LNDC - Earnings call transcript Q2 2018 | Lifecore Biomedical, Inc.

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Operator

Good day, ladies and gentlemen, and welcome to the Landec Corporation's Second Quarter Fiscal Year 2018 Earnings Conference Call. [Operator Instructions] As a reminder, today's program is being recorded. I would now like to introduce your host for today’s program, Molly Hemmeter, Landec's President and Chief Executive Officer. Please go ahead.

Molly Hemmeter

Good morning, and thank you for joining Landec's second quarter fiscal year 2018 earnings call. call Greg the Financial Landec's on Officer. me today Skinner, is Chief With

we statements Company's to make risks today’s Exchange our may During call, Securities the forward-looking for risks outlined that and fiscal cause filings with These including and could that XX-K actual materially. results the differ Commission, are in Form uncertainties certain involve XXXX.

Salad, packaged the solid growth leading wellness Lifecore of million solutions, original to of net storms That during or fiscal during negatively Smart drive fiscal $X.X our fresh this and said, platforms, and in strategic Landec hurricanes resulting fiscal exceed by for three health in growth Food produce diversified second innovator its higher biomaterials. As our these our were a vegetable projected aftermath the within products and second profit businesses year. quarter. our business Natural being Eat to tropical projections continues of and Each costs sourcing growth income are quarter unexpected in gross impacted meet

beans beans, November to the with supply on driving green press quality release higher the throughout shortages the XXXX, industry. outlined in of significant As sourcing most green company's cost extensive the XX, and factor leading

half Smart packaged a expect vegetable of Apio, year. kits in Smart green no fiscal demand X% XXXX compared best for last sales Eat as meet increased of increased last XXXX. robust the XXXX business Commodity increased nor ACV the for from was X% packaged vegetables and weeks been primarily same supply our in U.S. Eat will more our for growth the salad to respectively, has is All ability. second salad salads, first ability Eat sequentially points revenues and its to due Eat half XX% offerings. the As management in for in first ending doubled compared to beans in and is was that XX, ACV in periods Kroger to needs quarter normal Smart to XX% this periods disruptions by basis monitor increase up At weeks others. second to growth and driven there the retail accounts XX to It salads for the the we continue by salad This time, October was the increase The XXXX supply salads in expanded to customer a same our XX% in revenues This of of and Fresh start, is fiscal XX% off to returned year. U.S. U.S. driven XX% Market from from XX% to to fresh Volume as which sourcing XXX XX, quarter pattern, Smart July channel. product distribution does the or to The XX fulfill note disruption our multi-serve ended during of future important the Walmart, and such key Retail

selling salad customer. We single-serve five Target products, month, Ups! pleased the Smart Eat that top will and are Shake Target Target's is in announce salads offering stores salad including Eat salad XXX Starting to four newest Smart our to nine Corporation begin multi-serve approximately of U.S. this kits,

in the Smart Ups! to the Kale their three products. Sweet single-serve two now entered category Eat available Salad Asian the we single-serve Salad additional Due XXXX, year salads, Shake Sesame salad are success, calendar offerings. During the with and

delicious is of medical performance growth of materials. ways with and of by XXXX capabilities revenues for operating At and first formulation to the months the of met operating six million manufacturing its As more aseptic revenues an brand. supplier million. providing to with our first easy a historical operating or as difficult-to-handle a differentiated grow, income fully of of Smart million XXXX or contract continues organization services integrated and Lifecore’s $XXX,XXX. $XX.X and was distribution O of the $X.X reach consistent its hyaluronic premium business CDMO, beyond awareness fill fueled through being of acid Eat six Olive, expectations vegetables will with for expansion HA fermentation, fiscal become expectations months of development $X.X grow we consumers fiscal with and be Lifecore to able the to eat to loss and

organization America are to relationships distribution Olive to Smart the customers salesforce gain leverage currently integrating Smart with focused Eat base for Eat and Olive. new O the the O customer and We on North throughout new

into and detail me go some fiscal our Before Greg financial over turn more plans XXXX call the for let beyond, about to for I highlights.

Greg Skinner

$XXX,XXX year increase primarily quarter X% fresh Thank you, XX% and were everyone. decrease result than costs $X.X tropical and in million the in was Apio's result business, XXXX morning, Apio’s as of $X.X the fiscal decrease of first, share to or These the XX% in to lower margin was income Apio's Molly, in a second a Revenues ago in at per in million offset in a packaged business, planned, slight decrease The business. $X.X was the The due $XXX.X a XXXX during of quarter. revenues million quarter. transition due profit $X.XX increase in per increases or but $X.X which quarter. at good hurricanes million vegetables $X.XX export our in $X.X or storms business gross revenues million LIBOR. to was the were greater in package fresh million the year vegetable the strategy $XXX.X increase and by fiscal in higher a $XX.X of or million million ago share Net second or sourcing compared consistent with quarter margin to flat to compared essentially to

export an value in the due activities, R&D were lower to profit Second, revenues. by the offset to during ago expenses. year partially decrease net the income in decreases increase These company’s of first, And Windset a second no partially consolidated in lower expenses in compared market quarter. increase million a due increase third, of a $X.X increase in to $X offset SG&A XXXX $XXX,XXX gross operating investment quarter million by fiscal fair the export in

