Landec Corporation Reports Third Quarter and First Nine Months Fiscal 2020 Results
FISCAL THIRD QUARTER 2020 BUSINESS HIGHLIGHTS:
- Revenues of
$152.9 million , a decrease of 2% year over year - Gross profit of
$20.0 million , a decrease of 7% year over year - Net loss of
$11.5 million , which includes$12.7 million of restructuring and other non-recurring charges, net of tax - Diluted net loss per share of
$0.39 ; adjusted diluted net income per share of$0.04 , which excludes$0.43 per share of restructuring and other non-recurring charges, net of tax - Adjusted EBITDA was
$6.8 million , which excludes$16.8 million of restructuring and other non-recurring charges - Reiterated full-year fiscal 2020 guidance
CEO COMMENTS:
“We implemented significant operational enhancements during the third quarter of fiscal 2020, which resulted in a
FISCAL THIRD QUARTER 2020 RESULTS:
Fiscal third quarter 2020 results compared to fiscal third quarter 2019 are as follows:
(Unaudited and in thousands, except per-share data) | Three Months Ended | Change | ||||||||||||||
2020 |
2019 |
Amount | % | |||||||||||||
Revenues | $ | 152,928 | $ | 155,554 | $ | (2,626 | ) | (2)% | ||||||||
Gross profit | 20,047 | 21,569 | (1,522 | ) | (7)% | |||||||||||
Net (loss) income from continuing operations | (11,518 | ) | 1,533 | (13,051 | ) | N/M | ||||||||||
Diluted net (loss) income per share | (0.39 | ) | 0.05 | (0.44 | ) | N/M | ||||||||||
Adjusted diluted net income per share* | 0.04 | 0.05 | (0.01 | ) | (20)% | |||||||||||
EBITDA* | (10,013 | ) | 7,703 | (17,716 | ) | N/M | ||||||||||
Adjusted EBITDA* | $ | 6,761 | $ | 7,703 | $ | (942 | ) | (12)% | ||||||||
*See “Non-GAAP Financial Information” at the end of this release for more information and for a reconciliation of certain financial information. |
Revenues decreased
Gross profit decreased
Net loss was
Adjusted EBITDA was
SEGMENT RESULTS:
(Unaudited and in thousands) | Three Months Ended | Change | Nine Months Ended | Change | |||||||||||||||||||||||
Amount | % | Amount | % | ||||||||||||||||||||||||
Revenues: | |||||||||||||||||||||||||||
$ | 127,482 | $ | 131,852 | $ | (4,370 | ) | (3)% | $ | 373,906 | $ | 353,014 | $ | 20,892 | 6% | |||||||||||||
Lifecore | 25,446 | 23,702 | 1,744 | 7% | 60,329 | 51,765 | 8,564 | 17% | |||||||||||||||||||
Total Revenues | $ | 152,928 | $ | 155,554 | $ | (2,626 | ) | (2)% | $ | 434,235 | $ | 404,779 | $ | 29,456 | 7% | ||||||||||||
Gross Profit: | |||||||||||||||||||||||||||
$ | 9,162 | $ | 9,993 | $ | (831 | ) | (8)% | $ | 28,874 | $ | 34,570 | $ | (5,696 | ) | (16)% | ||||||||||||
Lifecore | 10,885 | 11,576 | (691 | ) | (6)% | 22,023 | 20,221 | 1,802 | 9% | ||||||||||||||||||
Total Gross Profit | $ | 20,047 | $ | 21,569 | $ | (1,522 | ) | (7)% | $ | 50,897 | $ | 54,791 | $ | (3,894 | ) | (7)% | |||||||||||
Net (Loss) Income from Continuing Operations: | |||||||||||||||||||||||||||
$ | (12,636 | ) | $ | (6,350 | ) | $ | (6,286 | ) | N/M | $ | (23,154 | ) | $ | (4,385 | ) | $ | (18,769 | ) | N/M | ||||||||
Lifecore | 4,910 | 5,835 | (925 | ) | (16)% | 6,974 | 6,586 | 388 | 6% | ||||||||||||||||||
Other | (3,792 | ) | 2,048 | (5,840 | ) | N/M | (6,862 | ) | (447 | ) | (6,415 | ) | N/M | ||||||||||||||
Total Net (Loss) Income from Continuing Operations | $ | (11,518 | ) | $ | 1,533 | $ | (13,051 | ) | N/M | $ | (23,042 | ) | $ | 1,754 | $ | (24,796 | ) | N/M | |||||||||
EBITDA, excluding Windset FMV change: | |||||||||||||||||||||||||||
$ | (12,805 | ) | $ | (3,023 | ) | $ | (9,782 | ) | N/M | $ | (16,763 | ) | $ | 3,180 | $ | (19,943 | ) | N/M | |||||||||
Lifecore | 7,649 | 8,809 | (1,160 | ) | (13)% | 12,599 | 11,764 | 835 | 7% | ||||||||||||||||||
Other | (4,857 | ) | 1,917 | (6,774 | ) | N/M | (7,081 | ) | (205 | ) | (6,876 | ) | N/M | ||||||||||||||
Total EBITDA excluding Windset FMV change | $ | (10,013 | ) | $ | 7,703 | $ | (17,716 | ) | N/M | $ | (11,245 | ) | $ | 14,739 | $ | (25,984 | ) | N/M |
Update on Lifecore:
Lifecore is the Company’s CDMO business focused on product development and manufacturing of sterile injectable products. Lifecore continues to expand its presence in the CDMO marketplace by finding additional opportunities to partner with biopharmaceutical and medical device companies.
