Q3 2020 Earnings Call

Good afternoon, and thank you for joining next third quarter fiscal year 2020 earnings call.

On the call today is dr. out or both.

Chief Executive Officer, Brian Mclaughlin lenders, Chief Financial Officer, Mr., Jim Paul I'd now like core was available to answer questions.

Today's call we may make forward looking statements that involve certain risks and uncertainties that could cause actual results to differ materially.

These risks are all lines in our filings with the security or exchange Commission, including the company's form 10-K.

School year 20 like team.

Now I'll turn the call over to Mr. al Bolles. Thank you Sir you may begin.

Thank you and good afternoon, everyone.

As a leading innovator in diversified health and Wallace.

Well I'd deck is comprised of two operating businesses.

I've core biomedical duration food.

Landec designs develops manufactures.

I think sells products for the food and pharmaceutical industry.

Life core biomedical, there's a fully integrated subtract development and manufacturing organization or CDMO golfers highly differentiated capabilities.

No development fill and finish a difficult to manufacture.

Critical products distributed in syringes.

Yes.

As the leading manufacturer premium injectable grade.

All right I guess it or ha.

Five core brings over 35 years expertise as a partner for global and emerging pharmaceutical and medical device companies across multiple therapeutic categories, bringing innovations to market.

Duration foods, our natural foods business its focus on innovating plant based foods.

<unk> clean ingredients to retail club in foodservice channels.

North America.

<unk> foods is able to maximize product freshness.

It's geographically dispersed network of growers.

Pretty good its supply chain.

The Green light packaging technology.

It's natural extended shelf life.

Okay and vegetables.

Racial food brands include eat smart fresh packaged vegetable salads, Oh premium artists an oil and then of your products and you could tell me cobbled fresh avocado products.

We are focused on creating shareholder value by delivering against our financial targets.

Strengthening our balance sheet investing in growth.

Running out strategic priorities to improve operating margins that curations foods, and driving topline momentum that life score.

We are committed to maximizing the value of our portfolio through sound and thoughtful execution and each of our segments.

While protecting the plant up for future generations, what to sustainable business practice.

However, today, we're clearly strange thing I knew landscape given the rapidly changing environment ongoing.

Impacts associated with cold in 19.

Following the guidance from the World Health organization.

As for disease control and prevention.

About the escalator global public health threat of called the 19 and taking it very seriously.

Our first priority is the health and safety of our employees products, so much partners and communities.

In response, we immediately after they didnt emergency preparedness teams and they are working closely with a consortium of leaders to establish then share best practices.

The goal is to ensure business continuity.

To do everything possible to keep our employees I'm proud to say.

This team is doing phenomenal work.

Was responsible for tracking the most updated information about colder 19, so we can communicate and adapt quickly.

Food supply and pharmaceutical product manufacturing.

I considered a central businesses, well, the ongoing health and safety or the public.

Therefore, our operations currently remain fully functional well, we expect that to continue.

Yeah, let me ongoing uncertainty surrounding the duration magnitude.

Graphic reach colgan biking global pandemic.

We are unable to accurately forecasting related impact on the Companys financial performance.

However, we have confidence in reiterating for your guidance.

Which is largely based on fundamental improvements that we've made to the business.

Our fiscal 20 guidance calls for consolidated revenue.

Continuing operations to grow 4% to 6%.

A range of 580 $590 million.

Adjusted EBITDA of $30 million to $34 million.

Adjusted earnings per share of 16 to 20 cents, excluding restructuring and other nonrecurring charges.

It's up occasions, and any potential impact of coal good 19 pandemic.

Today, we are reporting adjusted third quarter earnings per share of four cents.

In line with our recent guidance of two to six cents.

Excluding restructuring and nonrecurring charges.

Good tenure took steps.

The generate substantial profits in the fourth quarter of the fiscal year.

Yeah, well position to achieve our goals.

At this point in time.

We don't see any impacts to our supply chains.

We are an ongoing discussions with all major suppliers and it's fluid situation.

We believe that we can continue to supply our needs to fiscal 20 twond.

Quarter to date business has remained largely unaffected out why score.

Which continues to be I'm trying to deliver its fourth quarter targets.

For the duration foods business, where quickly shifting to accommodate changing customer demand.

Shifting product mix.

For example.

So much a pair for the pandemic, we have seen an increase in the demand for salads packaged fresh cut vegetable sold to retail and club channels.

Reduction on demand for products typically consumed and social studies with large groups such as guacamole sold 12, 16 ounce tubs and vegetable trace we.

