Landec Corporation Reports Fiscal 2020 First Quarter Results
Fiscal First Quarter 2020 Financial Highlights
First fiscal quarter 2020 results compared to first fiscal quarter 2019 are as follows:
|(Unaudited and in thousands, except per-share data)||Three Months Ended||Change|
|August 25, 2019||August 26, 2018||Amount||%|
|Net (loss) income from continuing operations||(4,784)||335||(5,119)||N/||M|
|Diluted net (loss) income per share||$||(0.16)||$||0.01||$||(0.17)||N/||M|
*See “Non-GAAP Financial Information” at the end of this release for more information and for a reconciliation of certain financial information.
Revenues increased during the first quarter of fiscal 2020 primarily due to the addition of
Gross profit decreased during the first quarter of fiscal 2020 compared to the first quarter of last year primarily due to a
Net income decreased during the first quarter of fiscal 2020 compared to the first quarter of last year due to (1) a
EBITDA decreased during the first quarter of fiscal 2020 compared to the first quarter of last year due to the decrease in gross profit and from an increase in operating expenses primarily from the addition of
|(Unaudited and in thousands)||Three Months Ended||Change|
|August 25, 2019||August 26, 2018||Amount||%|
|Total Gross Profit||$||15,336||$||16,337||$||(1,001)||(6)||%|
|Net (Loss) Income from Continuing Operations:|
|Total Net (Loss) Income from Continuing Operations||$||(4,784)||$||335||$||(5,119)||N/||M|
|EBITDA, excluding Windset FMV change:|
|Total EBITDA excluding Windset FMV change||$||314||$||3,301||$||(2,987)||(90)||%|
Update on Curation Foods Operational Initiatives Aligned with Company Priorities to Improve Profitability:
- Innovation: Focus on high-margin products and initiatives
- Yucatan Guacamole® Squeeze: Launched a new, first-of-its-kind packaged guacamole product in a flexible squeeze pouch that allows for greater usage, convenience and extended shelf life for reduced waste.
- BreatheWay® Technology: Evolved the 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.
- Operational Excellence and Productivity: Continuous improvement throughout the supply chain and across all operations
- Cost-out: Achieved cost savings target for
Curation Foodsfor the first quarter by investing in automation and productivity with the goal of achieving cost savings of $18 million to $20 millionfor all of fiscal 2020.
- Produce Sourcing: Implemented new produce sourcing strategies to increase the over planting of key produce items in order to help mitigate shortages, along with the unplanned costs associated with produce shortages and help ensure the Company can meet current customer demand and allow for increased demand.
- Yucatan Operations Improvement: Started production the week of
September 9th, over three months earlier than last year when the start-up was delayed due to the acquisition. This early production start-up has already resulted in purchasing avocados at 50% less than we were paying during the first quarter of fiscal 2020.
- Created Project Management Office (PMO): Hired Jeff Korengel as our new VP of Project Management to oversee all of the responsibilities of the PMO with the goal of completing projects on time and budget. Jeff’s initial focus will be on Curation Foods’ network optimization, specifically on its packaged vegetables in bags and trays business.
- Enhancing Food Quality and Safety: Hired Ann Baker as the Company’s new VP of Quality and Food Safety who will be overseeing the processes and execution of enhancing food safety and quality programs across all Curation Foods brands in the U.S. and
- Cost-out: Achieved cost savings target for
- Sustainability: Launched the
Landec2019 Sustainability Handbook charting the Company’s corporate responsibility initiatives to respect people, protect the planet and create shareholder value.
Update on Lifecore Momentum for Topline Growth:
- Grow Business Development Pipeline: Development pipeline contributed a 49% year over year increase in quarterly revenue.
- Capacity Expansion: Investing in optimization of multi-use filling line.
- Commercialization: Making substantial progress in moving late stage customers from Phase 3 development to commercialization
Outlook and Fiscal 2020 Guidance (see Questions & Answers section at the end of this release for further details)
Greg Skinner Landec’s EVP of Finance and CFO commented, “We are reiterating our full year fiscal 2020 guidance and providing our forecast for fiscal second quarter. We plan to generate substantial profits in the second half of the fiscal year due to the timing of revenues and profits at Lifecore, the timing of revenues and profits from the sale of avocado products, and due to a large majority of the projected cost savings from our cost out initiatives 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 reduce our leverage. We were in compliance with all our debt covenants at quarter end and expect to be in compliance going forward.”
The Company is reiterating its full year fiscal 2020 guidance as follows:
- Consolidated revenues from continuing operations to grow 8% to 10% 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 fiscal second quarter 2020 guidance as follows:
- Revenues to be
$142 million to $146 million
- Net loss per share of
$0.04 to $0.06due to certain shipments for Lifecore, O and avocado products expected for the second quarter shifting to the third quarter and a portion of the cost out savings for the second quarter delayed to the second half
- EBITDA to be in the range of
$4 million to $5 million
“I have confidence in our guidance for fiscal 2020. At Lifecore, we will continue to expand and advance our development pipeline and invest in capacity to meet projected future demand. At
The 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.
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) 277-1254.