1) | Business Development Pipeline Progress: |
Business development revenue in the third quarter of fiscal 2020 increased 50% year-over-year. Lifecore added one new development partner, increasing the projects in its total development pipeline to 16. The projects are generally equally disbursed across the various stages of the product development lifecycle, spanning from early phase clinical development to pre-commercial validation, which aligns with the business’ overall CDMO development strategy. | |
2) | Maximizing Capacity: |
Maximum theoretical capacity remains at 17 million units, with demand of approximately 6.5 million units in fiscal 2020. Based on commercialization timing estimates for the products within the development pipeline, the capacity of 17 million units is projected to be filled over the next 3 to 4 years. Lifecore has the ability to increase manufacturing capacity at its current location to 30 million units annually. | |
3) | Advancing Product Commercialization: |
Lifecore currently expects one product in development to be approved by the FDA for commercialization in calendar year 2020. The FDA recently recommended approval of the Lifecore manufacturing site for this product based on a recent FDA re-inspection that resulted in no 483 observations, which is a key step in its partner’s approval process. |
Update on
1) | Network & Operational Optimization: |
Maximizing efficiency and productivity with the consolidation and centralization of |
|
2) | Focus on Strategic Assets: |
Simplifying the business and divesting non-core assets, including exploring the strategic alternatives for the legacy vegetable and tray business, which generated net sales of |
|
3) | Organizational Redesign: |
Continued refinement of the organization so that it can be competitive with industry benchmarks and appropriate for the Company’s future direction, with a focus on strategic initiatives, developing and elevating internal talent and reducing headcount. |
Project SWIFT provides a framework rooted in solid, achievable goals that align the Company’s resources. As previously announced, once Project SWIFT is fully implemented,
- Curation Foods Organic Revenue Growth: 5%
- Curation Foods Gross Margin: 11% to 14%
- Curation Foods EBITDA Margin: 4% to 6%
BALANCE SHEET & AMENDED CREDIT AGREEMENT:
As previously announced, on
COVID-19 UPDATE:
GUIDANCE:
Excluding restructuring and other nonrecurring charges, tax implications and any potential impact of the COVID-19 pandemic, the Company is reiterating its full year fiscal 2020 guidance, which is detailed below with growth figures that are compared to fiscal 2019:
Revenue from continuing operations:
- Consolidated Revenues: range of
$580 million to$590 million (growth of 4% to 6%) - Lifecore: range
$84 million to$85 million (growth of 10% to 12%) Curation Foods : range of$496 million to$504 million (growth of 3% to 5%)
Adjusted EBITDA:
- Consolidated: range
$30 million to$34 million (growth of 15% to 30%) - Lifecore: range of
$21 million to$23 million (growth of 5% to 15%) Curation Foods : range of$12 million to$14 million (growth of 70% to 90%)
Adjusted diluted net income per share:
- Consolidated: range of
$0.16 to$0.20
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, Adjusted EBITDA, and adjusted net income per share. The Company has included reconciliation of these non-GAAP financial measures to their respective most directly comparable financial measures calculated in accordance with GAAP. See the section entitled “Non-GAAP Financial Information and Reconciliations” in this release for definitions of EBITDA, Adjusted EBITDA, and adjusted net income per share, and those 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. These non-GAAP financial measures should be read in conjunction with the Company’s consolidated financial statements presented in accordance with GAAP.