We will continue to monitor the situation closely and we will be prepared as consumer shopping patterns continue to fluctuate.

Suddenly expect any deviation from these trends are experience any significant supply chain issues that could impact our plans for fourth quarter, we will communicate that to the market at the appropriate time.

Long term, we expect life core to generate on average low to mid teen revenue growth.

Next five years as they expand sales.

This thing customers.

A new customers. They continue to commercialize products that are currently and it's because all that pipeline.

Or curations foods, which isn't a metric of the turnaround.

My timeline is immediate.

Driving this business on a day to day basis, and I believe I performance as best judge out a quarter by quarter basis, the measure progress and success.

A decisive actions we are implementing within project Swift has the business on a path to reach our studies state run rate targets by the end of fiscal 2021.

I'm glad that consolidated level, the third quarter financial metrics are beginning to catch up with the operational improvements we've been employment.

And this momentum will accelerate into the fourth quarter.

For example, what comparing keeps fiscal 23rd quarter financial metrics.

Those generated in fiscal second quarter.

We delivered 220 basis points improvement in gross margin.

Welcome to adjusted EBITDA of $5.9 million.

And has recorded adjusted earnings per share improvement of 20 subs.

Before I share more details about our positive momentum with life score and Curations foods I'm pleased to announce that Brian Mclaughlin.

But appointed as Landec Chief Financial Officer.

Ryan's tenure decoration foods, coupled with a specialized background in a fresh foods industry and 19 years of experience banking laid them a natural choice serve as Landecs interim CFO.

Ryan was instrumental in working with our lenders to amend our credit agreement.

We completed last week.

And have already made great strides to positioning our business for future growth.

I feel fortunate to have bribes deep experience on the team.

Got it was right for Bryan do assume this role.

Look forward to its continued leadership.

As a permanent CFO.

With that.

I'll turn the call over to Brian well the financial highlights.

Thank you al.

First you review of our third quarter results.

Consolidated revenues decreased by 2%.

The $152.9 million driven by a 3% decrease and Curations foods, which was centered in a plan 7.2 million dollar decrease in revenues in the package vegetable bag and trade business as we continue to focus on higher margin products. This decrease was partially offset by a one point.

$70 million or 7% increase in revenues in the light core business, which was primarily driven by 50% increase in business development revenue.

Gross profit decreased 7% year over year due to the combination of an 8% gross profit decreasing curations foods and the 6% decrease unlike core gross profit.

Curations age was negatively impacted by the sell through of high quality all the copper products produced during the fourth fiscal quarter of 29 team and the first fiscal quarter if 2020.

Cost of all the problems were over two times higher than current call.

And weather related events impacting raw material supply, it's primarily centered in eat smart vegetable bag and trade business.

Like core was negatively impacted by the previously announced claiming production and shipments.

The impact on boat business is temporary and should improve during this fiscal fourth quarter, noting that life core was a timing issue for production and shipping.

And curation food now has sold three.

A majority of the high cost all the condo through inventory and achieved a 19% gross profit run rate more avocado products business at the end of the fiscal third quarter.

Landecs net loss was $11.5 million for the third quarter, which includes.

$12.7 million restructuring and nonrecurring charges net of taxes compared to net income of $1.5 million in the prior year decreased $13.1 billion.

This translates to a third quarter loss British share of 39 cents, which includes 43 cents per share of restructuring fees and nonrecurring charges.

Excluding these charges adjusted third quarter earnings per share was four cents versus our recent guidance.

To the six that's for sure.

Adjusted EBITDA declined $900000 to $6.8 million for the quarter compared to the same quarter last year.

However, the sequential comparison to fiscal second quarter is more represent good progress to pick and she's making when viewed in this function adjusted EBITDA improved by $5.9 million and third fiscal quarter compared to adjusted EBIT talking second fiscal quarter.

Shifting to a commentary on year to date nine month results consolidated revenue increased by 7% versus the prior period.

$434.2 million, driven by 8.6 million dollar for 17% increase in life program.

The acquisition that you can see each on December 1st 28, key which contributed $32.1 million.

And a 9.4 million dollar or 7% increase in salad revenues.

These increases were partially offset by.

15 million dollar plan decreasing revenues in the types of vegetable bags and trade business.

And a 7.5 million dollar deep reach.

Green being revenues stupid limited supplies, resulting from weather events occurring in the first and second quarters fiscal 20.

Land that gross profit decreased 7% year over year.

