Landec Corporation Reports Second Quarter and First Half Fiscal 2020 Results
FISCAL SECOND QUARTER 2020 BUSINESS HIGHLIGHTS
- Revenues of
$142.6 million increased 14% year over year, driven by a 48% and 10% increase inLifecore 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.
During the second quarter, the Company completed a strategic review of its operations to better understand strengths and challenges within its
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
Gross profit decreased during the second quarter of fiscal 2020 compared to the second quarter of fiscal 2019 as a result of a
Net income decreased during the second quarter of fiscal 2020 compared to the second quarter of fiscal 2019 due to: (1) a
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
As of
____________
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
Gross profit decreased during the first six months of fiscal 2020 compared to the same period in fiscal 2019 due to a
Net income decreased during the first six months of fiscal 2020 compared to the first six months of fiscal 2019 due to: (1) a
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 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.
Update on Curation Foods Operational Initiatives Aligned with Company Priorities to Improve Profitability:
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
1) Network & Operational Optimization:
- Consolidating and centralizing
Curation Foods offices into its Innovation Center headquarters inSanta Maria, CA. This decision will result in the shutting down of the leasedLos Angeles, CA Yucatan Foods headquarters, the leasedSanta Clara, CA office and the sale of theSan 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 GUIDANCE4
Dr. 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
4 For further details see Questions & Answers section at the end of this release
Conference Call
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.
Date:
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
About
Non-GAAP Financial Information
This 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 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
(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 | |||
CONSOLIDATED 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 | |||||||||||
SECOND QUARTER ENDED
QUESTIONS & 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
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
- 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 350 basis points, year to date fiscal 2020 compared to year to date 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 andCanada , 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.
- Avocado products revenue in the fourth quarter of fiscal 2020 is forecasted to be
These drivers of revenues and earnings will be partially offset by Landec Corporate allocation expenses which will reduce fiscal fourth quarter EBITDA by
Q2) Excluding the restructuring fees and non-recurring expenses, why did the Company miss its fiscal second quarter projected EPS by
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 theDennis 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
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
- 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 leasedSanta Clara office and its leasedLos Angeles office, which was acquired in theYucatan acquisition. The Company sold itsSan Rafael office and innovation center for$2.4 million , net of commissions. The sale closed onDecember 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
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 itsYucatan Foods production facility inGuanajuato , Mexico. The conduct at issue began prior to Landec’s acquisition ofYucatan Foods inDecember 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
Q5) What action has been taken against strategic priorities at
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® andYucatan ® 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 inMexico . - 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 inNorth 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 forCuration Foods as the Company invests in automation and productivity. - Enhancing Food Quality and Safety: Successful integration of the
Curation Foods standard quality systems inYucatan and Cabo fresh operations inMexico and O brand operations inPetaluma, 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
Q7) What are the expectations for Lifecore’s business development pipeline as a source for
Lifecore currently has approximately 15
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 |
Source: Landec Corporation