Q1 2021 Landec Corp Earnings Call
[music].
With me on the call today, Dr. Albitar balls, Landecs, Chief Executive Officer, Brian Mclaughlin, Landecs, Chief Financial Officer, and Jim Hall, President of life core during todays call. We may make forward looking statements that involve certain risks and uncertainties that could cause actual results to differ materially.
These risks are outlined in our filings with the Securities and Exchange Commission, including the company's form 10-K for fiscal year 2020.
Let me turn the conference over to Albert.
Thank you and good afternoon, everyone.
As a leading innovator in diversified health and wellness solutions.
Nick is comprised of two operating businesses.
Life core biomedical Inc. Curations codes.
Well that designs develops manufactures and sells products for the food and pharmaceutical industry.
Last quarter biomedical is a fully integrated contract development and manufacturing organization or CDMO.
Oh for is highly differentiated capabilities well development so expenses did.
We'll go to manufacture pharmaceutical products distributed in syringes in vials as a.
As a leading manufacturer of premium injectable grade hyaluronic acid or ha last quarter brings over 35 years of expertise as a partner for global and emerging pharmaceutical and medical device companies across multiple therapeutic categories to bring their innovations to market.
Gration foods natural foods business, it's focused on innovating plant based foods <unk> hundred percent clean ingredients, the retail club and foodservice channels throughout North America.
Curations codes is able to maximize product freshness through its geographically dispersed network of growers refrigerated supply chain and patented breatheway packaging technology, which naturally extend the shelf life of fruits and vegetables.
Gration food brands include eat smart fresh packaged vegetable salads, Oh premium artists and olive oil and vinegar products and Yucatan in Campbell fresh avocado products.
We are focused on creating shareholder value by delivering against our financial targets investing in growth driving top line momentum at life core EPS implementing our strategic priorities to improve adjusted EBITDA margins decoration foods.
Furthermore, we continue to work toward improving our balance sheet and net leverage ratio, which our organization is aligned around.
We are taking a disciplined approach to strengthen our position through first.
Implementation of a formal capital allocation process. The stringent return on investment criteria is in place to ensure that we are maximizing the dollars, we're putting to work for shareholders.
Second.
With our company wide focus on operational excellence, we believe we can reduce our capex budget, while improving the efficiency of our operations, which is expected to drive greater free cash flow versus prior year.
Third as part of project Swift, we have been executing on our commitment to divest non strategic assets to strengthen our operations improve.
Paid down debt.
At August seven.
We closed on the sale of our salad dressing facility in Ontario, California for $4.9 million.
And on September 4th we closed on a sale where Hanover manufacturing facility.
In a related assets for $8.7 million.
Fourth our team is getting long term refinancing solutions the adds stability to our balance sheet and we look forward to communicating those to you at the appropriate time.
We began to see the financial benefits from project Swiss decisive actions reflected in our results in the fourth quarter fiscal 2020.
It is much more visible in our performance during the first quarter fiscal 2021.
Even with some lingering cold good headwinds that we managed through the debt.
The dedication and hard work of our entire organization from our essential frontline employees to our executive team is ensuring that this momentum will improve outcomes continues.
In the first quarter of fiscal 2021 life core continued to deliver on its track record of high margin revenue performance delivering 81% year over year growth.
Well, two Asian foods deliver they planned decrease of 10%.
Yeah last quarter. This reflects the concerted effort to better belt, the seasonality of the fermentation business well that duration foods. This reflects our continued strategy of simplifying and strengthening the business by making it smaller and more profitable.
On a consolidated basis, we drove a 7% increase in gross profit.
Hey, 890% increase in adjusted EBITDA.
As I spoke about during the prior earnings call. We continue to have confidence in delivering a strong fiscal 2021 for our shareholders.
Which is the most visible in our adjusted EBITDA guidance of 33 to 37 million that we are reiterating today.
This implies a 59% increase at the midpoint of the range versus prior year and puts us on pace to achieve the steady state margin targets that we.
Weve detailed previously.
We are committed to maximizing the value of our portfolio through sound and thoughtful execution in each of our segments, while protecting the planet for future generations with sustainable business practices.