$50.9 million due to the combination of a 9% increase in life core gross profit kind of 16% decrease in gross profit.

Curations.

Net loss registered $23 million for the first nine months of physical 20, which includes 14.5 million restructuring and nonrecurring charges net of taxes.

Her to net income of $1.8 million hired a decrease of $24.8 million.

Translates to a year to date loss per share of 79.

This includes 50 cents loss per share restructuring fees.

Nonrecurring charges, excluding these charges adjusted year to date loss per share is 29.

Year to date.

EBITDA registered $7.9 million, a decrease of $6.8 million versus the prior year.

Nine month period, a year over year to year. Some decrease is largely concentrated in first half of fiscal years working.

Turning to our financial position as previously announced on March 19 to 2020, we entered into a seventh amendment to the credit agreement, which among other things increase the leverage ratio covenant to 5.75 to one some five to one.

For the third fiscal quarter ended February 23 2020.

We believe we have sufficient flexibility within the amended agreement to maintain compliance during fourth just before the given our confidence in delivering our adjusted EBITDA goals.

I didn't even first fiscal quarter 2021, or covenants remain substantially unchanged compared to the existing turns out the credit agreement.

This is a transaction that accomplish our goals, while minimizing Clos and we're pleased with the flexibility there lenders provided.

I understand the short term impact that projects with the taught me on the business and also how they complete understanding of the positive financial improvements are beginning to unfold.

We are focused on de leveraging as a top strategic priority, which is a key initiative within project Swift.

We are taking a disciplined approach for every in Boston.

On a going forward basis, we have set clear priorities defined return on investment metrics to support the future growth Aptose like core integration.

Shifting to our outlook.

As al mentioned in his remarks, we are reiterating our full year guidance, which calls for.

Consolidated revenue from continuing operations to grow 4% to 6% to a range of $580 million to $590 million adjusted EBITDA of $30 million to $34 million.

And adjusted earnings through share of 16 to 20 phones.

As a reminder, the adjusted EBITDA earnings per share excludes restructuring and nonrecurring charges tax implications and any potential impact of club at 90 pounds.

Our annual guidance incorporates a substantial lifting profits during the fourth fiscal quarter, we feel very confident in our ability to execute against the plan.

With that I'll turn the call back down.

Thank you Brian.

Let me go into more detail about the progress, we're making life, scoring curations foods businesses that maximize shareholder value across our portfolio.

Core continues to see momentum benefiting from three industry trends number one.

A growing number of product seeking FTC approval.

Number two.

Increasing trend toward sterile injectable drugs and number three growing trend among pharmaceutical and medical device companies outsourced a formulation and manufactured products spanning the clinical development stage commercialization.

As a highly differentiated fully integrated CDMO lifeguards position to capitalize on these tailwinds continues to establish high barriers to competition.

Well I of course speed and efficiency benefits its partners.

Decreasing their time to market.

Channelinsight yonah ability to improve patient lives to commercialization other innovative therapies.

Looking forward.

Life car will feel its long term growth by executing against its three strategic priorities.

Number one managing and expanding its product development pipeline.

Life car added one new business development project.

Increasing its development pipeline to 16 projects.

Various stages of the product lifecycle from clinical development.

Commercialization.

Which aligns with the businesses overall strategy.

There's this development revenue the third quarter fiscal 2020 increased 30% year over year.

I'm going to meeting customer demand by managing capacity and operational expansion.

To be future commercial production needs.

Demand stands at approximately 6.5 million units just below 2020.

Facility has the capacity of producing approximately 17 million units annually.

And number three continuing to live on a strong track record of commercialization.

Product development pipeline life car currently expects one product and development to be approved by F.D.A. for commercialization in calendar year 20 Twond.

Yesterday recently recommended approval of life cores manufacturing site or this product based on recent F.D.A. Reinspection that result, but there's no for 83 observations.

Which is the key stuff into partners approval process.

Looking to the future lifeguard is targeting approximately one regulatory product approval annually.

And as I try to achieve this cadence beginning osisko 2022.

Acceleration foods.

Positive impacts the project Swift are being realized in our approach financial performance and we'll continue to unfold.

As we implement it's three core components next year in fiscal 21.

First.

Our continued focus on network optimization, which maximizes the efficiency productivity.

And teamwork.

The organization today. This is comprised of the lean manufacturing practices being implemented.

At our facilities.

Centralization of duration foods offices.

Into the new headquarters in Santa Maria.

Second they focus on maximizing our strategic assets.

