Landec Corporation (Nasdaq: LNDC), a diversified health and
wellness company with two operating businesses, Curation Foods,
Inc. and Lifecore Biomedical, Inc., reported results for the fiscal
2020 third quarter and first nine months ended February 23, 2020.
Landec plans to create shareholder value by delivering against its
long-term financial targets, investing in growth, strengthening its
balance sheet, implementing strategic priorities to improve
operating margins at Curation Foods and driving topline growth at
Lifecore.
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 $5.9 million sequential increase
in our third quarter fiscal 2020 Adjusted EBITDA, compared to our
second quarter fiscal 2020 Adjusted EBITDA,” said Dr. Albert
Bolles, Landec’s President and CEO. “Adjusted third quarter
earnings per share of $0.04 were in line with our recent guidance
of $0.02 to $0.06 per share and represent a $0.20 sequential
increase compared to our second quarter fiscal 2020. We believe
that the turnaround of Curation Foods will continue to provide a
foundation for further improvements in our operating cost structure
and enhance profitability. We also believe that Lifecore is well
positioned for continued growth following investments
to increase its production capacity of sterile injectable
products to meet increasing customer demand. These developments
demonstrate the progress we have made toward achieving our
strategic priorities to improve operating margins at Curation
Foods, and to invest in growth to drive topline momentum at
Lifecore. We are committed to maximizing the value of our portfolio
through sound and deliberate execution in each of our segments,
while protecting the planet for future generations with sustainable
business practices.”
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 |
|
February 23,2020 |
|
February 24,2019 |
|
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 $2.6 million, or 2%, year
over year, resulting from a 3% decrease in revenues in the Curation
Foods business, which was primarily driven by a planned $7.2
million decrease in revenues in the packaged vegetables bags and
trays business as the Company sought to emphasize its focus on
higher margin products. This decrease was partially offset by a
$1.7 million, or 7% increase in revenues in the Lifecore business,
which was primarily driven by a 50% increase in business
development revenue.
Gross profit decreased $1.5 million, or 7%, year
over year. Gross profit margin decreased 80 basis points to 13.1%
compared to the prior year period. Gross margin was driven by an 8%
decrease in gross profit in the Curation Foods business resulting
from the sell-through of high-cost avocado products produced during
the fiscal fourth quarter of 2019 and fiscal first quarter of 2020
when the cost of avocados were over two times higher than current
costs, weather related events impacting raw materials supply, and a
6% decrease in Lifecore gross profit due to the previously
announced timing of production and shipments.
Net loss was $11.5 million for fiscal third
quarter, which includes $12.7 million of restructuring and
non-recurring charges, net of taxes, compared to net income of $1.5
million in the prior year comparable period, a decrease of $13.1
million.
Adjusted EBITDA was $6.8 million for fiscal
third quarter which excludes restructuring and other non-recurring
charges. This compares to $7.7 million of Adjusted EBITDA in the
prior year comparable period.
SEGMENT RESULTS:
(Unaudited and in thousands) |
Three Months Ended |
|
Change |
|
Nine Months Ended |
|
Change |
February 23, 2020 |
|
February 24, 2019 |
|
Amount |
|
% |
|
February 23, 2020 |
|
February 24, 2019 |
|
Amount |
|
% |
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Curation Foods |
$ |
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: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Curation Foods |
$ |
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: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Curation Foods |
$ |
(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: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Curation Foods |
$ |
(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 Curation
Foods:Curation Foods is the Company’s natural food
business. Project SWIFT aims to strengthen the Curation Foods
business by focusing on simplifying the business. Curation Foods
will continue seeking to deliver the highest level of product
quality and safety, while executing with excellence on its
customer, grower and partner commitments. The Company believes that
these actions chart a clear path towards improving the overall
financial performance of Landec, creating long-term value. To date,
the Company anticipates that the outcome of the announced actions
will provide annualized cost savings of $5.0 million. The following
decisive actions have been announced thus far:
1) |
Network & Operational Optimization: |
|
Maximizing efficiency and productivity with the consolidation and
centralization of Curation Foods offices into its Innovation Center
headquarters in Santa Maria, CA, as well as continuous improvement
in plant operations with lean manufacturing practices. |
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 $160 million for fiscal
year 2019, and divesting the Company’s assets related to its
Ontario, CA, salad dressing manufacturing facility. |
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 aims to deliver the following steady-state organic
growth and profitability targets on a run-rate basis by the end of
fiscal 2021:
- 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 March 19, 2020, the
Company entered into the Seventh Amendment to the Credit Agreement
which, among other things, increased the leverage ratio covenant to
5.75 to 1.00 from 5.0 to 1.0 for the fiscal third quarter ended
February 23, 2020. The Company believes it has sufficient
flexibility within the amended agreement to maintain compliance
during fiscal fourth quarter given its continued expectation for a
significant lift in Adjusted EBITDA. Beginning in fiscal first
quarter 2021, all other covenants remain substantively unchanged
compared to the existing terms of the Credit Agreement.