Before I share more details on our outlook and priorities for fiscal 2021 for a life corn care Asian Foods, I turn the call over to Brian for the financial highlights then a deeper discussion.
Around our fiscal 21 outlook there related modeling considerations.
Thank you al I will start with a review of our first quarter financial results.
Oh, they did revenues decreased 2.2% to $135.6 million. The decrease was driven by 10.1% planned decrease in Curations goods revenues, which was nearly offset by 81.1% increase in like core revenue.
Life scores improved year over year performance was impressive with a 46% increase in it.
CDMO business and a 620% increase in its fermentation.
Yes potential growth of the fermentation business jury.
First quarter reflects our efforts to balance shipment timing throughout the fiscal year to mitigate some of the seasonality that weve experienced historically.
I Curations foods revenue performance was primarily driven by the planned reduction in our legacy vegetable and trade business in connection with project Swift continued softness experienced by our foodservice business due to cold dead and to a lesser extent by our single serve salad business. That's.
Consumer shopping and dining patterns have shifted during the quarter at 19 pandemic.
Combined this resulted in a 12.4% revenue decrease in our fresh packaged salad vegetable business the planned reduction and the legacy vegetable and tray business is a key aspect of our goal on focusing on higher margin products and our new product innovation in the in the Curations food segment.
Partially offsetting this was a 5% increase in revenue from our avocado products business, primarily due to incremental growth in the retail distribution of our innovative all the Colorado squeeze product.
Consolidated gross profit increased 6.6% and gross profit margin increased to 12.1% up 100 basis points compared to the prior period there.
The gross margin increase was primarily driven by the life core segment, where it's significant first quarter revenue growth led to an increase in gross profit. It was nearly double the prior year period.
Further creation foods avocado business delivered improved gross profit as a result of lower cost of avocados compared to fiscal 2020 as well as operational improvements derived from ours that's framework.
However, these gains were partially offset by three key factors, which we believe we have addressed for future quarters first exploration food, we experienced unplanned operational inefficiencies due to an automation equipment installation delay in turn due to travel restrictions during the code at 19.
Doug.
Second well.
Weather impacted our profitability at Curations food due to higher raw material costs, resulting from extreme heat in the west and cold in the east historically, we have not had a pattern of extreme weather impacting first quarter operations going for.
Going forward, we feel we have adequately forecasted potential weather impacts into our guidance for the remainder of the fiscal year.
And third as we discussed during the fiscal fourth quarter call life, where experienced headwinds in gross profit during the first quarter due to the sell through of higher cost inventory manufactured during our prior year fiscal fourth quarter.
And as a result segment gross margin was approximately half of what it has done traditionally that high cost inventory has now been sold through in the business has returned to its historical gross margin run rates.
Landecs first quarter net loss was $11 million or a loss of 38 cents per share, which includes 7.8 million of restructuring and other nonrecurring charges net of taxes, which are primarily associated with the sale of our Hanover facility and ongoing legal matters out or you could take on all the Colorado facility in Mexico.
Excluding these nonrecurring charges of 27 cents.
Adjusted diluted net loss per share was 11 cents.
Adjusted EBITDA increased to 3.1 million up $2.8 million or 890% versus the prior year period.
GAAP cash flow from operations was 17 million fiscal first quarter, an increase of 22.2 million versus the negative 5.2 million in the year ago period.
As I mentioned in his remarks, our first quarter performance demonstrates the improving consistency of our operations exploration foods as well as the more balanced seasonal contribution from like four.
Turning to our financial position as of <unk> fiscal first quarter and on August Thirtyth 2020, we are in compliance with all of our financial covenants under the company's credit agreement.
Our total leverage ratio as calculated under our credit agreement improved from 5.9 to one for the fiscal fourth quarter ended may 31st 2020 to 4.7 to one for the fiscal first quarter ended August Thirtyth, 2020, which was primarily driven by improved operating.
Performance in the recent asset sales.
As of August Thirtyth 2020, we had $173.9 million in borrowings outstanding under our credit agreement, including 69 million under our revolving credit facility and 104.9 million under our term loan.
As previously disclosed the Companys borrowings under our credit agreement matures September 23rd 2021.