A replay of the call will be available through
Non-GAAP Financial Information
This press release contains non-GAAP financial information relating to EBITDA. The Company has included a reconciliation 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. 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. This non-GAAP financial measure should not be considered in isolation or as a substitute for the comparable GAAP measures. In addition, this non-GAAP financial measure 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 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, government regulations affecting our business; the timing of regulatory approvals, the ability to successfully integrate
CONSOLIDATED CONDENSED BALANCE SHEETS
|August 25, 2019||May 26, 2019|
|Cash and cash equivalents||$||1,990||$||1,080|
|Accounts receivable, net||61,402||69,565|
|Prepaid expenses and other current assets||12,150||8,264|
|Total Current Assets||130,562||133,041|
|Investment in non-public company||61,100||61,100|
|Property and equipment, net||201,557||200,027|
|Customer relationships, net||14,807||15,319|
|LIABILITIES AND STOCKHOLDERS' EQUITY|
|Other accrued liabilities||8,790||10,001|
|Current portion of lease liabilities||3,601||75|
|Line of credit||70,600||52,000|
|Current portion of long-term debt||9,791||9,791|
|Other current liabilities, discontinued operations||—||65|
|Total Current Liabilities||146,831||137,091|
|Long-term debt, less current portion||84,748||87,193|
|Long-term lease liabilities||30,026||3,532|
|Other non-current liabilities||1,899||1,738|
|Additional paid-in capital||160,814||160,341|
|Accumulated other comprehensive income||(548)||64|
|Total Stockholders’ Equity||264,947||270,144|
|Total Liabilities and Stockholders’ Equity||$||546,137||$||519,091|
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In thousands, except per-share data)
|Three Months Ended|
|August 25, 2019||August 26, 2018|
|Cost of product sales||123,378||108,331|
|Operating costs and expenses:|
|Research and development||2,821||2,791|
|Selling, general and administrative||16,895||13,803|
|Total operating costs and expenses||19,716||16,594|
|Net (loss) income from continuing operations before taxes||(6,149)||444|
|Income tax benefit (expense)||1,365||(109)|
|Net (loss) income from continuing operations||(4,784)||335|
|Loss from discontinued operations||—||(190)|
|Income tax benefit||—||45|
|Loss from discontinued operations||—||(145)|
|Net (loss) income available to common stockholders||$||(4,784)||$||190|
|Diluted net (loss) income per share from continuing operations||$||(0.16)||$||0.01|
|Diluted net (loss) per share from discontinued operations||$||—||$||—|
|Diluted net (loss) income per share||$||(0.16)||$||0.01|
|Shares used in diluted per share computations||29,139||28,020|
FIRST QUARTER ENDED
QUESTIONS & ANSWERS
1) What gives you confidence you can go from a loss for the first six months of fiscal 2020 to your EPS guidance of
There are five primary factors that gives us confidence in being able to achieve our fiscal 2020 EPS guidance:
a. Lifecore plans 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. And Lifecore has a very good track record of meeting or exceeding its plan on a fiscal year basis.
b. Avocado products production began over three months earlier than last year with a fully trained labor force which will result in a much higher level of efficiency and productivity. Starting production this early will also allow us to complete production in the late April to early May timeframe before the cost of avocados typically increase.
c. A large majority of the projected
d. New initiatives we have implemented in the area of food safety, new packaging, network optimization and information technology are going to start benefiting the Company in the second half of fiscal 2020 and beyond.
e. We expect the growth of salads to accelerate during the second half of fiscal 2020 and we expect green beans to rebound from the sourcing issues experienced during the first quarter of fiscal 2020 and be profitable for the remainder of the year.
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
The cost savings realized during fiscal 2020 from the cost out initiatives will be used to offset projected price increases, primarily due 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 we believe is more than adequate to cover sourcing issues during the last three quarters of fiscal 2020.
4) What is the Company’s current leverage ratio and borrowing capacity?
At the end of the first quarter of fiscal 2020 the Company’s debt-to-equity ratio was 62% and our debt-to-tangible assets ratio was 39%. Our fixed coverage ratio at the end of the first quarter of fiscal 2020 was 1.9 which is well above our covenant of 1.2 or greater. Our leverage ratio at the end of the first quarter of fiscal 2020 was 4.4, and our debt covenant is 4.5 or less. At the end of the first quarter our borrowing availability was less than
5) What is the Company’s plan for reducing its leverage ratio and/or debt during fiscal 2020?
The Company is in late stage discussions with its banks (
6) 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 Foodscore 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: Commitment to the customer by creating a Project Management Office 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.
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.
|(Unaudited and in thousands)||Three Months Ended|
|August 25, 2019||August 26, 2018|
|Net (loss) income from continuing operations||$||(4,784)||$||335|
|FMV change in Windset investment||—||(1,000)|
|Net interest expense||2,050||712|
|Total EBITDA excluding Windset FMV change||$||314||$||3,301|
|At the Company:||Investor Relations:|
|Gregory S. Skinner||Jeff Sonnek|
|Executive Vice President Finance and Administration and CFO||(646) 277-1263|
Source: Landec Corporation