Q4 2020 Landec Corp Earnings Call
Good afternoon, and thank you for joining landecs fiscal 2024th quarter earnings.
With me on the call today as Dr. Albert both.
Next Chief Executive Officer, and Brian Mclachlin, Linux, Chief Financial Officer, and Jim President of life core who is available to answer questions.
During today's call. We may make forward looking statements that involve certain risks and uncertainties that could cause actual results to differ materially. These rates are outlined in our filings with the securities and Exchange Commission, including the Companys 10-K for fiscal year 2018, Let me turn the call over too.
Oh falls.
Thank you and good afternoon, everyone.
As a leading innovator and diversified health and wellness solutions Landec is comprised of two operating business.
Life core biomedical and Curations foods.
Landec designs develops manufactures and sells products.
Food and pharmaceutical industry.
Life core biomedical, there's a fully integrated soundtrack development and manufacturing organization or CDMO that offer is highly differentiated capabilities.
And the development still incentives are difficult to manufacture pharmaceutical products distributed in syringes think vials.
As a leading manufacturer of premium injectable grade higher like asset or stage say why score brings over 35 years expertise as a partner for global and emerging pharmaceutical and medical device companies across multiple therapeutic categories to bring the innovations to market.
Richard Foods natural foods business, it's focused on innovating plant based foods.
On a precise clean ingredients to retail club and foodservice channel throughout North America.
Drescher foods is able to maximize product freshness.
Your graphically disperse not work growers.
Richard its supply chain.
Passionate breatheway packaging technology, which naturally extends the shelf life through.
Vegetables.
Duration food brands include eat smart fresh packaged vegetable salads, Oh premium artists and oil and Burger products and you could tell having trouble fresh.
Cattle products.
We are focused on creating shareholder value by delivering against our financial targets.
Turning our balance sheet investing in growth.
Limiting our strategic priorities to improve adjusted EBITDA margin duration foods, and driving topline momentum that life core.
We have set clear priorities and decide return on the best metrics support the future growth at both life core and Curations foods.
We are committed to maximizing the value of our portfolio through styles and thoughtful execution in each of our segments.
While protecting the plant up for future generations sustainable business practices.
Life core continued to deliver on its track record of high margin revenue growth.
We realized an immense benefits from the stability of our life core.
Business in fiscal 2020.
However, critical 2020 proved to be a transformational year fluctuation codes organization, which faced several significant challenges to turn around.
Around this business.
That's presented several opportunities for us to pull together as it seemed to identify solutions.
It is these solutions that provide the foundation by which we will grow from.
Scope 21.
With the announcement, not becoming Landecs president and CEO on May 28, 2019.
I shared my commitment to drive profitability like transforming curations foods to deliver shareholder value.
We are executing against this commitment by maintaining our focus on innovation.
Simplifying our business.
Moving our quality, while driving productivity and operational excellence across the organization.
Since the launch a project Swift and January 2020.
This program has guided our organization toward improved operational and financial performance and provided US a framework to achieve our strategic priorities in turn around Curations foods in one year, we've made tremendous progress and the results are beginning to show that our financial performance.
We studied our network of national manufacturing assets to understand how to best optimize our business.
So to the lean manufacturing principles.
With this activity.
We solved the manufacturing issues that are guacamole products plant and now have that acquisition fully integrated.
Additionally, we completed the implementation of our cost out the initiative, which delivered savings or four I had planned then a significant proportion will carry into fiscal 2021.
We redesigned your organization, putting the right people in the right jobs focus and working together.
We also performed a thorough analysis of our core assets in product lines.
What's included this strategic review of our legacy vegetable bags and trade business.
Today, we're announcing that we are keeping a smaller and more profitable back in trade business as well as an out through the sale of Ontario, California dressings facility.
The proceeds of the sale well be used to reduce the balance sheet leverage.
And as previously announced we are working toward the pending closure and sale of our Hanover, Pennsylvania facility.
The consolidation of our external business offices into our Curations foods headquarters in Santa Maria California.
The total annualized cost savings from these actions will be approximately $11 million.
This was an extremely heavy lift for any organization than a single year, which was further tested by the added complexity from Nicole Good 19 pandemic during the fiscal fourth quarter.
Despite these challenges.
Well to generate a significant improvement.
Ration food gross margins and adjusted EBITDA in the second half of fiscal 2020.
Which is a springboard that we will be growing from in fiscal 21.