Leveraging the balance sheet continues to be our primary focus and in the near term refinancing of our debt is a top corporate priority.
We remain confident in our ability to drive significantly improved adjusted EBITDA generation in fiscal 2021.
Following the operational turnaround efforts, we implemented during fiscal 2020 our.
Our aim is to continue to demonstrate consistency in our operating results this year and reestablish baseline profitability within our Curations food segment, while continuing to support the growth of life core.
Shifting to our outlook as Al mentioned, we are reiterating annual guidance for fiscal 21 as follows.
Validated revenues in the range of 530 million to 550 million, representing a planned decrease of approximately 9%.
Weis quarterback and it's in the range of 93 million to 97 million representing growth of approximately 11%.
You Curations foods revenues in the range of 437 million to 453 million, representing a decrease of approximately 12%.
From an adjusted EBITDA perspective, we continue to expect consolidated adjusted EBITDA in the range of 33 million to $37 million representing growth of approximately 59%.
Life score to range from 22.5 million to 24.5 million representing growth of approximately 17% in Q.
Curations foods from 12 million to 14 million representing growth of approximately 193%.
Additionally, we are reporting to new metrics in the first quarter 10-Q filing which breaks down one the corporate management allocation to each segment life work duration foods and other the other segment represent landecs corporate operating costs that are not allocated at the segment.
I will.
And we are providing you with capital expenditures at the segment level on a quarterly basis.
The first fiscal quarter of fiscal 21, the total corporate overhead and public company management fees of 6.1 million were allocated to the three business segments as follows.
1.4 million to life score $1.9 million of Curations food and the remaining 2.8 million to other.
The total consolidated capital expenditures in the first quarter were $4.6 million allocated as follows approximately 59% budgeted for like four and 41% procuration suits rugs.
Regarding seasonality, we are reiterating our statements from last quarter, we continue to anticipate minimal quarterly variation due to revenue seasonality for.
Our book life core integration to through the balance of the fiscal year.
And in terms of adjusted EBITDA, we expect to continue to deliver normalized gross and adjusted EBITDA margins, which at life core means back to historical levels and exploration foods means we're marching toward our by year end steady state Gold's previously detail.
With that I'll turn the call back to al.
Thank you Brian.
We go into more detail about the progress we are making in our life core and curations food businesses to maximize shareholder value across our portfolio.
Last quarter continues to see momentum benefiting from a three industry trends number one a growing number of products seeking FDA approval number.
Number two the increasing trend towards sterile injectable drugs and number.
And number three a growing trend among pharmaceutical and medical device companies to outsource to formulation and manufacturer of products.
As a highly differentiated and fully integrated CDMO last.
Last quarter is positioned to capitalize on these tailwinds and continues to establish high barriers to competition.
Life course speed and efficiency benefits its partners by decreasing their time to market, which has immense value and their ability to improve patient lives through commercialization of their innovative therapies looking.
Looking forward life Court will fuel its long term growth by executing against its three strategic priorities number one managing and expanding its product development pipeline.
Life core has 16 business development projects in various stages of product lifecycle from clinical development to commercialization what July.
Which aligns with the businesses overall strategy.
Number two managing capacity with a detailed capital management plan to meet current customer demand, while building appropriate capacity and operational expansion to meet future commercial production needs.
And number three continuing to deliver a strong track record of commercialization of its product development pipeline.
Labcorp currently is planning for one or two products in development to be approved by the FDA for commercialization annually supporting their goal of long term double digit growth.
Procuration foods the exceptional outcome was a project Swift have created a foundation for future profitable growth.
Now I will strongly position to deliver on trend plant based food solutions to customers. So the combination of unique capabilities that make curation foods truly differentiated in the marketplace curious.
Duration food priorities moving into fiscal 2021 to include number one.
Operational excellence in project Swift, we will continue to focus our efforts on network optimization lean manufacturing principles and.
And the ongoing strategic review of all aspects of our business in fiscal 2020, we tackle the major issues that we're facing the business and during the fiscal year. We are more surgical that our approach and are looking at the next layer of opportunities for improving operations.
This begins with carrying through the successful principles of zest across our entire operations network.