Which simplifies the business by divesting non core assets.

We are currently exploring strategic alternatives for the legacy vegetable and trade business, which generates net sales of $160 million.

Fiscal year 2019.

And divesting the company's assets related to its Ontario, California.

Yep to be operational salad dressing manufacturing facility.

And third.

Redesigning the organization to the appropriate size.

Developing and elevating internal talent, reducing headcount in order to compete.

The total annualized cost savings from these previously announced actions will be approximately $5 million.

13 cents per share on an after tax basis.

Our fiscal fourth quarter plan marks an important inflection point in terms of profitability.

After corporate allocation I fiscal 20 guidance implies that life core business will recognize fiscal fourth quarter, adjusted EBITDA of $9 million to $10 million.

I've got our duration foods business, well recognize fiscal fourth quarter, adjusted EBITDA of $14 million to $16 million.

I remain confident in our ability to meet the guidance and I'll spend a few minutes describing two key drivers that curations foods, so you'd have a greater understanding of my confidence.

First because I continue driving operational excellence continuous improvement in cost containment.

Today, we are announcing a new lean manufacturing program called zest.

Yes, it's not only about a cultural shift to employee accountability power.

But also a strategy to improve daily operational efficiency.

Extensive capital investment.

Zest and stands for zero mindset, such as zero recalls he sachs accidents and waste.

The power.

Focus on employee engagement the impact change.

Standardization, allowing us to implement the same practices across our organization and training, which is truly the cornerstone of success and employee engagement.

We can measure the positive impact of these principles when you look at the improvements in our operations in Mexico and the bottom line results they achieve.

The team has implemented lean manufacturing principles now refer to as asked that have significantly improved the cost structure of the business. That's turned this business to profitability.

Today, we are realizing a 60% reduction, but our deliberate cost per case. This is the basis for the transformation and the avocado products business gross margin, which at the end of fiscal third quarter was operating at a 19% gross margin run rate.

As we move outside the final high cost true inventory and realize operational efficiencies, we have confidence and accelerating to a forecasted gross margin, 28% its fiscal fourth quarter.

We have initiated the process of rolling out possessed framework to all our U.S. facilities as part of our continuous improvement process.

The second key driver curation foods is containment reduction of structural cost.

Also a significant component of our strategy as a key driver of our fiscal fourth quarter forecast.

Duration foods cost out program is on track.

She our goal of $18 million to $20 million in fiscal 20 savings.

45% of our projected savings being recognized in the fourth quarter.

That's all said.

Can't implement change and achieve improved financial results, what's out there like people and the right jobs focused and working together.

My team is advancing our strategic agenda to simplify our business.

The result, and improvement in profitability is already beginning to take shape.

We're moving forward together.

He will not working shoulder to shoulder for the time then.

Well normalcy grateful for the individual contributions of all our employees through this challenging environment.

Has affected us all personally and professionally.

Thank you.

In summary, we have confidence that our fiscal fourth quarter plan. Despite the fluidity of the environment Landec team is focused on creating value by delivering against our financial targets strengthening our balance sheet implementing our strategic priorities.

The operating margins and investing in growth.

I am confident that our plan to make to changes necessary to be successful and secure a long term profitable growth.

Liver value to our customers consumers.

Shareholders.

Operator, please open the call for questions.

Thank you at this time, we will be conducting a question and answer session. If you like that's question. Please press star one on your telephone keypad a confirmation till indicate your line is in the question Q you mean for star to people like to move your question from the Q for participants using speaker equipment, and maybe next year to pick up your hand simple poor person, let's start keys our first.

Question comes on line of Gerry Sweeney with Roth capital They see with your question.

Hey, good afternoon, Al Brian and Jim I think I got it right name right there Yeah, Hi, John here today.

Okay. So we got a lot going on I mean, obviously up life core curious should turn around and then a a dose of curve at 19, just to add a little bit of excitement everything so.

I'm going to start with the veggie business.

Obviously, you want either downsize or sell it.

This is key to produce in volatility on a on a go forward basis and letting some of these cost out initiatives really start to shine through next year and <unk> and beyond.

Where does that business, where does that stand and the other portion of it is.

You gave some longer term objective.

On growth and profitability. So the second half a question would be what happens to your cost structure, if you sell it and or.

Ah shrink it down substantially how do we look at it.

And from that perspective, well.

Yeah, So gerry.

You know you're absolutely right you know, we made a strategic decision to sell up.

Oh, it's been a source of volatility right that you can't control Oh, we've had a.