I'm proud of the resolve that actuation foods team demonstrated.
Today, we are introducing our full year fiscal 2021 Oh.
We expect consolidated revenue from continuing operations in the range of $530 million to $550 million.
Which implies a decrease of 10% to 7% versus fiscal 2020.
That's revenue reduction reflects our continued strategy simplifying and strictly the curations foods business by making it smaller and more profitable.
Which is more than offsetting the 830% growth we're expecting a life course this year.
However.
Due to the improvements in our cost structure.
We expect consolidated adjusted EBITDA in the range of 33 to 37 million.
What's implied growth for 50% to 68%, they're not consolidated adjusted EBITDA guidance implies an approximate 250 basis points lift.
Adjusted EBITDA margin versus fiscal 2020.
The flat have several key elements that we expect to contribute to our success this year.
And tenured studied double digit growth that lives core in an acceleration of adjusted EBITDA growth.
We expect last quarter, we'll continue to leverage its robust business development pipeline.
Favorable industry trends supporting growth.
Exactly customer demands and expect the FTC approval and commercialization of new therapies.
Acceleration foods, just still 2021, it's all about realizing the benefits of our decisive actions associated with project Swift, which includes.
Number one delivery of Yucatan profit from all four quarters fiscal 21.
Number two cost out improvements carrying forward into fiscal year 21.
Number three rightsizing, our legacy vegetable bags and trade business.
We made significant progress with our key strategic customers.
They have strengthened and simplify this business well the refine product assortment was significantly improved contribution margin.
Our plan in place they revenue reduction from this business of approximately $50 million to $60 million to a new run rate of approximately 100 or how do the $10 million Dan rather than.
The outcome of this action provides a teacher customers with a full product assortment.
Proves gross margin by realizing logistical efficiencies overhead cost absorption for our complete product line. The capitalization full impact of our cost initiatives that were implemented to just go twice.
For filing we believe we have more adequately reflected risks associated with key uncontrollable variables of the business such as raw materials volatility.
That's your ongoing colder 19 impacts.
Before I share more details on our fiscal 2021 priorities and business updates for life, scoring duration foods.
I'll turn the call over to Brian.
To answer all highlights and a deeper discussion around their fiscal 21 outlook.
Please what some modeling considerations that you think about the sequencing for the year.
Thank you Al first a quick review of our fourth quarter in year end results. As a reminder, we previously provided preliminary results for revenue net income and adjusted EBITDA During our June 29 beliefs.
Consolidated revenue increased by 2.2%.
$156.1 million, which was primarily due to a.
5.8% increase in light quarter revenues in a 1.5% increase in our Curations food segment like worst performance was primarily driven by a 13% increase in its CDMO business, partially offset by 23% decrease instrumentation business.
Duration foods performance was primarily driven by 19% increase and that's all decato products does not.
At 13% increase in its technology business.
This was partially offset by a planned 1% decrease and it's fresh packaged salads and vegetable business.
Gross profit decreased 8.1% year over year do the combination of a 10.2% gross profit decreased at Curations food and a 5.4% decrease at like score.
As discussed previously duration foods was negatively impacted by significant shifts in customer demand toward some of its lower margin product categories.
As well as irregular customer order volatility brought about by the code at 19 pandemic [noise].
This resulted in a cascading effect of order cancellations, which caused supply chain efficiencies and other operational impacts on our business temporarily rotated our gross margin.
Life core would negatively impacted due to prudently previously announced temporary manufacturing inefficiencies associated with the new safety protocols that were implemented as a result globally that mix.
These issues have since been resolved like where expects good sell through its higher cost inventory by the end of Q1 fiscal 21.
Thereafter life core is expect to return to its normal gross margin rates.
Landecs net loss was $15.1 million Q4 fiscal 20 or a loss of 52 cents per share, which includes 6.8 million restructuring and other nonrecurring charges net of taxes.
And 9.7 million of impairment of goodwill and intangible charges also got attackers.
Excluding the 57 cents of nonrecurring charges and goodwill impairment adjusted diluted net income per share was five cents.
Adjusted EBITDA increased 45% to 14.1 million.
Compared to 9.6 million in the prior year period.
Turning to our financial position as previously announced on July 15, 20 Twond.
The company entered into the eighth amendment to the credit agreement.
While we are incurring a 50 basis points increase in the put couple interest rate. This is a transaction that accomplished our goals, while minimizing cost anything they're pleased with the flexibility that our lenders completed.