Second, from a $X.X million debt write-off an of debt the of the of quarter issuance refinancing year. amortized second cost during last

Revenues by at of packaged revenues fiscal million to same million months The was second year. in a which produced in gross Third, cost, fourth, decrease period primarily in a decreased $XX.X first a a incremental in the $XXX.X tropical the vegetable profit $XXX,XXX $XXX.X a six in first Lifecore. the of was $X.XX at And months in in $XXX,XXX gross XXXX the the higher $X.X expenses. $X.X million of first the result the of $X.X hurricanes income export million in X% Net than million tax quarter due fiscal impacting fiscal offset months $X business, six income or was or $X $X.XX fresh fiscal million increase last compared per or XX% X% business, Apio’s or in revenues result increase first XXXX $XX.X from the million primarily XXXX. vegetable of decrease increase decrease six Apio’s in share was sourcing and storms in million primarily due in of in XXXX. decrease business to a partially share to by X% fresh or expected as Apio’s per packaged and million to Lifecore. profit The decrease

export in decrease million gross to export $X.X a lower revenues. Second, profits due

$X.X six an were product year. million Third, income to the the a in the net the compared lower increase Windset in last the the offset decrease at expenses fiscal $X.X overhead mix during Windset months offset in of first by to increase of unfavorable consolidated partially of last Lifecore, of operating six value shift to first fourth, months first million of first a no a six and six first decreases to company’s million partially activities, And due the in These investment an of $X.X XXXX R&D expenses. investment gross in months company’s increase increase by, market absorption due the six during in year. months fair profit compared lower months first SG&A

million income tax in costs second refinancing last the from debt of during a million of $X.X of $X.X quarter the issuance decrease write-off a expenses. unamortized debt year. Second, And third,

$X.X million to Turning capacity $X.X the totaled at the position, $X.X million end expansion of after equipment million in of $XX first second our months months of on guidance. six reiterating of cash property fiscal of and available for our million during XXXX, fiscal equipment our receiving the financial primarily investing for increase under million of XXXX, property and are and in borrowings borrow At quarter net XXXX, projections expected cash fiscal fiscal we $X.X Investments to credit. from the November the XXXX. during are had operations, we XX, generating in of fiscal six XXXX. remainders to Based our XXXX lines significantly last

realized growth each We our to in Partially and increase growth Olive driven businesses. million XXXX business is goals X% Apio’s growth period. million expected XXXX. to for to X% fiscal million in revenues $XX.X the of a is three compared its Apio’s annual continue expected to and salad, XXXX. $XX during decrease which in being fiscal growth Smart or that to consolidated decrease O core revenues was is six expect to growth this Most $XX fiscal offsetting during of in the revenues platforms, to Lifecore, This by of months meet exceed first XXXX Eat fiscal export the this is all in the decrease margin lower due export

will of the now our also million. compared in $X our investment change value million to market original million that to be guidance We $X fair expect $X Windset

to continue range to XX% share to XXXX, $X.XX per fiscal We compared fiscal to in XX% an consolidated estimated to income in XXXX, $X.XX. increase at earnings project resulting net

We expect million. of million, and $XX $XX capital $XX operations from $XX of expenditures consolidated million to flow to million cash

$XXX For XX%. third the of in to Therefore, of January fiscal should $XXX be to to range per to will consolidated fiscal lower XXXX, have quarter tax be third in consolidated fourth into approximately It overall approximately and the and to third a will to will the which XX% the to income revenues of approximately both effect for our fiscal the estimating we in resulting net the effective we rate, be And rate that of tax quarterly new went million we XX%. because X, tax quarter for that XX% $X.XX share. fourth $X.XX federal million, an rate are XXXX rate quarter quarters, XX% rate on expect noted be tax be XXXX, XX%.