We've been working with William Blair or we have a foot beds out.

We have.

Several hello lives that have come back.

And we are in the process now.

Going through the.

Hello, I process, we had one.

Ah company and our facility over the weekend.

I would say they had to follow all the Colby I D require much before they could go in.

But they've looked at facility.

And you know that's where we're at would probably have another four maybe five.

That will be joining the l. allied process. So.

It's moving along William Blair's under point weather.

And we'll know a lot more probably the next 45 60 days.

And obviously, if we could sell it.

Certainly the proceeds well go to pay down debt.

If we don't sell up we have a backup option.

Which significantly reduces the size of the business by at least half.

That.

Allows us to focus on a few customers strategic customers around 10, or 12 that we need a we'll be looking at and improving our margins in that business.

Get up closer to where we need them.

Ah in many cases, we haven't taken price increases or we should have.

And we're in a process of going through that now. So obviously, we wouldn't get any proceeds there to pay down debt, but we believe we would end up with pay model.

That enables us to.

<unk> live comfortably with a much much smaller, but a much more profitable core badge business. That's a higher margin that's focused on a few customers that allows us to absorb volatility.

If indeed, we have the weather issue.

Got it and what happens to your the cost structure internally, though with.

[noise], which shrinking versus selling just point or maybe some of the overhead and things like that and how much cost comes out.

Yeah, Brian you want to you want to handle that yeah.

Yeah, Hi, Jerry I'm, so we have in previous phone calls or chat.

On the outlined our work with <unk> with the Hackett group and we've detailed I'm, a very clear path and process for either option.

In order to reduce the cost structure in either case, we believed to get us back to at least a break even on the margin impact if not a positive.

Got it okay.

And then maybe just switching gears, a little bit tied yucatan, great to see the margins at 19% heading to 28%.

Any concerns with.

Some of the transition from think the top side or the other you could have product selling pretty well and in this environment or is there any concern about that well.

Yeah, that's a little little early to tell a Jerry I mean, we've seen you know the last couple of weeks that Ben.

A little soft and a bigger sizes, obviously because of the you know the nature of how the products used in groups and gatherings.

Well, we've seen an uptick and our salads as we mentioned.

But you know we also see you know just observationally into stores that there's a lot of products are out of stock. So we expect the business to come back.

The next a week or so.

What we're keeping a close eye on up but it's not like the bottoms fallen out it's just a little softer than what we had forecasted but the good news as is the products that we are selling now.

Our highly profitable for us versus what we had a lived through on the first Oh.

Two other headquarters of the year.

Yes, the night campus that's great.

I get that fat and one more question on life core obviously, that's that's chugging, along pretty well and just outlining the unit.

So you can.

Have a manufacturing today versus capacity, so plenty of capacity and expectation that you're going to fill that and this is more covert related to are there any or any other drugs a little bit more elective in nature obviously.

That may push some stuff around or or or any concerns on the cover 19 on like core.

Well you at all there's you know some of the you know things like cataract you know yeah, as you know and elective procedure.

We have that slowed down any shipping today for many of our customers.

And you know if there is a slowdown.

Later in the year because of this and that's because it's just about elected.

Surgery that people are going to go ahead have done anyway right.

Yeah, Yeah, Yeah, so no real major concerns, but certainly you know that's where we are today and where we're keeping a close items situation.

Okay, great how I'll jump back line <unk>. So congratulations I mean, we're starting to hit the metric. So it's a great to see so thanks.

Thank you Gerry.

Okay.

Our next question comes on line of Anthony Vendetti with Maxim Group. Please proceed with your question.

Sure. Thanks, I was wondering how you reiterated guidance can you talk about.

Exactly how you see the co bit 19 impacting your business either.

Positive way in terms of demand.

Increased demand for some of your products are in a negative way in terms of supply chain interruption.

Yeah. So you know we're fortunate to be right both in.

Businesses that are deemed as a mandatory right on the health care side and on the food side.

Oh.

We have seen.

Major uptick and in salads or you know people are staying home. It's just that the it's not the kind of product that you would be able to store like shelf stable or frozen I don't think you're going to see the uptick like you are in some other food companies, but those products that you know people are getting at all no.

And you know salads, or we think we'll continue to do a do pretty well and and this environment.

And our supply chain has remained largely interrupted [noise].

You know we continually work was our we're very close relationship with our growers [noise].

On the old issues with a supply coming into our facilities.