We have made and close communication with them and they appreciate the positive term impacts that projects with its happening on the business and resultant financial improvements that are reflected in school 21 outlook.
Deleveraging the balance sheet continues to be a top strategic priority for the company. We're kicking a disciplined approach for every investment we make ensuring that the investment delivers a strong return on investment.
Further we are focused on divesting non strategic assets to that end today, we announced the sale of our salad dressing facility in Ontario, California for $4.8 million those proceeds will be used to pay down debt.
Shifting to our outlook as al mentioned in his remarks, we're setting annual guidance for fiscal 2001 in doing so we are managing the business from annual perspective with two main indicators revenue and adjusted EBITDA. Our fiscal 21 outlook is as follows consolidated revenues in the range of 500.
30 million to 550 million, representing a decrease approximately 9%.
Like work on the news in the range of 93 million 97 million representing growth of 11%.
Curations foods revenues in the range of 437 million to 453 million, representing a decrease of approximately 12%.
From an adjusted EBITDA perspective were anticipating consolidated adjusted EBITDA in the range of 33 million to 37 million representing growth of approximately 59%.
Life core to range from 22.5 million to 24.5 million representing growth of approximately 17%.
Curations foods to range from 12 million to 14 million representing growth of 193%.
With respect to expected seasonality for fiscal 2001 outlook, we have a few considerations to assist in your model.
From a revenue perspective, we anticipate minimal quarterly seasonality at the segment level for both life core integration issues.
This is the result of a coordinated effort at like core to work with customers on shipment timing and we expect it to be much more balance compared to prior year.
From an adjusted EBITDA perspective, we anticipate that a similar balance will occur during fiscal second third and fourth quarter, It's where both segments will be a cheating normalized gross and adjusted EBITDA margin.
However, as it pertains to Q1 fiscal 21. It is important to note that we expect to realize lower relative adjusted EBITDA margin [noise].
In both segment related to headwinds, which will resolve as we move into Q2 fiscal 21.
Curation foods manufactures avocado products from September to me to take advantage of lower cost fruit.
[noise], our normal cadence is down a bit seasonal plant closure during the summer months. This results in seasonally lower rates of profitability due to lower fixed cost absorption.
Curations boots.
For life core in Q1 fiscal 21, the business is experiencing temporary margin compression associated with the sell through of its higher cost inventory.
Bolting from Q4 fiscal 20 manufacturing inefficiencies associated with co Goodnight.
Right.
He's manufacturing inefficiencies were resolved in Q4, and we expect a life course gross margins to revert to normal levels beginning in Q2 fiscal 2000.
With that I'll turn the call back down.
Thank you, Brian Let me go into more detail about the progress we are making it our lives core and Curations foods businesses to maximize shareholder value across the portfolio.
Last quarter continues to see momentum benefiting from the three industry trends number one a growing number of products seeking FDA approved.
Number two.
Increasing trend toward sterile injectable drugs and number three they growing trend among pharmaceutical and medical device companies to outsource the formulation and manufacture products.
As a highly differentiated and fully integrated CDMO lifeguards position to capitalize on these tailwinds and continues to establish high barriers to competition.
Of course speed and efficiency benefits its partners like decreasing their time to market, which has the immense value and their ability to improve patient lives through commercialization of their innovative therapies.
Looking forward.
Last quarter, we'll feel its long term wells by executing against its three strategic priorities.
Number one.
Managing an expanding its product development pipeline.
Life's car added one new business development project, increasing this development pipeline to 16 projects in various stages of the product lifecycle.
Clinical development the commercialization.
Which aligns with the businesses overall strategy.
Number two.
Meeting customer demand by managing capacity and operational expansion to meet future commercial production needs.
The man stands at approximately 6.5 million units this fiscal 2020.
<unk> implementation of lean manufacturing principles and continuous improvement.
Core increase its manufacturing capacity from 17 million units to 22 million an angle production.
Writing immediate incremental opportunities to meet customer demand.
And number three continue to deliver out a strong track record of commercialization sort of product development pipeline.
Life, who are currently is planning for one to two products and development to be approved by the F.D.A. for commercialization and really supporting their long term double digit growth.
On July 24 2020.
There are on therapeutics announced that it be seeing a positive opinion.
The European.
Medicines Agency committee for medical products for human use and recommended the grafting of a marketing authorization or its treatment of post operative pain here.