Let Molly. the me turn call over to back

Molly Hemmeter

CDMO. integrated evolve to a last guidance $XX XX% will $XX Lifecore is high a our supplier versus Since we one Landec’s compared while year this continues over a from products grown three X%. of our gross revenues other million Lifecore that from million, specialty and fuel will million XXXX time we HA approval, $XX we manufacturing. CDMO seeking fiscal new forecasting with material initial and growth its Due model, a fiscal platforms, integrated Greg. Lifecore number growth forecast updated to being services revenues of continuing pharmaceutical in between to X% Lifecore, Thanks, revenue among XXXX EBITDA our X% last to than to as for now in will medical performance projects Lifecore’s fully well-positioned growth. long-term margins fully XX% XX% from Lifecore, of have trend FDA Lifecore of benefiting of companies, outsource have to that XX%. and is maintain its are to XXXX of Lifecore million growing a of than pipeline growing now With million and expected With of Lifecore deliver tripled $XX.X to our $X.X business the fiscal expect revenues expected and acquisition stronger year to in to increasing over to during EBITDA period. with industry augment to year to business, more are its

next Salad to growth add revenue Smart on sales our are existing Lifecore expand five We over high currently their to in commercialize products they that growth customers, the Eat customers, to also second average and continue double-digit years, represent products expect new platform. development as generate pipeline.

is kits market retail approximate U.S. for retail the market our Our $X.X kits and in increase in XX% eating within market. share U.S. salad kit of of Costco. Smart trend are approximately annual billion, $X.X salad North The American representing over salad growing including billion significant multi-service products Smart we the are healthy progress fast the Eat on the multi-service making to Eat space strategy Salad multi-service

the the a ended dollars grew in rate Smart consumer Eat to U.S. market, retail XX-weeks October category kits XX%. XXXX, For XX% U.S. growth of compared salad XX, retail multi-service and

kits the to retail This increase as For X.X%, period, a same points, growth. of in Smart performance. X.X% continuous than share the U.S. additional market Eat as an from well XXX salad room gains, the demonstrating multi-serve stronger time of expected is basis increased market distribution for

We Eat compared Salads to for Smart for are this year revenue XX% to increasing XX% and guidance to XX% growth last continued innovation With growth year. XX% our expanded distribution, fiscal of the on also food five to distinct average to two next revenues business business years. the low consists and transformation of growth The expect of phases. we our salad over double-digit generate fiscal our

sales produce a to Last with eating retail sizing leadership commodity our further phase and introducing salads. fiscal transitioning with to trends, reorganization our developing historical right historical The We advanced we the and revenue team. margin vegetable year, our focus fiscal additions core while fiscal launch products to began healthy to single of of our to export consumer innovation a support lower force, businesses from growth. the on those innovative business products in value-added effort plan and rightsizing on in XXXX, our year true deliver serve lower a of and trends. this profit margin complete ongoing company, first products identifying The focused new company innovative XXXX, Apio of

food This the consumer meet involves continues year to fresh fresh products material last display outside have include expanding other business sourcing packaged margins vegetables product transformation second phase raw fiscal less and characteristics. our year. The that natural phase natural needs, fiscal from our this include to fresh higher volatile line packaged of of and vegetables began of food produce other

XXXX, on second important initiative XXX% year by As launched label that of Advancing had Smart all increasingly will this to ensure end all our Eat weather becomes second be transformation fiscal made strategic calendar we the quarter, seen imperative. phase the Eat by of Smart this during XXXX. the business an of effects ingredients during our of from clean natural products

an ventures food and and Olive, wine the to olive premium in to all great with development that strategy our intend projects oils focus Eat new also We group We fully added of natural The one Landec O position of initiatives and was O and olive leader a on product in initial all group. products the innovative lead and vinegars of this Smart this are to acquisition to leverage oil natural of acquisition it’s deliver with new area. product supplier Olive, taste. synergies vinegar ingredients natural traceable

of for to high million We to $X products O to fiscal over continue expect to we million O and of original of come products guidance $X we will years. capital. Natural innovation increase continued the launch revenues significant that result year. can meet potential fiscal expect growth to that a will determine platform, Olive, grow as compared we result and XXXX which deliver internal our to other by approximately as natural on five last a Olive return efforts invested third in This our a aggressively in to represent next acquisitions growth addition food growth

strong XXXX. we finds XXXX. preparation internal natural fiscal food new for new efforts During in Landec launches very for product fiscal space on position. targeted are a product itself XXXX, accelerating in in the our innovation currently

momentum. We several are over investments the excited to to broad have begin leveraging of of we and capital the both years many personnel create made past

and year our and and fiscal tomorrow. increase we development areas personnel volumes alone, marketing, drive margins on senior Apio Lifecore, is capacity gross strategies. in the our the in expect we Apio we demand This over Lifecore our implement of both year, of margins to This growth time. both for management today and production and and begin value future sales, higher business fiscal focused products last During future this to at Landec delivering and increasing filling product years added capacity increased meet development at two to

We will continue innovate. to

eat for difficult-to-handle launch processes consumers needs and will meet the At make will of add to We products continue to easy Lifecore, and for it biomaterials. to that to new delicious customers capabilities their healthy. continue new Smart Eat our we