We have our own refrigerated trucks, so we're able to move products around four geographically dispersed Thunder food side, where we have you know to implant Cindy on the east coast, along with Glaad plant in California. So you know, we're able to err on the fruit side sort of flux.

What this environment, obviously, we put in you know very high.

Standards for Oh employee safety.

That though we have a place and.

That's sort of where we're at right now and once again on the life Coresite.

A good I'll jump haven't seen any change and ER and orders are shipments to date.

So my confidence for Q4, I think that's what you're trying to get that they called it environment is.

You know obviously the drip there's the revenue piece.

You know there's a couple other pieces that are there. One is that's it's great to turn the corner on the avocado products business, where where we'll be down you know shipping high margin.

Product that we have not been able to do for two and a half quarters.

So we're making money there.

We are really tracking very very well with our cost out program.

I looked at beginning of the here you know 18 to 20 million seemed like a stretch.

I've been project managing yet were very confident about making our number there.

And probably more toward the high end.

So that remains on track and it's also all the time a year, where we have the least volatility weather wise, that's historically the fourth quarter than the ER.

The least volatile from a pro do side with Curations foods.

So our programs are on track.

And you know that's that's what gives us confidence as we are in the fourth quarter.

Okay, and just just as a follow up to life quarter, though is it possible with all the biotechnology companies pharmaceutical companies that are working to develop treatment than vaccine.

Particularly on the vaccine side is it possible that fit like core I could see an uptick at some point in some.

Development programs.

That's probably more long term, but I'll, let Jim go ahead, and you know answer that more detailed soil.

Hi, Anthony potentially long term, we've had some interest and I'm not so much the development for those products, but if one's developed on the road Oh I wouldn't.

Core of the capacity or your ability to contribute to production of those vaccines are products nothing short term no.

We've seen a that would impact our development pipeline.

Okay. That's helpful.

Hi, Thanks, I'll hop back in the Q.

Thank you.

Our next question comes on line of Mitch Pinheiro.

Mr going to the question.

Yeah, Hi, I left.

Hello there.

Oh well.

It was it couldn't be well as well as it could be just a couple of quick questions any.

[laughter] with.

I would think though the disruption.

In our in our food system.

She any change to the squeeze rollout or your marketing plans related to that.

No I'd say if you remember we are we talked about.

A bit about.

In the fourth quarter that we were going to.

Spend more money on our new product introductions.

We have two very large customers wanting cattle BBDO won in the U.S. that we are.

Testing like now various models of trying to drive trial and awareness on the product.

We know when we get trout awareness, we get repeat.

So that isn't a.

Slowing us down right now in terms of the testing and learning that we want to gain in the fourth quarter.

We've seen a little bit a shift from some customers on the resets because of cauldron 19, a move from May to June.

Those are just minor chefs, but that wouldn't have bucks the financial impact on us anyway in Q4.

Our plans remain intact to up to.

To a complete our testing well it's a these two major customers.

And again to learn we need to really build awareness and really have to squeeze really begin to workforce and next fiscal year.

Okay.

It is fars life or you know you you're a that raw material shortage from your supplier I know it normalize.

Good good anything with a you know cobot activities impair your ability you know on from that supplier again or.

Hi.

Are you comfortable with that.

Talking about the syringe supply issue yeah.

Yeah I know.

No, but a you know Jim is there anything else that you would want to add to that.

No just just hey, Mitch just to clarify that issue was not through an actual supplier, but with one of our customers that was providing that.

And that supplies or been short often is very stable known shouldn't be impacted.

By this in hasn't been so that's something like all our our raw materials and and critical supplies are we're keeping an eye on and working very hard to make sure we have enough on during.

This call that period.

Okay, and then too many things.

Any any update on not briefly.

We are you know we're.

We continue our testing in a roll out west side.

Driscoll Conrad raspberries, it's going very.

Very well.

And we continue to want to expand that we have a into the that our development cycle for breezeway, which we don't talk much about.

We have some other very interesting.

Customers, where we believe.

The technology can bring a.

Bring a benefit.

To their product line or higher margin product lines.

And we're working with them now.

Proved that what but we're really trying to do with Breatheway, our five customers that we can have scale.

In the past, we've we've kind of work around with smaller customers. We really are very particular about who we work with and to make sure that.

If we you know apartment with somebody that there's going to be enough scale for us to get to get the profitability that we ought to achieve.

[laughter] and on your own product because you just have longer shelf life aspect to your product has that been something customers are aware of in sort of the current environment.

Ah, yes, they're aware of it.