Parents therapy Zero House.
Which was formally known as the H.T. acts Oh, one more on candidate as a non whole played.
Fixed dose local anesthetic.
The treatment of post operative pain.
Last quarter has been a proud partner of hair on for many years, providing process development in support of the regulatory approval process. So this therapy among others.
Continue to support hair on and at the FDA approval process.
We look forward to the future positive outcomes.
And congratulate the entire Harrods in life core team on achieving this major regulatory milestones.
Procuration foods.
The exceptional outcomes the project Swift have created a foundation for future profitable growth.
We are now strongly position to deliver on trend plant based foods solutions to customers with a combination of unique capabilities.
Make curations foods truly differentiated and when the market.
We offer a proven internal innovation capabilities, creating food products that meet consumer demand for 100% clean ingredient products.
We serve our customers in North America, well the direct Salesforce.
Across the fresh food supply chain and a nationwide refrigerated supply chain that deliver our products into freshest stake possible.
Duration codes priorities moving in fiscal 2021 number one project Swift.
We'll continue to focus our efforts network optimization lean manufacturing principles and an ongoing strategic review all aspects of our business.
Specifically, we will carry the principal obsessed our lean manufacturing program.
Across our network to support and engage with our employees, who are critical and our ability to deliver sustainable continuous improvement.
Number two plant based food innovation launches.
Several new product launches in the pipeline for fiscal 2001 that deliver on the consumer trend toward fresh <unk> light based products under our eat smart brand.
We are focusing on consumer insights to drive high margin growth of our salad innovation and other adjacent product categories.
And we will support these product launches with strategic spending to drive trial and brand awareness.
Number three focused on culture, the health and safety of our people and products has always been a priority is foundational to all our actions sets alongside of sustainability mandate to reduce their impact on the planet.
That has not and will not change we are working on building a winning culture.
As we transform and simplify the way we do business. The team is focused on accountability.
Teamwork with a mindset successfully moving forward together.
In summary.
We have made tremendous progress under challenging circumstance.
Lens that team is focused on creating value by delivering against our financial targets.
Strengthening our balance sheet.
Implementing a strategic priorities, so group operating margins and making strategic investments in growth.
We intend to fully realize the potential of each business through silent and thoughtful execution, creating sustainable value for shareholders customers employees and communities.
Operator, please open the call for questions.
Thank you if he would like to ask a question. Please press star one I knew telephone keypad economies in total indicate your line is in the question can you May press star to if he would like to remove your question friendly Q.
Our participants using speaker equipment, it may be necessary to pick up your handset before pressing the star. He's our first question is from Brian Allen with D.A. Davidson. Please proceed.
Yeah, Thats a good afternoon everyone.
Hey out a quick question start.
Do I have this like from your prepared remarks that he you would expect the bag and trade business down to 100, 210 billion, which would be down I think is it 50 to 60, but do I have that right.
Yes, you do right.
Okay. So that would be that would take us from a kind of what are your guidance is the flat right axeing exiting that out there's been a fair amount of optimization, both with from the plants and the skews over the past 12 months can you just help quantify the other puts and takes there that might be a flowing through.
The revenue acceleration, there or the other meaningful a flow throughs there.
No. We're a you know expecting you know to have Ah.
Keep us double digit growth and our avocado products business.
And we are expecting you know growth in our salad business as well as I said, we have a number of.
New innovations that are in the pipeline that'll be coming out and that grows you will.
See two out the year as we head into Q2 Q3.
But just back to the decrease you know we one of the most important projects some projects Swift was rushed though.
So valuation we took to pass on the core badge and trade business and.
You know that deal today, we looked at selling yet or making any small are much more profitable business.
And.
Through the cost no program that we over delivered last year.
And the changes I made in the Salesforce, we're able to form a much stronger partnerships with fewer customers.
That have enabled us to improve our gross profit.
That product line.
Point, where it just made sense for us to keep it has a much smaller business.
And the benefits you know for us would be.
Oh, we have a full plant based food product line out to our strategic customers, we gain logistics efficiencies overhead absorption.
And the cost out as I mentioned from the core bad yet we achieved last year and carried a fair amount of it and that's why 21. So that's you know the day, just make sense for us to keep smaller but far more profitable core bejan trade business Brian.
And to be clear there was interest in that asset.
There was we had several people that were interested.