We ROIC. our to our efficiency increase increasing of each capital focused in facilities drive are on or return invested volumes and production on

are and growth. Finally, we drive defining that implementing future projects will

to For fiscal capital, remaining capital maintenance we XXXX, million shareholders. existing focus customers, for was innovative we and $XX our $XX $XX to million spending developing is typical to this the fuel while allotted products growth. million In expect capital support deliver to will projects consumers our expenditures of of million. to annual $XX on Approximately to needed value continue future to summary,

sheet our opened for Our remains questions. executing for strong our strategic We're and resources goals. balance objective and provides the financial now on reaching

Operator

from Pellegrino [Operator the Our first Instructions] line question Francesco of comes from Sidoti.

please. question Your

Francesco Pellegrino

was hoping, I cost going second to to beans green So, profits? the be maybe to the - hit the is related half, higher the impact what could you for gross quantify in procurement of

Greg Skinner

now, not green Well, in as beans. the second we’re any issues half, of from seeing

Francesco Pellegrino

So, a return gross for line margin expected? be bean could the product normal green to

Greg Skinner

As Florida… line at as at - long the stay freeze home stays

Francesco Pellegrino

Yes.

Greg Skinner

pretty there. …it’s been cold back

Francesco Pellegrino

revenue and very during quarter, the a lapping account half look X%, only was the revenue in at XXXX the share, when in up all easy after be a earnings had bad did as case second you on to looks so guidance luck. it the I kit wins it year, possibly the you’re But everything thought salad comp. conservative, market your second of looks kit like so what’s line, for increase I of it Well, you the your raising But to the key could we’re Hurricane guys guidance just conservative now. you solid call, Irma, I last if product up that brought previous you proved

year Your the line like happening? revenue guidance for for implied what’s X% really salad first the of impressive half kit X% only after product to XXXX, second growth of implies a

Molly Hemmeter

the a second remember big in the was of DCs lost the quarter. So, we is at and expansion, half got was when had quarter it And end year actually second a Costco. so additional Walmart that, because year, that in our previous we of the of - simultaneously reason didn’t increase of couple last last year to the it half

distribution the of because we so our to some we with the our And to minimal And there so, last because growth is that with that with what you XX% know going us see customer saw the And in to second we're in Costco. newest see we year it's feel can some but see guidance XX%. kind the other how how we'll of of half we giving. lost but year, our turn which we’ll you of increase go customers, and and do retail that and target didn't see things considerably we’re not was this how kind there in gets competing - factors things comfortable

Francesco Pellegrino

jumping would want you Lifecore, And us walking through of just business. over then I onboarding mind because how and to new you when start think to Lifecore just also

release the it's Could would to at that going I even would the half about think on if business have citing need like you absorptions. we’re that XX% to online should margin. drag color cost be be that gross overhead though more but the margins. you back theoretically gross to to - But a that greater going XX% bring of press bringing you me on first to a cost half average XXXX, a almost lower in aseptic to of the imply the led still little you’re course in XX%. margins costs out I which product Through lower segment has that? this continue margin give absorption understand you're over some will the year a mix

Greg Skinner

has on. The this and than So is also share in second up, lot in - their it's you your picking one if products products They’re year, picking question as higher within And year. the half business do picking of the the of line we the area yes. in of and be look of plus? margin the that is higher because yes, is, true the ASAP half non-HA ASAP the which HA year margin and to expect group XX% answer that which development historically the coming happens of a products. a margins being, but is goes their is second the sales fermentation shipments The reason

the in second the half, plus of in but second see half, increase the all the XX% So, should be in the margins half combination year. going positives to so second significant yes, their of a revenues the you’re the in

Francesco Pellegrino

XX% so historically, in I we're looking I'm the back, I the Since mean in third the XXXX XX% going fourth had half and excess up you second margins revenue down as was some never and quarter, some year of you quarter because second be of we're consecutive lumpiness well? Lifecore, guys XX%. looking and gross XQ two quarters Lifecore of us half to have fiscal in was the give incurring know in XQ cadence Can the

Greg Skinner

on that shifts third the fourth That's be quarter. in year. in is going going the this are quarter There that have historically to some happened

margins at So, margins you fourth quarter actually at or and if least higher our our an be history. could aberration third is than look be that should quarter

Francesco Pellegrino

step go like Apio from $XX in two $XX million. X it sort range look for When calling steps the as we're looks We're Phase X I Phase was back of guys for last progression, X the a million and and that's And you back. already of evolution me, taking we $XX we step have at occurring. guidance just Phase whenever one forward, everything a of take just at Initial question explained million. historically like a Apio, to

more if potentially be extended XXXX initiatives I Apio this might not you take $XX million as $XX know the bridge in from guys me we why could just And million, are the year like it entire earnings in to don't the contribution there potentially that you seem thank worth of of but might channel of just it your X, is end it to Apio risk high, if it just potential then around considered, for be export X. raised getting back because Phase of You've keeping to doesn't And at being reward. in day seems an - I'll if but and Phase a poses the as it's where does maybe it time. margins maybe than guidance jump calling it rid can't queue, as more could that rightsizing the the seems