Important Cautions Regarding Forward-Looking Statements
This press release contains forward-looking statements regarding future events and our future results that are subject to the safe harbor created under the Private Securities Litigation Reform Act of 1995 and other safe harbors under the Securities Act of 1933 and the Securities Exchange Act of 1934. Words such as “anticipate”, “estimate”, “expect”, “project”, “plan”, “intend”, “believe”, “may”, “might”, “will”, “should”, “can have”, “likely” and similar expressions are used to identify forward-looking statements. All forward-looking statements 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, uncertainties related to COVID-19 and the impact of our responses to it, the ability to successfully integrate
Contact Information:
Investor Relations:
(646) 277-1263
jeff.sonnek@icrinc.com
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
2020 |
2019 |
|||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 2,607 | $ | 1,080 | ||||
Accounts receivable, net | 69,763 | 69,565 | ||||||
Inventories, net | 67,059 | 54,132 | ||||||
Prepaid expenses and other current assets | 9,382 | 8,264 | ||||||
Total Current Assets | 148,811 | 133,041 | ||||||
Investment in non-public company | 61,300 | 61,100 | ||||||
Property and equipment, net | 191,782 | 200,027 | ||||||
Operating leases | 25,187 | — | ||||||
77,246 | 76,742 | |||||||
Trademarks/tradenames, net | 29,928 | 29,928 | ||||||
Customer relationships, net | 13,782 | 15,319 | ||||||
Other assets | 2,024 | 2,934 | ||||||
Total Assets | $ | 550,060 | $ | 519,091 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 63,660 | $ | 53,973 | ||||
Accrued compensation | 8,458 | 10,687 | ||||||
Other accrued liabilities | 11,111 | 10,001 | ||||||
Current portion of lease liabilities | 3,900 | 75 | ||||||
Deferred revenue | 618 | 499 | ||||||
Line of credit | 58,500 | 52,000 | ||||||
Current portion of long-term debt | 11,723 | 9,791 | ||||||
Other current liabilities, discontinued operations | — | 65 | ||||||
Total Current Liabilities | 157,970 | 137,091 | ||||||
Long-term debt, less current portion | 104,539 | 87,193 | ||||||
Long-term lease liabilities | 26,757 | 3,532 | ||||||
Deferred taxes | 11,662 | 19,393 | ||||||
Other non-current liabilities | 1,464 | 1,738 | ||||||
Stockholders' Equity: | ||||||||
Common stock | 29 | 29 | ||||||
Additional paid-in capital | 162,077 | 160,341 | ||||||
Retained earnings | 86,394 | 109,710 | ||||||
Accumulated other comprehensive (loss) income | (832) | 64 | ||||||
Total Stockholders’ Equity | 247,668 | 270,144 | ||||||
Total Liabilities and Stockholders’ Equity | $ | 550,060 | $ | 519,091 |
CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND LOSS
(Unaudited and in thousands, except per-share data) | Three Months Ended | Nine Months Ended | |||||||||||||
2020 |
2019 |
2020 |
2019 |
||||||||||||
Product sales | $ | 152,928 | $ | 155,554 | $ | 434,235 | $ | 404,779 | |||||||
Cost of product sales | 132,881 | 133,985 | 383,338 | 349,988 | |||||||||||
Gross profit | 20,047 | 21,569 | 50,897 | 54,791 | |||||||||||
Operating costs and expenses: | |||||||||||||||
Research and development | 2,747 | 2,739 | 8,390 | 8,005 | |||||||||||
Selling, general and administrative | 18,783 | 15,588 | 54,000 | 43,791 | |||||||||||
Restructuring costs | 13,528 | — | 13,934 | — | |||||||||||
Total operating costs and expenses | 35,058 | 18,327 | 76,324 | 51,796 | |||||||||||
Operating (loss) income | (15,011 | ) | 3,242 | (25,427 | ) | 2,995 | |||||||||
Dividend income | 281 | 413 | 843 | 1,238 | |||||||||||
Interest income | 46 | 34 | 96 | 113 | |||||||||||
Interest expense | (2,211 | ) | (1,771 | ) | (6,455 | ) | (3,275 | ) | |||||||
Other income, net | 67 | — | 61 | 1,600 | |||||||||||
Net (loss) income from continuing operations before tax | (16,828 | ) | 1,918 | (30,882 | ) | 2,671 | |||||||||
Income tax benefit (expense) | 5,310 | (385 | ) | 7,840 | (917 | ) | |||||||||