You know, we don't put it on all of our packagers already knows that you know we get the but that's sort of an extra few days the shelf life.

But to be quite honest with here they don't pay for it. So the benefit is us in terms of being able to decrease or shrinkage on our side.

But it's not a benefit that the customers are willing to pay for.

Unlike some of the other projects that were working out with Breatheway.

Okay.

And then I'm just final question any update to your <unk> capital spending plans for this year, what that number might be a year and.

Yeah, Brian handle the cap their numbers.

Yeah. So.

We're managing those numbers much more tightly.

During the Q2 call I I believe we threw out second half spend numbers in the 20 to 26 range.

As part of our focus on adding discipline into our capital spending process and becoming you know you know very stingy about where we're spending money while at the same time.

Really making sure that we're supporting the right growth platforms.

That number has been reduced to somewhere in the 18 range or lower crop.

So so with breed, we're very focused on becoming very very disciplined and diligent about how we spend money on capital and putting it in the right places.

So where does that where do you think you'll end up in the year for the fiscal year.

[laughter] V. the Bank Amendment has a.

Number of 37 million in it and I'm confident that will come in below that number.

Okay.

[noise] if I may just on the the capital side, just a couple things I.

I think it's fair to say that tend to pass we haven't had a.

<unk> disciplined approach to capital.

Yeah, sorry, all facility being an example.

We have bought out to you know capital Committee a capital processing.

Across the really you Gotta prize for a much more stricter I'd cap all expecting that up your spend the money, we're going to get to returns.

And the automation among a lot of the cost all program. The 20 million has come from capital investments through automation.

Which was greatly needed.

That's essentially done.

And that's why we're moving to project is asked but just more.

And operational cultural shift to zero by set our place in a real focus oh. He he of our equipment. So that we started to get more efficiencies out of the equipment that we have.

So.

That's been a decrease our.

Our usage of capital at Curations Foods.

I see our priority is.

We continue to provide to capital needed on the life coresite to generate the growth that they need.

Situation food side, we think that weekend for the next few years achieve a lot of productivity and efficiencies. She was asked without having to spend a lot of body a capital.

Alright, Thank you very much.

Our next question comes from kind of like the to speak with Barrington research, but once again, we would like to announce if you like tests question. Please press star one on your telephone keypad. Once again, if you like tests question. Please press star one on your telephone keypad.

Mike. Please proceed with your question.

Thanks, [laughter] I may have missed this but did you guys give a Q3 revenue for the salads in my guacamole businesses.

Could you.

Brian I don't know, we we have not and we normally would not.

Getting back kind of guy.

No we manage it up but the full segment level.

Okay can you say, how much they were either up or down or any guidance on how they actually perform for three to keep the keyboard yeah, yeah sure.

Indicated in the.

And the press lift as well we are we are up in salads on a year to date basis $9.4 million [laughter], and then that would be on a year over year basis.

About [laughter], 7%.

So you can do the math backwards there.

On the encore bed side, we've indicated that were down we're managing that down purposely right. It's a highly volatile segment and you know I'm a lot has been set on court that you already.

On the being side, we had it's a high margin category for us.

We have had some supply issues there.

Not anywhere near the sort of cost variance issues that we haven't core batch.

And so were down year over year in that area.

Luckily I think at one point you guys had said that you thought Q4 would come in at 18 to 20 million hide.

Yeah, I think a meaningful part of that.

To be sort of the lead up to I think I've done my deep deep.

I mean, obviously that.

To me that would seem like that holiday could be meaningfully impact that could could you just talk about your current assumptions around revenue guacamole for Q4.

Yeah, Brian you want to be sure yeah.

In our current model, which which ladders into the guidance that we've provided we've we've pared back, but I think just to be conservative.

Just a bit a couple of million bucks or so the the guacamole fourth quarter revenue number. We're we're feeling good about hitting that number we're keeping an eye on your shoes that al mentioned earlier.

But again, we've we've already built some we've already appeared that back a bit.

Here here from the earlier guidance or discussions that we met so I think we feel.

Pretty confident at this point.

That will come in probably couple million bucks or so lower than it is just threw out.

Okay. So how much does that impact what you what you were planning on doing on gross margin in that business in Q4, because that was a huge part of the assumption of of the Q4 guidance as well.

Good Yeah, we are still tracking towards the same.

Gross profit margin figure that you know that al indicated.

And there maybe a little bit.

<unk> paring back on the gross profit, but again this is ladders into you know the guidance that we provided.

But for the full year.