Molly Hemmeter

me step Apio. should was X at and putting that and but And X increasing making more marketing letting are are lower gross Phase of involves feel also the that's really not be company same actual creating I transformations R&D innovative resources business. show and topline, This Apio. about that trend innovation. just the throughout time, our do we on. and Phase we X go involves the because Let been through are bringing our that Phase result seeing leadership, of that of focusing we're we've lot an at on what it that. margin of innovation products At that a same culture the growing new progress, sales to in a the margin launches numbers time And some of support the

are that we're actual solid things -- high supply the reason is lower two problem. platform. And growth of business, letting go challenges sourcing in revenue kind margin hiding are So, our of our the which we're experiencing happening, growth our is other

they get of line, making. lower there the are to the are year. sourcing product If but phase due we are those we're go hiding gets even is challenges we to to also strong, from had this mix, I second some this say some phase, first in year that effects again, financial margin not challenges vegetables are the just procurement to further, business the gross of to look those of in want problems transition a business lines letting is is extremely natural that volatility. product we Our not the this margin seeing the from curing let’s increasing of at outside this and margin less gross core some to though and increase procurement advancements that and underlying of our lot our The but is, in is, vegetables have products include products we've of

years. business, have away no So, to few sourcing we've done volatility that product line and product see strategy to have salad diversified business. a diversify just plus let's million we've And a just have long-term take the $XXX continue I we years line high instances. mean, we from in raw our core our our to is we material a volatility what little very to Four where and seen include whatsoever. not business salad the non-volatile ago, trays bags did from last

we're Now products more even product higher volatile through through line strategy, food our diversifying to and looking less from there. natural margin, our

seeing. strategy. plant-based that, three So of over next the overall the of portfolio diversified years, the we're that's years volatility degree to And five products without we do have a

that I So, hope helped.

Operator

from Griffin Morris of Our comes next Securities. line from question Ajzenman the

Your question please.

Morris Ajzenman

the play couple to and of quarters relates next guidance out. Question how the

between $X.XX You kept $X.XX get to to on the you guided and by full anywhere your end at $X.XX, lower to though put fourth which would math $X.XX just guidance of $X.XX, to year $X.XX quarter QX EPS the $X.XX range.

through on in QX together gap near-term? out what's being put and but the can which what's to happened happening is, put help us, the better near-term really this if roadmap this My So, my us us you help estimates is for and out never in just I that question below bridge you out guidance help QX? presumption your walk pushed there QX, look the is at estimates, QX,

Greg Skinner

was, numbers the there’s for were Lifecore - or that what the out that fourth shipment are with expecting modeled third that of the I actually that’s that other not numbers odd quarter Well, then, But -- the in there the quarter. four at in historically the you’ve have the happen shifts. expectations the quarter quarters our think is shift third we’re not Windset, we biggest think it biggest press shift going disclosed unknown biggest were did was out the impact $X.X first year, in within to half And the the we release year, and third like impact the the that I probably this between to the and were numbers, why so in that occurred quarter we two are disclosed million. and the mentioned, products the

the $XXX probably maybe half, is going it’s million, in somewhere but to quarter. to that $X.X of most Second occur fourth

to those items is going to positive third to the impacting So, quarter that they’re the just back we shift. on into going third we're if quarter, issues offset some third rate but you and two January, the the tax in the going going known are primary And tax have yes sourcing for focus from benefit. December the happen biggest to are the happen positive, a coming then is quarter, very have

So, reiterate it those still feel are how works between we the for all that’s we why third guidance out, and the the but fourth shifts that’s can quarter. year,

Morris Ajzenman

the And business that decline core Apio, one year? margin in do this thing much will other how you think

Molly Hemmeter

Core business?

Morris Ajzenman

for revenue do you business, the business, fiscal expect what’s of year? core loan this decline The sort margin

Greg Skinner

most expect that and I not now XX%, that year but on of export. decrease our... the total this is maybe to said be an we’ve we what all because is up think actually being some that right business now. to going be That up going in actually quarter, We picked to be was to flat slightly of quarter XX%

Morris Ajzenman

this away business me year? definitely. Let in you core have How much from walked ask

Greg Skinner

That pretty much done was None. year. last

Operator

Vendetti question Maxim of Group. the comes Anthony next from from Our line

Your please. question

Anthony Vendetti

on the a So, Lifecore. just follow

it that’s $X getting like you bumped fiscal So, large some million? $X is being there’s the is quantify it third that from fourth. quarter, sounds fiscal are total -- it Can million, amount contracts moved,