But what's the changes that we made that I outlined it just didn't make sense for us from a shareholder standpoint.
Ah to sell.
Understood that's helpful.
When you, let's talk about a month ago talked about the mix shift.
I'm focused on Curations I understand the moving parts on my quote, but it sounded like I did stabilize through May wait wait when we last heard from yet just curious you know couple of months later, how does that help it was that trend held a consistent through July and they you know when you refer good mix stabilizing I just want to clarify.
Is that in comparison to pre Cobi, maybe a normal for the backdrop.
Right I think what you're talking about is a they Q4, we had a fall off at some customers that's right <unk>, namely you know our our mass club.
That has come back and it's back now to a runway.
ER.
Where we were pre pre cold that issues. So we are.
Feeling good about our weekly monthly sales now that we're achieving.
And as the mix adjusted now that being said you know the the being business is still down because of foodservice.
And trays have not recovered to the point, where they were pretty cool that but some of our higher margin businesses have indeed be covered.
And then you would if we just hold that board I won't speaking about your guidance.
Do we assume that things continued to get better from here. What did you take kind of where we weren't yearend and help that through and your outlook I know how did we shape that.
Well, we have built in some conservatism.
Based on.
Older 19, and.
Ill.
Possibility of another impact in the fall.
So we've built that into our guidance.
Along with the fact that.
What's the improvement in profitability of the core of that business. We now feel like that we had in place the ability to ER to manage the volatility.
Quarter to quarter that we can see an AD business based on weather.
So.
I would say that we feel very confident.
About the plan that we have in terms of bar.
Ah revenues and our adjusted EBITDA.
What the built it affects the any headwinds that may hit us last year or this year.
Okay and you answered my other question without so I'll leave it there thanks best of luck gentlemen.
Thank you.
Our next question is from Jerry Sweeney with Roth Capital Partners. Please proceed.
Okay I tell you now Oh, Hey, Brian how are you guys don't appreciate the then it gets time here.
And Curations back in the core business, how how challenging of a decision was it at the end of the date.
Keep it versus other options.
That's sort of believes point, where there are other options in terms of.
Buyers for the sort of business.
Yes, I mean as you know you know Jerry we talked about we're going to run to pathways on this yep.
Which we did.
And you know we were excited about selling it I was certainly.
But in all honesty as we went through.
Our process of improving our margins.
Simplifying the business.
The cost style that was over achieved last year.
It made it up.
A pretty easy to skip the discussion with my board.
Got it was best for the shareholders that we keep a smaller more profitable business.
And it would really help us in terms of.
As I said before you know our logistic efficiencies overhead absorption is.
Things of that nature so.
Rambler processes that at the end of the day, Jerry It really wasn't that difficult decision.
Okay.
That's fair or that 50, or 50 to 60 million that's going to go and core business couple of questions on that's no or we're going to see that right away and this fall season coming up and too.
Maybe green beans aside.
That 50 to 60 million of revenue is that if that core business that has traditionally been very powerful, especially with weather, which again hard too.
Uh huh.
He gave predict but yeah I mean, how much of that is how much visibility do you have or how much have you taken into account volatility on a good for patients.
Yeah, Brian you want to take that one yeah, yeah. So.
One of the things that.
We've done this year in our guidance and it's embedded in the numbers is we've actually gone back and looked historically, there and there's actually a pretty tried and true pattern across the quarters in terms of what you can expect and the way a weather volatility hitting core and trades and we keep talking about Corbett had spoken with both core and trades.
And so we have push those numbers.
Into our guidance I'm in it and so what was previously had a numbers that I did I don't think or historically had not been.
Reflected in the you know in historical guidance is it is embedded in our guidance this year and so what in the past might have been viewed as volatility I'm, hoping that going forward will be viewed as seasonality because we see if I understand it Hamburg and we're building it into our numbers, but those but the you know the.
Margin numbers that al is referred to.
You know the you know the benefit costs out and as well some of the price increases with our strategic customers who are working with us.
Those those benefits are actually net.
Pushing that risk reserve into our overall guidance, so far hoping pod into that you know you won't see the volatility, but you won't see that seasonality.
Okay, that's fair.
Stefan.
Helpful shifting gears, maybe a little bit to life core.
You know you mentioned her on specifically in the granting of yeah I guess.
The license or to sell that house I guess in Europe any idea.
How.
Large product that can be could be.
And.
Any type of.