Yes, initially implemented in Mexico is there a lean manufacturing program, a key aspect of which is to support and engage with our employees who are critical to our ability to deliver sustainable continuous improvement.
In addition, now that we have streamlined the organization through our network optimization work and project Swift. We will also look at all internal operations and functions to ensure that they are functioning at maximum efficiency and profitability for example.
For example.
We are embarking on an analysis of our logistics operations to ensure that this department is effective and efficient at serving our customers and are now right sized organization.
Number two play.
Plant based food innovation launches.
We continue to focus on plant forward innovation designed to provide delicious nutritious food for consumers, who define themselves as flux of periods.
Our fluoxetine consumer isn't actively decreasing meat in animal protein consumption and eating two to five meatless plant base meals per week.
According to the power of produce study conducted by the food marketing Institute in 2019. This case.
This consumer segment will represent 56% of U.S. population by 2023.
In addition to our existing salad kit business that delivers on this trend we are actively in co development with our customers to meet their shoppers demand.
We are currently testing a co developed entree salad kits featuring unique plant protein ingredients such.
Such as protein from seeds grains and legumes.
Paired with hardly vegetables, and grains that our consumers have come to expect from eat smart.
We are also actively pursuing new product expansion for the eat smart brand into adjacent categories with innovation delivering on the consumer desire for increased plant based protein meal options.
We have also achieve some exciting distribution growth for our avocado squeeze product.
We have substantially grown the avocado products business.
Over 6000 points of distribution in the grocery and mass channel and as reflected in the avocado products overall growth.
Which is approximately 14% year over year versus the category, which is growing at about 5% According to Nielsen.
These are high margin growth opportunities for duration foods business we.
And we will support these product launches with strategic spending to drive trial and brand awareness.
Number three focused culture.
As previously stated the health and safety of our people and products has always been a priority and is foundational to all of our actions and sits alongside our sustainability mandate to reduce the impact.
Right.
This 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 and teamwork with a mindset of successfully moving forward together.
In summary, we have made tremendous progress and are starting to see the results.
Landec team is focused on creating value by delivering against our financial targets strengthening our balance sheet implementing our strategic priorities to improve operating margins and make strategic investments in growth.
We intend to fully realize the potential of each business through sound thoughtful execution, creating sustainable value for our shareholders customers employees and communities.
Operator, please open the call for questions.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Hey, confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for.
Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star Q1 moment.
One moment, please while we poll for questions.
Thank you. Our first question comes from Brian Holland from D.A. Davidson. Please.
Please proceed with your question.
Yes. Thanks, good afternoon, everyone and congrats on the progress just a couple of quick ones for me.
First when you talk about a few smaller.
Small issues in the corridor.
Related to operations and that obviously fruit related or raw materials due to weather, but just on the the production inefficiencies.
You expressed confidence that that that maybe isn't an issue going forward can you just help us understand are you just back fully to where you were previously this issue and maybe you could just talk us through what exactly happened and.
And it's just.
This doesn't happen going forward and then maybe the same thing on the weather side that there's no carry over subsequent quarters.
Yeah, Hi, Brian It's al how are you today.
Yes.
Good good yeah, we had a piece of equipment that came from an Italian supplier.
We had planned to have installed.
At the end of Q, Florida fully operational in Q1.
And because of the cold that the travel restrictions, we couldn't get it installed.
So its installed or we had to use zoom what the technicians.
Well the equipment supplier in Italy to get it installed, but we found liquor.
We found a creative way to get it up and going so that that was primarily a big impact for us in the June timeframe.
We also continued at that time period, there is no more outbreaks of coal that in the Santa Maria area, and we have enhanced our Ah sanitation DP accordingly.
Eval cost us money at that end up being a very positive move for us to Santa Barbara County Health visit we had several weeks ago.
<unk> said that we have become the gold standard. An example for them to want to use. So that's something we just have to stay ahead of this this pandemic.
Foodservice. We saw you know we were expecting a little bit more of a bounce in <unk> foodservice on green beans, but we've had some softness there that.
That is now behind Us Brian.
That's starting to pick up to where we you know we are.
I thought it would be and we had you know just continued downward pressure on a tray.