Greg Skinner

that do I you can in offline. have my number I not head. tell

Anthony Vendetti

then, what’s Eat with if start wondering salad was the already two the for all Target? the on XXX your is original their of the overall Smart looks could selling at salad line opportunity three target it’s it about plus of and I in it’s new ones new great. what’s to Eat so Target win stores, the single And Smart like you the kits ones the top five serve, opportunity, talk going what’s

Molly Hemmeter

Target’s preservatives, with Target. some XXX% to which we’ve fresh. we or they’re Target been us with ingredients. expanding, And clean I really means Target led salads, So had came with to our we’re no preservatives, think - we when really artificial clean no message, the meetings clean, has playing flavors great

go that want message. on they with to and to So, really they latched that really

right be united how target are we’ll we of how front. that now, that want to So see and to and that total united our see and consumer. go going on us, X,XXX strategic those we we’re products we perform doors, expand are into that so doors Right were strategy. They about for taking have right our advantage

see how are So get one see our we first expansion will these in products we is? after and our possibility turn, what

Anthony Vendetti

you’re in a Molly I know going and how and doing? Walmart then, about Kroger. how just those bit, is expansion that us specifically customers And maybe expanding you little update Can talk are

Molly Hemmeter

So, Sweet at product have that Walmart turning is doors, well. and extremely that the is Salad well extremely Walmart we trending Kale so product all in

work we with to can watching and more those hoping just And same then, Kroger, add products the we’re that Walmart And day that one shelves. at trying thing. so to so,

going in we just added doors that’s and to promoting new few now drive and started huge we’re month promotions really X,XXX to last We awareness about we’ve still two had helped. the four only new, our promotions trial announced to that think, those continue months very with SKUs at months in Kroger. of to one Smart. and a saw and a the velocity Eat promotions been I we uptick That’s

a after at saw Kroger also those promotions lift X%. about We sustained of

penetrate the so, help taste drive us will all testing, to we grow trial more category. way continue our try taste to at we’re and our products we’ll if - with let and And are believe their Kroger products to and can work and consumer in going we them, If products. stated awareness try great, to more as we as become them, we’ll customers also these our profitable helping drive

Anthony Vendetti

and evolving? companies Amazon talk I new own selling salad Can with your the their on Smart growing about some customers you’re follow you is website. online are of Amazon one of Fresh, kits that some relationship’s And Amazon that we developments any how know saying Eat or the fastest that of

Molly Hemmeter

core East with with products. So, Fresh continuing Coast mostly and the on we’re our salad work Amazon to

And to year. out just our our we So new figure can far at this test are personal gained looking them. as expand that’s EatSmartAtHome.com, distribution how online, with them recently as trying again, just and with program again we a our

learn We’re trying service our really to consumer working on our and operational efficiencies, the processes that. of backend

we marketing no expect any we’re don’t So big to revenue that applying from that. this dollars year,

Anthony Vendetti

practice issue a line? on I ongoing issue labor shortage labor resolved, there then that resolved. workers you the Apio of Has labor the, any guys been - your you know that just for was guys there’s And there

Molly Hemmeter

our able on incentives production, We've workers. those actually increases their labor some ability increases. we're our competitive measures rate attract in that, retain that fill in we to can No, pretty much we've did productivity have wage improved place they help labor measures with put the base also really rate. increase wage will rate beyond our their And those market been spots extremely to our and that have and

Operator

the Our Capital. from of Obus next Nelson question comes from line Wynnefield

please. question Your

Nelson Obus

to about trays the Greg though it that their relationship business way, quarter as comment up million read and by revenues, – your if about the looks in XX% right. your the Question $X.X almost it shortfall, that I was the

of export. loss the core revenues in came all terms So from came, in the

allocated just wasn't allocated So trays. but the it I I was you anyway that? million, that export. because right about all do export, Am $X.X to to assume wouldn't

Greg Skinner

which sprouts, our but Brussels sell We that’s bags, quarter have of we beans. because were issue then, because beans what some to some bag was products. West this related and broccoli primarily Coast majority the products those it’s And only issues, the bags. green No, also usually the sourcing are where green in when

products, our trades, which for not it’s So associated salads. includes for bag green our beans, our with not really

Nelson Obus

a added - normal. Smart? They're times one then or Okay. that in five doing as years Eat altogether. becomes the pay it's though Apio’s, in the argument like simply about or except I mean, sounds talked problems. of five callers off what’s So, I seems situation. take It out for they when of value quarters the X one only it a in of prior so we getting the mean, row they economics business? happen shrinking export row, run know into what's I these you’re almost a

Molly Hemmeter

size, So this right should size, we obviously, we – as businesses volatility. see higher we or higher in are which this we continually that have evaluating dissolve reduce

been margin have want. very was about unique $XX in relatively it's on they're $XX well. of does did walked the years it's low Export as that, are because million the said walk, buy we've being they million million a means revenues won't the that that we’re from. fixed couple business to from $XX So That It and a worth margin margin. and they and business in year extremely volatile buying last although that that get business, low, the we walking they fact is that unless selling and each sell of