You know substance around from that perspective.
Hi, Jim you want to tackle that one.
Yeah sure how Gerry Unfortunately, I'm not going to be able to provide any guidance on demand productions for.
Either you know the U.S. or rest of world. That's something that is gonna have to come out of Heron.
They do project that there's a significant market over there just like in the U.S.
That's why they're going after it so it's positive news or just wanted to recognize all the hard work their team has done to do that and we're looking forward the continued to support them moving forward.
Got it okay I'll, we can take around here.
I appreciate that's all for me I appreciate it thank you.
Thanks Jerry.
Our next question is from Bank Patricia Ski with Barrington Research. Please proceed.
Hey, guys, good evening and <unk>.
They've missed that but.
Did you guys give cash flow from upfront capex for the quarter.
Brian.
No we didn't I mean, we what we generally the information that we generally provided to poke has been sort of the EBITDA number for the quarter. So it was 14.1 million on an adjusted basis.
In terms of Capex for the year <unk>, Yeah can you provide cash flow from up some capex.
Yeah, Let me see all right.
You know I just had to year end numbers right in front of me here I can follow up on that but it was and it was pop right.
I'll take your end cash flow from ops and Capex.
Your end cash flow from operations.
Hum was actually a negative 17 million I'm, what I'm doing as I'm, just looking at the cash flow that and they you know it's in the press release was negative 17 million and the overall Capex number was 26 million or 27 million.
And so when you have those up you're looking at a number of about $43 million to $44 million and that was in essence funded over this past year with an increase in debt.
Just over $40 million between the term facility and the blender credit.
Can you guys speak to Capex expectations for 21, and all so if you see a positive free cash quarter in fiscal 2001. Thanks.
[laughter] yeah. It's so the the number that we're guiding right now for fiscal year 21 is about its about 34 million of data to that.
About 15, 14 or 15 million in.
[noise] Curations and about 20 million in life core.
And at this point with our with the asset sales that we it's close to being a positive cash flow for the year apps and pass it on asset sales, but with asset sales working out that number be.
You know breakeven or positive number.
And as we move forward into the future [noise].
Future years, we're looking at those numbers the.
You know fairly positive or even so we're trying to get away from.
The past, where we've been I'm in a negative <unk>, we've had huge capex funding a lot of that has been in curation foods for assets that today were.
The and term regard regarding its non strategic and.
Liquidating and then taking I think a pretty disciplined approach to what we are spending money on duration and making sure that were funding. They you know the proper growth initiatives like quarter going forward to looking young.
Managing that Capex number two to a tighter numbers and I think we've seen in the past.
Okay I may have got slightly lots at the beginning of that did did you say positive cash flow from <unk>.
Were positive or close to breakeven Nashville crops are.
No it's actually not it's actually it's actually negative from off this year, but with our asset sales.
Down below where actually that's actually going to be there will be generating positive pod. So gotcha. So sorry that was confusing no no no. That's not perfect on can I also ask in terms of you said you expect growth in salads in double digit growth and walk.
For this year the growth in south how much of that growth. It sounds like it's probably somewhat modest how much of that growth is.
Sort of tied to new product launches I mean does that in a majority of the growth at the projected there and then on the block how much of that is associated with the squeeze or any other new products there. Thanks.
Yeah. So.
I can give you more you know details later, but you know in general.
On the salads business, we have a huge push to gain a incrementality.
So we have several new product lines that we are going to be testing and launching that are.
I'm going to be incremental.
Our current business and what I mean by incremental would be something that's just beyond a regular salad or the plant based proteins held you heard me talk about.
And we have also have some other salads, though we believe.
You know as we are working much more closer with our customers through a new salesforce.
There's still a lot of white space for us the gain in the U.S. in terms of HCV and we're developing.
New lines of salads that meet the customers' needs.
As well as though that are still in a sweet spot of what consumers want.
So that's I'm just outside and I'd be cattle product side, you know we continued to gain distribution.
Squeeze.
But we also have a gaining distribution on our Cabo fresh tubs.
Which is turning out to be a very strong brand name tourists are with millennials and those areas. We're going to see continued growth in as we move forward through the fiscal year.
Hey, just real quick last one the Guy the guide for EBITDA. This year does that include any expectation of leverage on yesterday line.
Yeah.
<unk>. So yeah. So in other words are we scaling or improving the S. DNA line as a percent of revenues.