Trays, primarily from coal coal that from some of our other suppliers, but all in all the I mean, the operation is back running you know where we expect it Joe.
July was good August is better and I have no qualms about where we are in terms of running the operations in terms of the weather.
So as we said that we typically see our weather significant weather events in Q2 and Q3.
Due to the re.
The recent heat and.
California, So called US, we got a little bit more of a weather hit than we were expecting but Brian and I are very comfortable and we have the right amount of up so.
Seasonality built into our Q2 and Q3 numbers.
Does that help at all on Yeah I appreciate the color and then just if I could ask about the other kind of squeeze sounds like good news there was some retail distribution.
You know all this quarter any shelf, we sense generally speaking what I've heard is that a little bit later this year.
September October timeframe so.
I guess, what I'm asking is what should we expect more progress first in your second quarter or are there more distribution gains coming out how how quickly can that that product get bigger and they just kind of remind us how supporting I you know the thing you keep hearing about.
CTG is relatively narrow assortments consumers going to these large brands they trust retailers narrower assortments to favor. These larger brands. So first congratulations on getting a cut through that noise with this new product, but just curious how you plan to support that here.
Kind of in this is sort of a crowded backdrop.
Yeah, So Brian.
As you know last year, we tested the squeeze product in some some test markets and customers Oh, we learned some things that we were doing well and we learned some things that we can do better thats why we tested it.
And we've implemented those things that were seeing really good growth now.
Well the avocado squeeze product, we've we've got over 6000 points of distribution.
And you know I see that as steady growth for us.
Throughout the rest of the year, along with our continued growth and our top business.
We have you know we have some real upsides as Brian because when it looks at a you know they CV. We have this campbell fresh brand that we have both on tubs and on to squeeze product and that brand really resonates with the millennials.
And we only have 20% HCV and.
And on this we side, we only have the 6% a CV.
Rob will so.
We we see that you know.
You know we're going to have we've had a couple of years of double digit growth in this product line and we see that continuing to grow for us. This year, we're supporting it by working primarily with our customers.
With you know shelf talkers.
Specific promotion programs.
We're even working now with some other companies, where we are co branding it together.
Together I'll call merchandising I should say so if you buy if you buy some chips you can also.
It also gets a lot.
Guacamole both.
Both of the kind of things that we're doing and we are also working on the ecommerce side through mechanisms like Instacart now because we know not everybody is going.
Going the grocery store that area is growing so it's it's a poll perri of things Brian that we're very targeted on making sure of what we do gives us the right return on our marketing dollars.
I appreciate all that color.
We've got to get it.
[music].
Thanks, Brian.
Thank you. Our next question comes from Mitch Pinheiro of Sturtevant Enco. Please proceed with your question.
Hi, good afternoon.
Hi, Mark.
Hey, just a couple on then questions here first.
So.
Based on even seasonality or you know more and more balanced.
And based on your guidance that you've given.
It looks like Q2 should be solidly I know you don't give short quarterly problems, but the Q2 should be on an earnings per share basis at least adjusted should be positive is that correct.
But really wouldn't be bad.
Yeah, Brian we're expecting a very solid a strong Q2 as we move forward.
Q3, Q4 as well.
But a lot of color.
Okay, and and the planned reduction does that is that also going to be fairly steady same kind of level that we had here in the last quarter.
Yes, you are actually going to see a fairly steady reduction you know.
We see that we've reiterated before that we see core advantage sort of coming in around $100 million business from the 560 million that it was.
Oh I was just.
Just.
Changing sub.
The subject you're back to life core just looking it was interesting I appreciate the numbers you handed out there with their capacity.
How it breaks down and the anticipated needs in the 2030.
Look at through 2025 based on the numbers that I.
I did a quick back of the envelope math.
Looks like the five year CAGR, you capacity or is going to be somewhere you're going to see.
Demand is going to be somewhere around 22%.
Yeah, that's pretty close.
Jim why don't you talk through the capacity.
You know that we have built in so what can be kinda confusing for everybody to figure that out.
Yeah, Mitch you're pretty much spot on in Riyadh.
In reality, you know, we're looking at the commercialization rate of our development pipeline and how that translates into needed capacity.