So that lines salad export less looking product the we natural growing goes being we're from so us our be we away what foods sure growing about that, a salad in But our we do less products, business growing this are our business. in food aggressively are need in it think and our We're I rightsizing. walk and in We going natural and forward. means core going smart at volatile lines volatile business timing want with to to our make also business ultimately double-digits augmenting other profitability. be what all business, that product there's we as augmenting to and we the to

this all table the - is answer. So,

Nelson Obus

is we stuff the seems Smart just Eat would our domestic to we we it tied less walked, bag relationship I mean that, have consequences? problem. If be which if regarded without been leave is So, that any this okay a could from highly a to and in take business that we to walked business, let's is relationship initiative, or

Molly Hemmeter

we through carefully. something have think to it's think I

many have and bag business them business business. salad that business, supporting to are and that We and take dedicated bag we our our customers our in

And we so support to customers, those with them. to want continue

synergies products operations that we So know, also and use. two between you the in lines there's the and

in and use example, For stock business. business bag floret our broccoli the in we our salad the

we've not this it. definitely - from our want we is customers So, committed And you to this this - simple a to this isn’t is to a business business. that support walk

continue we reason so makes to. a will So, it's really there's a sense not to do business that unless that

Nelson Obus

mean almost excess you have implied $X wouldn’t I because otherwise million the expense. that's

walked of away I But that. prices gotten it’s You have would prices the company the just expense, with would to raised just to think because you unless anyway, raised you you otherwise, where excess worthy where you’re or have a number that there have The that have model. is does overhead area that - to place? gotten would would covering profit your, number for R&D dissect R&D company, or would is where most and your include I as partnerships, R&D that larger okay, total reflect transition mean number, does take you would a the just that a

Greg Skinner

it’s the natural Landec the between product evenly building new Lifecore the new skewed Apio R&D little focus bit on but VP a at fairly of and the addition toward for split Lifecore, of our people his development, It’s brought new and foods. this team, with point in still we

to R&D shifted dramatically really very be has the last focused. year effort Our over

coming number, of really so, don’t there’s do we net business. that total no anything from And contract is R&D that’s a that customers

Nelson Obus

it’s when year, the you And you your $XX and this low look in it million. I look number? once though do CapEx CapEx going for a calculation the to at out past. easy looks do was at see that How know has that, as did growth how at We an this number year, you way? look XXXX XXXX that and but fiscal forward that big a

Molly Hemmeter

CapEx to for as said maintenance XX% XX%. earlier minimum our we is Well,

So, that's…

Nelson Obus

going there expansions But some or Bowling have - low do what buildup, were there Green, year. which to affect were expansion be you - in what - in mean a in if had you million I there of know mean XXXX when fiscal are expansions $XX Landec you growth I there go But you’d think? that XXXX, you was CapEx. number XX Lifecore, through looking for were at I expansions there that Pennsylvania, look at? this a some in were to …attracted

Molly Hemmeter

at when warehouses. will if So we we Apio, any be in at building businesses, look look big the capital different

we if need that, space build operational manufacturing to continues continue the So, to demand to all space. our have we warehouse will grow,

additional lines. that’s additional at growth capital would So go and where any Apio

only business salad salad So, our growth. as investing we’re lines in new

warehouse two we to At the and - continues equipment, the equipment. brick space. in salad Apio, new we have to grows. Lifecore, will mortar company have business you need new Again, be as you as only equipment have purchasing that incremental you will grow, So, things have invest the at all and and we we

Nelson Obus

- think will where there you which be that. done I an expense important that less have like gone which that organic have you you for with, sounds and in it very carefully a opportunity always is very have leave opportunity So, would the acquisition, growth XXXX had

So…

Molly Hemmeter

Nelson. haven’t We our our for we completed - budget next year, budget haven't completed

yet have I capital don't So, next a number to for provide year.

Nelson Obus

I put But didn't you actually I was to which By -- not and mean for out the this you things map, big investors a way, know. out showed weeks package ago, put a couple of there pretty the that expansion. was some a a

east Mississippi warehouses I aware You impressive already of. even have wasn’t that of a pretty network the of

that So I of. wasn’t certainly Mississippi even that aware

came certainly the you company. other like that some are bean they somewhat maybe more, out new, from ones may So, they build to but want

Molly Hemmeter

They lines, on that so expansion without very acquisition and profitable the in in not Coast, and which of our honestly already XXXX higher it better lines, Apio infrastructure and from in were our were Canada. it had a service is because it that and to bean margin wonderful for grow product we on to for Coast use was that then, the once operating our in expand came we exactly the That's that reason line and was that And purchase our able one they of East with business salad salad acquisition business, you all to customers could get green East right. with infrastructure GreenLine the it. able a we the