COVID-19 UPDATE:Landec
prioritizes the health and safety of its employees and products.
Despite the current COVID-19 pandemic, both Curation Foods and
Lifecore businesses currently remain operational. Each business has
implemented action plans that guide the Company and its employees
through this evolving situation. The Company’s Curation Foods
business is experiencing a lift in demand in our retail and club
channels as consumers make preparations for the COVID-19 pandemic,
and its Lifecore business has remained largely unaffected to
date.
Dr. Bolles concluded, “Despite the current,
extremely volatile environment, both of our businesses, Curation
Foods and Lifecore Biomedical, have been able to remain
operational, as both are considered to be a part of the country’s
essential infrastructure for the ongoing health and safety of the
public. As a result, our employees continue to work in these
challenging times, and we are enormously grateful for their
individual efforts. As we look ahead, Lifecore continues on its
growth trajectory and we are excited to build on the momentum at
Curation Foods with a strong acceleration in fourth quarter
performance. We remain committed to delivering a strong finish to
fiscal 2020 and look forward to continuing this improvement into
next fiscal year.”
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 CallThe 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: Tuesday, March 31,
2020Time: 5:00 p.m. Eastern time (2:00 p.m.
Pacific 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
Tuesday, April 7, 2020 by calling toll-free: (844) 512-2921 or
direct (412) 317-6671, and entering code 13699982.
About Landec CorporationLandec
Corporation (NASDAQ: LNDC) is a leading innovator of diversified
health and wellness solutions with two operating businesses:
Curation Foods, Inc. and Lifecore Biomedical, Inc. Landec designs,
develops, manufactures, and sells products for the food and
biopharmaceutical industry. Curation Foods is focused on innovating
and distributing plant-based foods with 100% clean ingredients to
retail, club and foodservice channels throughout North America.
Curation Foods is able to maximize product freshness through its
geographically dispersed family of growers, refrigerated supply
chain and patented BreatheWay® packaging technology. Curation Foods
brands include Eat Smart® fresh packaged vegetables and salads, O
Olive Oil & Vinegar® premium artisan products, and Yucatan® and
Cabo Fresh® avocado products. Lifecore Biomedical is a fully
integrated contract development and manufacturing organization
(CDMO) that offers highly differentiated capabilities in the
development, fill and finish of sterile, injectable pharmaceutical
products in syringes and vials. As a leading manufacturer of
premium, injectable grade Hyaluronic Acid, Lifecore brings 35 years
of expertise as a partner for global and emerging biopharmaceutical
and biotechnology companies across multiple therapeutic categories
to bring their innovations to market. For more information about
the Company, visit Landec’s website at www.landec.com.
Non-GAAP Financial
InformationThis 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 StatementsThis 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 Yucatan Foods into the Curation Foods
business, and the mix between domestic and international sales. For
additional information about factors that could cause actual
results to differ materially from those described in the
forward-looking statements, please refer to our filings with the
Securities and Exchange Commission (“SEC”), including the risk
factors contained in our most recent Quarterly Report on Form 10-Q
and Annual Report on Form 10-K. Forward-looking statements
represent management’s current expectations and are inherently
uncertain. Except as required by law, we do not undertake any
obligation to update forward-looking statements made by us to
reflect subsequent events or circumstances.