Over the next four to five years, and we should be approaching.
That 22 million unit theoretical capacity by 25.
So.
Okay. If I look at what you're looking at in the 21 going from six and a half.
Million demand even handsomely.
But overall revenue is only in your guidance is what is right around double digits right UBS.
He just 13% can you just.
Is that is that something is that a is that a sort of.
Sort of a rebalance year, that's when should we expect a higher rate.
We're going to see acceleration in 22 23 to get to that higher CAGR. How do you how should we look at that.
Yeah, I mean, I think the like we said that our.
Revenue CAGR over that period of time is going to be in the mid teens.
And some years, obviously, you're going to be a little bit higher in some little bit lower the average at all but in reality.
In reality, it's going to be pretty consistent mid teens double digit growth over the next five years.
Okay.
And then as you how do you think about your capital spending as it relates to that is it going to be spread out over.
So the four or five years or how do you as you look at 2030.
Yeah, and like we've described in our and in the.
Our discussion.
On capacity and capital investment.
Of course, basically needs to continue to invest to fill out the needed.
Short term investments to make that 22 million units.
Things that don't require long lead times, we fill out as the business and capacity dictate we're also going to be going to need to start to invest in.
Additional filling capacity since its filling capacity takes three to four years from start to finish.
And we project, we're going to need more than our 22 million units and pushing towards 30 million units.
Over the next 10 to 12 years.
So the capacity or the excuse me the capital spend all will.
Kind of follow the investment of the needed additional capacity.
Okay.
And then.
Yes, I did.
4.6 million in capital spending in the quarter or you see.
Are you still on track for 34 million for the year.
Yes.
Yeah, we expect it to be more back end loaded.
Than in the first half.
But but that's our anticipation at this point.
And last question is just on so Hanover Hanover sale closed after the quarter.
Oh, yeah, yeah. It close to be closed just after the quarter end I'll, let al jump on that one.
Yeah, we see well I just want to ask <unk>, if you will.
And we'll see a reduction there in debt the 8.7 million will there be any capital any working capital.
You sewer or.
Source in the.
In the upcoming quarter just trying to.
She's out where that will be.
So Brian I'm, just yeah, I'm, just trying to make sure I understand the question. So we had we definitely generated quite a bit.
Cash flow from operations in the first quarter.
But you know, it's just I think due to the as well just the cadence of you can where they build up their inventories and then over.
Over the course of the summer and into the fall we deplete those inventories before we get started up manufacturing again that but just I think coupled with the strength of the business the improved margin structures.
That al referred to with cost out in such as giving us a pretty strong cash flow. In Q1, you know we expect that as we move into Q2, we'll also have.
Favorable cash flow position as we move into the latter part of the year and we start building up on the balance sheet that safety stock for you could see on there will be used to fund that happens there, but I'm at this point over the course of the year.
On the best as we can see at this point, we believe that we will be.
Slightly positive overall to cash flow.
Cash flow from operations versus Capex spend and that is before factoring in the asset sales.
Okay, Yeah Litch.
And I'll, just say that the no movement up production away.
Away from had over into bowling Green and Guadalupe has gone very well for us and.
And we've managed to do that.
Managed to do that without any hiccups to our customers and we will start seeing the benefits of that.
Consolidation or near PML here and the up in Q2.
The savings.
Okay.
Well, thank you for the time.
Thanks Mitch.
Thank you. Our next question comes from Mark Smith at Lake Street Capital Markets. Please proceed with your question.
Hi, guys first off just want to talk about [laughter] Wanda.
I wanted to ask about food innovation and new products can you just give us more update sounds like decent growth in the auto business, but walk us through kind of new products, where they are at how that business is going and any.
Any insight into new product launches or anything else coming out this year.
Yeah, So mark last year, we spent a fair.
Spent a fair amount of effort.
Redoing, our innovation process, you know we had lost our way.
We have were previously focused on if we have.
If we have the capability to run romaine lettuce, and put you know olive oil vinegar on it that's what we did as opposed to those consumers really want to have that product. So we have really.
That our time building our insights capability.