It's coming down and we are realizing actual dollar savings if you sort of net out.
Some of the.
Coated dollars that we have at this point sort of reserved in there as a percent of revenues, though is not coming down because were decreasing rabbit because we are decreasing 11.
By a significant amount.
So we do believe that.
We have the right level of asked DNA, we you know I'm carved it back quite a bit in this past year, we right size the business it close to offices.
And we're taking a much tighter look at making sure that the spend that we have in marketing and R&D very effective Stan.
And it is down it will be down year over year, it's part of the $11 million that al reference that's roughly half of that but again given the decrease in poor garbage revenues as well as.
You know some of the you know mild impact that we're having as well and unfavorable impact actually on being because the.
The from service component. The overall revenue line is sort of compressing that you know that number so you're not seeing an actual benefiting from an overall.
Opex ratio standpoint, but the actual spend this is down.
So maybe maybe for flattish to slightly up.
Yeah, no, it's it's pretty close to flat, but its but you know you know, but its rounding up a bit yep.
This is.
Yeah, I mean, I'm and I was referring more to Curations Oh, yeah, yeah. Okay. They can still lots of good information. Thank you.
Thanks.
Our next question is from Mark Smith with Lake Street Capital markets. Please proceed.
Got it supposed to might have been answered, but just wanted to look at kind of big picture as you're looking at it covert impact that's built into your guidance.
You know if you just seen enough kind of sequential improvement.
Late last year in and really.
So far this year in and 2021 to give you the confidence that you. It's really more so just Q1 impacting you don't have as much impact through the rest of the year.
Yeah, Let me, let me answer that in a Brian you may want to add some more color, but oh, we have seen the recovery we've talked that.
There is an ongoing costs that we still get.
In our facilities right for the increase in sanitation.
The social distancing.
You know the.
That's to cleaning we have to do things any offices.
What we're planning for though is in well together being conservative.
As you know if you have.
Quote unquote, a second waves in the flu season.
We have some conservatism built in for called it impact in both businesses.
Right and every one of data for that.
Yeah, so on one.
It's we've we've got something that's roughly in the you know 150 to 200 basis points.
Revenue sort of built into our numbers and we have them actually built in.
Across the year at this point [noise], rather than just looking at Q1 and thinking that everything magically get better decisions. We get the September I think we all can feed that that's not the case.
So so we have sort of built in across the entire year at this point sort of the pattern.
And what is a more stable set of numbers coming out of made it makes a lot back in April which is which really caused mostly disruption. We had in Q4, and we sort of taking those pattern and walter them forward across.
Across the entire year. So that you know given the uncertainty you know that maybe more than enough on that you'd be just what we need to maybe let school.
I think we're all trying to figure out where you're going with it.
Does that help you because I answer your question Yeah, I know that that's helpful that you've built in for kind of though the full year and ER and are looking at the the full impact.
And I guess and also just back to there's one other questions earlier on our Opex number.
Some of that burden as well across two years built into that number and then also helps explain along with the lower revenues you know why that numbers being held up a little bit more than it might otherwise.
Okay that makes sense and then just as we look at Curations. We've we've talked a lot about another call here, but any other headwinds that you see kind of excluding cove. It as you look at it kinda crops labor you know anything else that you're kind of keeping your your eyes on right now that that may pop up in cost them some headwinds here.
Yeah, you know, we're keeping our eye on labor.
You know our facility and Santa Maria has been a hot spot.
You know we've had.
You know.
A very low amount of our employees have had.
I guess would call that they have not contracted in the plant.
So it's something that we are keeping an eye on because it's hard to get people from on the weekends to maybe social gather.
But in general that's an area that we are managing very actively you about coal the task force that so ran by our head of quality and food safety.
And so even though we've had some people who have had oh, we have absolutely no hot spots at our facilities.
Something to be.
Continually keep an eye on.
Okay.
If you had any labor issues on on bringing on new people as you've you've looked at expanding capacity and in certain facilities.
No. We have done a you know where we are taking our as you know, we're making <unk> footprint much smaller.
And we're being able to.
Really improve our efficiency was not to the amount of people. We have the fact, mark we've done a lot of work over the last year in our Glaad facility to automate.
How we're really getting there is to focus on lean manufacturing principles.
Centered around Oh, ie really getting.
You get power lines run more efficiently.
Engage our employees train them.
To help us being able to go his sweat the assets more and improve our overall wholly he gets how we transformed the facility in Mexico last year.