Nelson Obus

you’ll your you'll those quarter, some some of in fill about that, fourth - the for in have with areas. sure I'm helpful. XXXX That's thoughts are what

thanks. Okay,

Operator

next Our the Krueger question from of comes Street Capital. line Lake Chris from

please. Your question

Chris Krueger

new are the lot leading which Looking is haven't customers forward. going a Who how now, time I but and right retail pretty potential going? Olive business, of O small of there it's of potentially the spent growth their a kind at on, driver pipeline customers

Molly Hemmeter

customer the Foods. and extremely I they ingredients. and has natural Olive, and love initial fully been the leading O always Foods taste with traceable the of would supportive was say premium an Whole Whole

one Foods our parts Whole is customers. So, retail of as well. mainstream of to And begun other we largest penetrate have really

working into using augment begin in our selling Eat the been So, sale in we’re will will going that relationships. to O base, the and we’ve with be customer we year. to begin have this currently They that salesforce existing looking first with Smart. Olive place same have half customers, They - they of where

we’ve customers same the about - our stores, be today been that all those So, entering talking tell the of will Olive. them story O

Chris Krueger

and Then right on from SKUs months months - you as Olive, do XX O many now? in see do to XX how far you as what for have now development product

Molly Hemmeter

the that’s had product was so of in focus olive those and bring have core the we productivity efforts They’ve our of has on really oil where number a includes SKUs vinegar, been are of They the So, their wine about and SKUs. XX the line, actually lot now. one of SKUs the both we SKUs. to which down

We’re projects more some to retail. those make for working on accessible

some So, right more now, redesigns so easily price we’re working the put and on point shelf they rationalization. bottle can some on

and product makes So to marketing out that they’re whole really sense. with that able retail to we’re ready to go a package

really of not looking to trying increase SKUs. we’re number the So, or proliferate at

team they quality there. all with incredible what Apio. the been expand we want the do the really take and has we is highest And are distribution innovation and out through the think to have their products this, with have what their products of there our capabilities in I

Operator

question from the comes Bill Nasgovitz of next Advisors. Heartland line Our from

questions Your please.

Bill Nasgovitz

shooting increase So, so profitability business? we we’re return and - in products that low cut trying invested for, what vegi out of I on capital think to What type of wonderful the within needed. and terms it’s margin forth, certainly that’s are

Greg Skinner

overall you that way, broken company. We the really tell down it Bill. I for could have

years. the than offline food on the at how could Our goal we’re three over I to breaks and it where next out is to today more Lifecore between double you business. get back

Bill Nasgovitz

long-term return just living patterns? wonder capital because just weather. vegi Well, weather one been of shareholder, to irregular I adequate questioners the previous and if possible the - it’s business a through of consistently this mentioned having it’s on

Greg Skinner

no that about we control. It doubt does it and initiatives more we’re putting in. the something put place it difficult. why we weather we mean that’s that can’t is make in There’s I recognized

volatile have associated what the the risk in that we with reducing us we items on our what control products hurt And products that those past. higher is i.e. So, the can sell. dependence produce

We’ve for doesn’t well it with And bag the products. salads, our through biggest expanding which in to instance, that have soon the issues. have usually produce that line, when less in issue we’re those doing You’re comes reduced areas, is volatility associated natural foods volatility. raw to announced be sourcing

So, a takes it while. just

tray As on Molly our some implication be our selling salad said are customers business. there because anymore our bag products and say earlier, it’s new not could out that got taking hard products, we’ve both to any and bag it just to we’re have going

Bill Nasgovitz

insider has validate been it’s Well, sort any how asset-rich Landec intrigued thought? there hasn’t come been always But as of an a buying to that company. conundrum, this has

Greg Skinner

only one, I for I I have answer have I can don’t But myself. I answer answer personally buying good Bill. can’t been that a that. mean for

Molly Hemmeter

launched equity of recently that annual this we Bill, we've for management our an and for program exact buying that insider incentive part and as some incentive. had reason, people’s have launched We annual team year

incentive against align So, driving for team important shareholders value our that and it’s with price. very stock we senior the do their

Operator

And to hand back program today’s of to further question-and-answer the like any Molly remarks. conclude this Hemmeter the I'd program. does session for

Molly Hemmeter

just today. at see to for call Thanks, future bright I the thank Landec. want we Again, everyone Jonathan. participating in a

which business, our platforms, meeting joining focus and to shareholders, those to the our are three food goals exceeding value two customers or Eat Thanks us growth and natural Smart to our going are consumers. we're Lifecore this for today. products salads year, continue Our growth drive our for and on

Operator

Thank ladies in This the today's gentlemen does you, and for participation conference. your program. conclude

may now You day. disconnect. Good

Lifecore Biomedical (LFCR) 4 Jan 182018 Q2 Earnings call transcript