Both with the consumer well see behavioral research along with our customers. So what's really different about our approach, though is we're bringing new consumer behavior insights and we're partnering with our key customers.
If you will customizing innovation for their shopper and.
And you're going to see more of that for us, particularly on the salad side.
Salad kit side. So we think we are really having inside here the flux Italian consumer as I mentioned, it's growing.
Very rapidly.
And we have just launched a play.
The plant based protein so.
With a major customer here in northern California, and it's off to a terrific start up and our goal is to grow.
Well that went out we also have another plant based protein the customers Cosco, which is great because.
It's a partnership that is very important to us.
We also have a larger than.
A launch of another major customer in December that's a much broader with a day.
A different type of plant based protein product. So we have a pipeline of plant based protein products that we will be bringing out this fiscal year.
We also have.
Launched in Q4, we're seeing a benefit now in Q1, a couple of new co develop flavors with Kroger that are doing much better than our previous innovation has done.
And those are also launching up in Canada.
And we also have presentations going on with some other more.
Basic salads that we think are priced right with the right customers that we have that we're in a process. So you know we really think we are going to operate and get to sell business growing but our approach is it going to be everything to everybody, it's going to be very tight.
Bigoted with co development.
Co development with customers and.
Linking their insights with our insights.
Oh, the avocado product side.
As I said you know we.
We're going to continue to support squeeze this year were expecting a you know a lot of growth from squeeze.
We have.
Re.
We done our graphics, we think the graphics and that whole category is somewhat confusing. So we do have some insights there that were cleaning up the graphics and we really think archival fresh is a brand that we can get behind both.
Both in the tub category and then the squeeze category as we move forward. So.
You know our innovation is going to be very targeted.
We don't have deep pocket books, so we have to be very strategic and smart about how we spend and get behind it but I am very happy versus where it was a year ago with what our innovation pipeline looks like for this year.
Okay and you brought up cost go can you give us more update on kind of how that club business performed during the quarter and even sequentially any trends that you're seeing as we go into the now this next quarter yeah.
Yeah as you know we talked about in Q4 with coated.
That you know it was a lot of zigzagging going out of the call.
The club business right people Didnt want to.
Necessarily stand aligned where mass.
And they were going there less often and buying more if you will shelf stable products.
We've seen the business or has come back I think the customer.
The customer has figured it out the consumer has figured it out.
So you know, we we are expecting to see.
Solid growth with that customer.
This coming year, and we have other products that we are working with them on.
And the same goes for Sams.
Okay and then.
Then last one for me can you.
Can you guys just walk through a little bit on on cost initiatives going forward, especially as we look at SGN. A you know are there continued opportunities to maybe cut a bit there.
Yeah, we did a lot of rightsizing unless DNA last year.
I think the two big initiatives that we have underway is our continued productivity program, that's driven primarily by us focused on improving the operating efficiencies of our equipment sweat our assets.
Do a better job of improving our yields across the both both segments the the.
The other kind of products and to sell the business.
But we also are.
As I mentioned doing a deep dive into logistics.
We think there's opportunities there now that we have right sized our network.
We want to take a look at how can we what's the right way to rightsize the logistics are up.
Program that we have there's no sacred cows here.
Mark what what might have been a competitive advantage in the past may or may not be one, though so we're really focused on the logistics side.
Okay excellent. Thank you.
Thank you Mark.
Thank you. Our next question comes from Mike Petusky of Barrington Research Group. Please proceed with your question.
Hey, guys good evening.
Hey, so.
If I if you mentioned this or comment on this I missed it have you guys said anything about fires, how that might impact sourcing et cetera.
On the West Coast.
No we haven't talked about players, but the he has had.
It had some impact.
The broccoli primarily.
We have you know have experience of broccoli issues, but we have the right amount of seasonality built in but.
But in terms of losing farmland or anything like that or we have that seeing intact. It's just been the extreme heat that that's been a problem.
And ash has not been a problem for us either.
Okay. So that's not a.
At least at this point in time, that's not perceived to be an issue moving forward correct.
Correct.
All right and I heard an allusion to it but I think I missed the numbers.
It's actually quantify what was the cash flow from ops number.
In the first quarter.