And then on on the legal expense of 3.2 with sort of high popping jarring.

Can can you guys speak to that I I know you don't want to speak to what are you can't speak to in great detail, but going from 800000 3.2 million I mean, and essentially thing we have no idea, where this and you can can you speak to that at all.

Are we really can't speak to it I mean, you know right now there's.

Yeah print pack and we have a specific harvest and we're working with the lawyers on.

How to best to handle the situation I really can't talk much more about it.

Was that Brian was up 3.2 was that it.

Looted from.

Adjusted EPS and adjusted EBITDA or yeah. Yeah. It was it was you'll also note in Ah I believe it's in a press release that we we do believe that a fair amount is not all of those dollars will be ultimately recoverable.

Okay.

All right.

That's all got thank you.

Thank you.

Our next question comes on line of like Maraniss, <unk> housing and company. Please state your question.

Hi, My good afternoon, Albrighton, Jeff Hope, you're all staying healthy in safe with everything that's going on thanks for taking my questions.

Hey out some of the color that you gave around.

Capex guidelines and Brian to end the automation initiatives was helpful. Can you just help give us a sense of maybe from be as it relates to the 18 million or cost outs and 18 to 20 million how much of that is tied to automation equipment that has yet to go wind and is there some risk that getting pushed out with old disruption.

Happening out there or is that equipment essentially already at an ALJ just using it.

Yeah that yeah that equipments, essentially and we had one final piece to go and that's.

That affected by a couple of weeks, but it's not meaningful okay.

Well, we we feel we're we're pretty well on track with what the equipment going in.

Okay. That's helpful and then I guess as it relates to the balance of the Capex, even on the reduced number I mean, the commentary in the recent helpful. As it relates to capacity utilization at life core help us understand what that money is going towards.

[noise] <unk> the majority of it in the second half of the year is going to life correlate I'll, let Jim sort of speak to to the uses of that cash and and the platforms that are being supported.

Yeah, Hi, Mike and I think we've had this conversation before but what we're using that money fours is filling out the capacity for some of the commercialization of the products in our pipeline you know we're currently the.

The 17 million is really a.

Theoretical number based on the infrastructure, we have set up and the number of fillers. We have there's still some things for some of these products as they continue.

To grow old.

For formulation work or packaging type operation. The other thing that we think based on or are we project based on the commercialization rates of the of the weight based products in our pipeline that we will fill that capacity.

The next three to four years and are also starting to.

Spend money on facility in infrastructure to go beyond that 17 million. If you remember I talk about you know takes three to four or sometimes even longer years to put additional capacity and by the time you.

Equipment ordered installed and then go through the regulatory approval process. So that's kind of a combination but all focused on.

Managing the capacity to meet future demand.

Great. That's helpful. Jim in your experience you know with the FDA has given all the uncertainty that's out there I mean I'm not exactly sure how it might work, whether the FDIC and reallocate resources is there anything that you're seeing right now that would impact the timing of some of the products in the pipeline programs in the pipeline as it relates.

To the outlook for life work.

We're not seeing anything right now and you know the the primary product that we're you know expecting approval on during this calendar years already complete done in the final stages of after you review we have several.

Opportunities that are enrolling clinically in phase three and in phase two and obviously several in early phase clinical but we haven't we've talked to our customers almost on a daily basis and happened.

Seen any slowdown if resources are reallocated or potentially in the future could cause.

Delays with a clinical trial accrual.

Things are slowing down big time, there, but the trials that are ongoing or in a place where that hasn't.

Impacted them. So we haven't seen anything the other thing other comment I'll make is some of the opportunities in our pipeline R. Tech transfer related so increasing volume of product that we already manufacturer transitioning it from another supplier that doesn't take.

Any or very minimal F D.

Input so that she other reason.

We're still pretty confident and where the pipelines heading and how that will impact.

Capacity needs in our operation moving forward.

Sure. So it sounds like maybe potential longer term opportunities depending on you know I guess a lot of uncertainties, but as it relates to the near term opportunities that they do have you guys. Most excited nothing on the horizon, that's changing your expectations.

No no we haven't seen anything today no.

All right gentlemen, thank you very much for taking my questions as well.

Thank you too.

Ladies and gentlemen, we have recently ended our question answer session and I would like to turn the call back over deductibles for any closing remarks.

Thank you for your interest in Landec and a have a great day and everybody stay safe out there. Thank you very much.

This concludes today's conference call you May now disconnect. Your lines at this time. Thank you for your participation have a wonderful day.

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