And we're applying those principles to both go out and I believe these facilities.
Okay, and then last one for me just kind of going back to kind of the the growth within the GWAC business and if we look at kind of emerging brands and competitively. It may be heard speak too, but you within this built into this double digit growth.
Is there any new products that are coming later in the year, that's kind of built into that or is that kind of core business that you haven't products today.
[noise], it's it's a [laughter].
[laughter] Corbett, we've got a lot of stuff built into core business. We have some items that were looking at that or are not built into our plans that we may or may not get into this fiscal year.
Okay. That's helpful. Thank you guys.
Thanks, a lot of three as a reminder, just star one on your telephone keypad. If he would like to ask a question. Our next question is from Mitch.
Pinero hysteria and company. Please proceed.
Hi, Good afternoon couple of questions for me.
First quarter of 21.
Are we gonna be positive EBITDA.
On an adjusted basis.
Yes.
Okay, and though with though should we expect earnings per share to be a you know just doing the math it looks like it might be a.
Negative, but better than Q1 of the other prior year.
Our EBITDA is going to be positive [laughter]. Okay. Second question is balance sheet in over the years I've noticed yeah, you're working capital keeps climbing and not just cleaning because you know <unk>.
I guess some business that you know went up but as a percentage of sales it keeps moving the highest rate I've seen it since covering you guys why isn't going up and what is your expectation for working capital is it going to be a source of cash or use of cash in 21.
Yeah, I see it it being a source of cash, but what we have happening here and this is something that it's a great question prestigious introduces the folks who may not have already locked into it.
With the Yucatan business I'm, the way that that business model works it's from.
I'm really October through April you know, maybe sometimes in the many.
We are not only building inventory to service and fulfill current orders, but we are.
Building up a safety stock at inventory to carry us through the summer month, and so as we're coming through those months were actually building up.
Somewhere between I'm, an additional 15 to 20 million in inventory onto our balance sheet. So you're seeing that as you know you know a pretty huge.
You know use of funds as we go through as we go through those months as we then goes through.
The months from me sort of three to September you're seeing as a deplete that inventory and then we'd be in could sort of start building up it flow rate down, but then it accelerated rate as we move back into the next cycle. So that is a yeah I would say that the other parts of you know apart from Capex down.
And just sort of comes in a different periods and eat smart has a pretty you know stable.
Seasonality in terms of revenues and you know trading assets and liabilities you know that go with it we do have the seasonality.
He did it centered more in Q2 Q3 that goes square.
You know the wrong a product this grizzard that I referred to.
Two earlier, but then probably the biggest thing that does that would that we'll get the balance sheet a degree of seasonality that it if not sooner than the path has been on will be its you cut down cycle that I just described.
<unk> was there additional inventory as of May 31, being built yucatan.
It was being built all away from October across the year or so.
You know into May so as we were sort of navigating a lot of the issues. No. One you know nailing down or cost out much of that was delivered in the fourth quarter.
You know reworking the business model and stabilizing the business model Yucatan from the beginning of last year, which will be fine. They worked our way through some of that high priced inventory.
And you know good.
Early February timeframe, but all along that cycle from from October on new would building up be asset base and inventory days.
Neat, but we knew we would need in may the carrying through the summer to avoid what happened last summer.
Which is that we had to produce during the summer during the very very high I'm seeing a fruit Cox season, yeah. So so yes.
We we did not run through May 31st So we took the plant down in early may.
Ah so that we would not.
Your peak what happened to us.
Last year, we had a run into the high food costs.
So you know, we're very confident about the proof that we have.
Put away that if that was your question in terms of understanding the cost.
Yeah, No I got Yep, that's good and that I didn't really understand one other thing.
Did you.
Did you answered the question.
What your cap ex <unk>.
Spending is gonna be.
21.
Yeah. So it's good for guiding and we've also committed to the bank as well.
A total number of 34 million for the year and doing so we've committed to limiting that which is right in line with our operations done you know the bank work with us on their 12 million for the first half of the year 12 million or less for the first happening here 34 million or lesser before year.
Thank you very much appreciate it.
Mhm.
We every 10 never question and answer session I would like to turn the conference back over to management for closing remarks.
Yes. Thank you today for your time and your continued interest in Landec.
This into the conference call.
Thank you. This does conclude today's conference call. You may disconnect. Your lines at this time and have a pleasant day.