Yeah, Brian team billion, Yeah, it's 17 million.
Within our initial comments versus a negative 5.2 million in prior year, so the favorable swing.
$22 million.
And then what was the gross margin in the <unk>.
Okay.
The gross margins in Q1, and we guided this or certainly spoke to this at the end of Q4 I'm during the summer when we close the plant.
Were sort of the the gross margins in that business are bit compressed because we're carrying and having to expenses through the fixed costs of the plant. If you put if you pull that out then which is actually what's happening now. So we're now starting to plants back up again, we'll be absorbing that cost but.
But if you sort of pull that back out and then the gross margins are within that range in a territory that we've spoken to in the past, which is up in the sort of the mid to high Twentys.
Did that business outside of squeeze growth did that business actually grow in the quarter at all or was it sort of flat.
No it actually grew.
It grew 5%.
Oh outside of this we grew 5%.
Yeah, we were seeing increased distribution of our cobble fresh tub line along with the squeeze so.
I'll, we're emphasizing you know squeezed, but at the same time, we have not de emphasizing our tub business.
And then you mentioned softness I think in both Green Bean salad can you can just give a sense I mean were they down low single digits were they up slightly can you just talk about what softness means in green beans.
Yeah, it's primarily in green beans in the foodservice side.
Side it was down.
That business is down about a third of what it should be.
The good news, though it's it's a.
It's coming back we're starting to see it come back.
Come back, but we still had more softness in in Q1 than what we had projected.
Okay. When you say down about a third of what it should be you mean it was.
A third of the number that you would have expected.
No. It's thirds of the number that we need to affect it because its down about a third of our business is foodservice related and the like.
Okay and then just the last question I know you guys are limited in what you can say around.
Litigation.
You get 10, and all the rest, but it seems at least in the press release, you indicate sort of.
No no reason to believe that a resolution.
In the near term I mean is it.
Sort of modeling roughly a million dollars.
Oh.
A quarter is does that feel about right or can you just comment on that if you can.
Yeah, the best I can say as you know, but it got slowed up here whats called Ed.
We were expecting to have this issue behind us by now.
And.
But the process is back working and we expect to have resolution here by the end of the year.
And that's about all I can say I mean, I have no concerns about us being able to.
Operate the plant or.
No.
Any disruption in our business you know like I have a lot of things that keep me up at night. This one is not one of them [laughter] okay perfect.
Clarification.
Did you say ended the year, you mean end of calendar year correct.
No, we're anticipating collar, but it could be Cisco, but we're nearing the end, it's always hard to predict these things.
I think that's all I've got thank you.
Thank you okay. Thank you bye bye.
Thank you. Our next question comes from Anthony Vendetti with Maxim Group. Please proceed with your question.
Thanks.
I was wondering if you could talk a little bit about a little bit more about the plant based products you know the timeline it is.
In time this fiscal year or is it more towards the end of the year and then is that going to be told develops or is that going to be landecs.
Only for those products.
Yeah. So we're already out with a with a product a right now Anthony so.
So we are we have watched do a test with.
With Cosco now so we have that out.
[music].
It's doing well our goal is to expand that.
Ah two out after the test period is over a we have a another major launch coming up but it's much bigger withstands in December so are there going to be.
Starting to come out and and gain a.
Gain distribution throughout the year, but.
But we were able to.
Do most of the development during Q4.
And that enabled us to launch a diesel and in Q1, and then as I said.
In December I know, we have other customers or oracle with as well.
So I I'm sure at current volume levels, the gross margin may not be.
May not be greater than the corporate gross margin, but do you anticipate the gross margin for the plant based products once they get up to a certain volume led.
Level, maybe to be as good as the corporate gross margin or better.
We expect them to be better you know we've put in so.
Last year, so stricter controls on well.
Goes out the door in terms of having to reach a a gross margin target and we had.
We expect these to be.
Better than our average.
Okay, Great all right. Thanks.
Thanks Anthony.
There are no further questions at this time I would like to turn the floor back over to Albert both for closing comments.
Thank you everybody for your time today and for your continued interest in Landec have.
Have a good day.
This concludes today's conference you may disconnect. Your lines at this time, thank you for your participation and support.