Contact
Information:Investor Relations:Jeff
Sonnek(646) 277-1263jeff.sonnek@icrinc.com
LANDEC CORPORATION
CONSOLIDATED CONDENSED BALANCE
SHEETS(In thousands)
|
February 23,2020 |
|
May 26,2019 |
|
(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 |
|
— |
Goodwill |
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 |
LANDEC CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF
INCOME AND LOSS
(Unaudited and in thousands,
except per-share data) |
Three Months Ended |
|
Nine Months Ended |
|
February 23,2020 |
|
February 24,2019 |
|
February 23,2020 |
|
February 24,2019 |
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
ReconciliationsEBITDA, 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 |
|
February 23,2020 |
|
February 24,2019 |
|
February 23,2020 |
|
February 24,2019 |
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 |
|
February 23,2020 |
|
February 24,2019 |
|
February 23,2020 |
|
February 24,2019 |
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) |
Curation Foods |
|
Lifecore |
|
Other |
|
Total |
Three Months Ended February 23, 2020 |
|
|
|
|
|
|
|
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 February 23, 2020 |
|
|
|
|
|
|
|
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 February 24, 2019 |
|
|
|
|
|
|
|
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 February 24, 2019 |
|
|
|
|
|
|
|
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 |
|
LANDEC CORPORATION
THIRD QUARTER ENDED FEBRUARY 23,
2020
Q1) |
What terms changed with the Company’s latest Amendment to
the Credit Agreement? |
|
On March 19, 2020, the Company entered into the Seventh Amendment
to the Credit Agreement which, among other things, temporarily
increased the leverage ratio covenant to 5.75 to 1.00 from 5.0 to
1.0 for the fiscal third quarter ended February 23, 2020. If the
Company’s leverage ratio is in excess of 5.0 to 1.0 as measured
under the terms of the credit agreement, the Company will incur a
50 basis point increase in the underlying interest rate and will
incur an incremental 5 basis point increase to the commitment fee,
compared to the existing pricing terms. The Company also agreed to
minimum monthly EBITDA and maximum capital expenditure covenants
through May 31, 2020, as well as additional reporting requirements.
Following May 31, 2020, all other covenants remain substantively
unchanged compared to the existing terms of the Credit Agreement.
The Company incurred a one-time loan amendment fee equal to 15
basis points of the total borrowings under the credit facility and
certain other administrative and legal costs. |
|
Q2) |
What are the potential business impacts of
COVID-19 |
|
Landec prioritizes the health and safety of its employees,
products, consumers, partners and communities. We are following the
guidance from the World Health Organization (WHO) and the Centers
for Disease Control and Prevention (CDC) about the escalated global
public health threat of COVID-19 and we are taking it very
seriously. In response, we immediately activated emergency
preparedness teams and they are working closely with a consortium
of leaders to establish and share best practices. The goal is to
ensure business continuity and to do everything possible to keep
our employees and products safe. This team is responsible for
tracking the most updated information about COVID-19 so that we can
communicate and adapt quickly. Food supply and pharmaceutical
product manufacturing are considered essential businesses for the
ongoing health and safety of the public; therefore, our operations
currently remain fully functional, even with the current shelter in
place orders in effect, and we expect that to continue until
otherwise required by relevant authorities or as we may otherwise
determine. |
|
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 Curation Foods business, we are quickly shifting
to changing customer demand and product mix shifts. For example, as
consumers prepare for the pandemic, the Company has seen an
increase in the demand for salads and packaged fresh cut vegetables
sold to retail and club channels, and a reduction in demand for
guacamole sold in 12oz and 16oz tubs and vegetable trays, as these
products are typically consumed in group social settings. |
|
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 Curation Foods, as well as
focus the business on strategic assets and redesign the
organization to be the appropriate size to compete and thrive. As a
result of Project SWIFT, the Company has made several strategic
decisions surrounding its operations that, when fully implemented,
the Company expects total annualized cost savings from these
actions of approximately $5.0 million. |
|
1. |
Network & Operational Optimization: Maximizing
efficiency and productivity with the consolidation and
centralization of Curation Foods offices into its Innovation Center
headquarters in Santa Maria, CA, as well as continuous improvement
in plant operations with lean manufacturing practices. With this
activity, the Company expects annual cost savings of approximately
$0.9 million. |
|
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 Ontario, CA, salad dressing manufacturing facility. The
Company is unable to estimate costs and savings associated with the
divestiture of the vegetable bag and tray business. |
|
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 $4.1 million. |
|
In summary, the Company expects to realize total annualized cost
savings from these actions of $5.0 million. The Company has
recorded $13.5 million and $13.9 million of restructuring charges
during the third quarter and first nine months of fiscal year 2020,
respectively. |
|
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 U.S. regulators a
compliance issue at its Yucatan Foods production facility in
Guanajuato, Mexico. The conduct at issue began prior to Landec’s
acquisition of Yucatan Foods in December 2018 and relates to
potential environmental and foreign corrupt practices act
compliance matters associated with regulatory permitting at the
facility. The Company is taking appropriate remedial measures and
is cooperating in the U.S. government investigation that followed
the Company’s disclosure. In addition, the Company has disclosed
the conduct to regulators in Mexico and is cooperating with them.
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 has incurred $4.0 million of expenses,
approximately $0.8 million in the second quarter and $3.2 million
in the third 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. |
|
2. |
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. |
|
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 Yucatan Foods of $3.2
million and $5.2 million respectively, as general and
administrative expenses. |
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