Net (loss) income from continuing operations | $ | (11,518 | ) | $ | 1,533 | $ | (23,042 | ) | $ | 1,754 | |||||
Discontinued operations: | |||||||||||||||
Loss from discontinued operations | — | (609 | ) | — | (1,415 | ) | |||||||||
Income tax benefit | — | 143 | — | 333 | |||||||||||
(Loss) from discontinued operations, net of tax | — | (466 | ) | — | (1,082 | ) | |||||||||
Net (loss) income applicable to common stockholders | $ | (11,518 | ) | $ | 1,067 | $ | (23,042 | ) | $ | 672 | |||||
Diluted net (loss) income per share from continuing operations | $ | (0.39 | ) | $ | 0.05 | $ | (0.79 | ) | $ | 0.06 | |||||
Diluted net (loss) per share from discontinued operations | $ | — | $ | (0.01 | ) | $ | — | $ | (0.04 | ) | |||||
Diluted net (loss) income per share | $ | (0.39 | ) | $ | 0.04 | $ | (0.79 | ) | $ | 0.02 | |||||
Shares used in diluted per share computations | 29,170 | 29,151 | 29,155 | 28,399 |
Non-GAAP Financial Information and Reconciliations
EBITDA, Adjusted EBITDA, and adjusted net income per share are non-GAAP financial measures. We define EBITDA as earnings before the fair market value change of the Company’s investment in Windset, interest expense, income tax expense, and depreciation and amortization. We define as Adjusted EBITDA as EBITDA before certain restructuring and other non-recurring charges. We define adjusted diluted net income per share as diluted net income per share before certain restructuring and other non-recurring charges, net of tax. The table below presents the reconciliation of these non-GAAP financial measures to their respective 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 | Nine Months Ended | |||||||||||||
2020 |
2019 |
2020 |
2019 |
||||||||||||
Net (loss) income from continuing operations | $ | (11,518 | ) | $ | 1,533 | $ | (23,042 | ) | $ | 1,754 | |||||
FMV change of investment in Windset | — | — | (200 | ) | (1,600 | ) | |||||||||
Interest expense, net of interest income | 2,165 | 1,737 | 6,359 | 3,162 | |||||||||||
Income tax (benefit) expense | (5,310 | ) | 385 | (7,840 | ) | 917 | |||||||||
Depreciation and amortization | 4,650 | 4,048 | 13,478 | 10,506 | |||||||||||
Total EBITDA | (10,013 | ) | 7,703 | (11,245 | ) | 14,739 | |||||||||
Restructuring and other non-recurring charges | 16,774 | — | 19,145 | — | |||||||||||
Total Adjusted EBITDA | $ | 6,761 | $ | 7,703 | $ | 7,900 | $ | 14,739 |
(Unaudited and in thousands) | Three Months Ended | Nine Months Ended | |||||||||||||
2020 |
2019 |
2020 |
2019 |
||||||||||||
Diluted net (loss) income per share from continuing operations | $ | (0.39 | ) | $ | 0.05 | $ | (0.79 | ) | $ | 0.06 | |||||
Restructuring and other non-recurring charges, net of tax, per diluted share | $ | 0.43 | $ | — | $ | 0.50 | $ | — | |||||||
Adjusted diluted net (loss) income per share from continuing operations | $ | 0.04 | $ | 0.05 | $ | (0.29 | ) | $ | 0.06 |
(Unaudited and in thousands) | Lifecore | Other | Total | ||||||||||||
Three Months Ended |
|||||||||||||||
Net (loss) income from continuing operations | $ | (12,636 | ) | $ | 4,910 | $ | (3,792 | ) | $ | (11,518 | ) | ||||
FMV change of investment in Windset | — | — | — | — | |||||||||||
Interest expense, net of interest income | 1,376 | — | 789 | 2,165 | |||||||||||
Income tax (benefit) expense | (4,901 | ) | 1,467 | (1,876 | ) | (5,310 | ) | ||||||||
Depreciation and amortization | 3,356 | 1,272 | 22 | 4,650 | |||||||||||
Total EBITDA | (12,805 | ) | 7,649 | (4,857 | ) | (10,013 | ) | ||||||||
Restructuring and other non-recurring charges | 12,704 | — | 4,070 | 16,774 | |||||||||||
Total Adjusted EBITDA | $ | (101 | ) | $ | 7,649 | $ | (787 | ) | $ | 6,761 | |||||
Nine Months Ended |
|||||||||||||||
Net (loss) income from continuing operations | $ | (23,154 | ) | $ | 6,974 | $ | (6,862 | ) | $ | (23,042 | ) | ||||
FMV change of investment in Windset | (200 | ) | — | — | (200 | ) | |||||||||
Interest expense, net of interest income | 4,097 | — | 2,262 | 6,359 | |||||||||||
