 27, 2018||May 26, 2019||May 27, 2018|
|FMV Change in Windset Investment||-||(700||)||(1,600||)||(2,900||)|
|Net Interest Expense||1,923||484||5,085||1,739|
|Yucatan Operating Loss (1)||978||-||3,945||-|
|GreenLine Tradename Write-off (non-cash)||2,000||-||2,000||-|
|Severances and related expenses (1)||976||-||976||-|
|EatSmart@Home Writeoffs (non-cash)||274||-||274||-|
|O Earnout reversal (non-cash)||-||(1,900||)||(3,500||)||(1,900||)|
|(1) Non-recurring cash expense||$||1,954||$||—||$||4,921||$||—|
Source: Landec Corporation