Income tax (benefit) expense | (7,210 | ) | 1,920 | (2,550 | ) | (7,840 | ) | ||||||||
Depreciation and amortization | 9,704 | 3,705 | 69 | 13,478 | |||||||||||
Total EBITDA | (16,763 | ) | 12,599 | (7,081 | ) | (11,245 | ) | ||||||||
Restructuring and other non-recurring charges | 13,908 | — | 5,237 | 19,145 | |||||||||||
Total Adjusted EBITDA | $ | (2,855 | ) | $ | 12,599 | $ | (1,844 | ) | $ | 7,900 | |||||
Three Months Ended |
|||||||||||||||
Net (loss) income from continuing operations | $ | (6,350 | ) | $ | 5,835 | $ | 2,048 | $ | 1,533 | ||||||
FMV change of investment in Windset | — | — | — | — | |||||||||||
Interest expense, net of interest income | 1,138 | — | 599 | 1,737 | |||||||||||
Income tax (benefit) expense | (686 | ) | 1,946 | (875 | ) | 385 | |||||||||
Depreciation and amortization | 2,875 | 1,028 | 145 | 4,048 | |||||||||||
Total EBITDA and Adjusted EBITDA | $ | (3,023 | ) | $ | 8,809 | $ | 1,917 | $ | 7,703 | ||||||
Nine Months Ended |
|||||||||||||||
Net (loss) income from continuing operations | $ | (4,385 | ) | $ | 6,586 | $ | (447 | ) | $ | 1,754 | |||||
FMV change of investment in Windset | (1,600 | ) | — | — | (1,600 | ) | |||||||||
Interest expense, net of interest income | 1,940 | — | 1,222 | 3,162 | |||||||||||
Income tax (benefit) expense | 116 | 2,196 | (1,395 | ) | 917 | ||||||||||
Depreciation and amortization | 7,109 | 2,982 | 415 | 10,506 | |||||||||||
Total EBITDA and Adjusted EBITDA | $ | 3,180 | $ | 11,764 | $ | (205 | ) | $ | 14,739 |
THIRD QUARTER ENDED
Q1) | What terms changed with the Company’s latest Amendment to the Credit Agreement? | |
On |
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Q2) | What are the potential business impacts of COVID-19 | |
1. | Financial Impact: Given the ongoing uncertainty surrounding the duration, magnitude and geographic reach of COVID-19 pandemic, we are unable to accurately forecast the impact on the Company’s financial performance. While it is too early to project outcomes, business has remained largely unaffected at Lifecore. For the |
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2. | Risk Mitigation: At each of the Company’s business units, the emergency preparedness teams monitor the situation on a real-time basis and are focused on areas that have potential to impact the ongoing operations of the business, including but not limited to, raw material sourcing, shifting demand, continuity of workforce, product distribution, new product innovation and development, and sales, general and administrative. | |
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 |
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1. | Network & Operational Optimization: Maximizing efficiency and productivity with the consolidation and centralization of |
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2. | Focus on Strategic Assets: Simplifying the business and divesting non-core assets, includes exploring strategic alternatives for the vegetable and tray business, together with intent to divest the Company’s assets related to the Company's |
|
3. | 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 |
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In summary, the Company expects to realize total annualized cost savings from these actions of |
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Q4) | Would you describe the actions that caused the non-recurring charges in fiscal second quarter and third quarter of 2020? | |
1. | Yucatan Foods Related Expenses: As previously disclosed, the Company discovered and reported to |
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2. | Cost Out Program: As part of the previously announced |
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In summary, in the third quarter and first nine months of fiscal 2020, the Company incurred non-recurring charges associated with cost out initiatives and the acquisition of |
Source: Landec Corporation