Q2 2021 Landec Corp Earnings Call
Good afternoon, and thank you for joining Landec fiscal 2021 second quarter earnings call with me on the call today is Dr., Albert Bowls, well and Chief Executive Officer, Brian Mclaughlin, Landec, Chief Financial Officer, and Jim Hall, President of Life Corp. During todays call. We may make forward looking statements.
And 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 the fiscal year 2020.
Let me turn the call over to Albert.
Thank you and good afternoon, everyone.
Like to start by wishing everyone a healthy enjoy from New York and.
Take a moment to recognize the contributions of our essential workers that both life core integration foods and show up every day and our facilities across the country.
Well many of US have been asked to modify our lives and work from home.
Central operational employees every range on the front lines and I am grateful for their perseverance.
Well that is a leading innovator and diversified health and wellness solutions.
Price to operating businesses life core biomedical and duration foods.
Well I've core bio medical because they're fully integrated contract development and manufacturing organization or CDMO.
That offers highly differentiated capabilities on the.
The development fill and finish up.
Difficult to value fracture pharmaceutical products.
And with it and syringes and bottles.
As a leading manufacturer and a premium injectable grade higher around I guess, it or H M life.
Life core brings over 35 years of expertise as a partner for global and emerging pharmaceutical and medical device companies across multiple therapeutic categories and bring their innovations to market.
Great and foods and natural foods business, that's focused on innovating plant based foods was a 100% clean ingredients the retail club and food service channel throughout North America.
Duration foods is able to maximize product freshness through its geographically dispersed network of growers.
And your own supply chain and patent on Breatheway packaging technology, which naturally extend the shelf life from.
And some vegetables true.
<unk> foods brands include eat smart packaged fresh vegetables, and salads, Oh premium artists and olive oil and better growth products and you can tell and Campbell fresh avocado products.
Yes life core.
Or use our manufacturing pharmaceutical products and medical devices that improve patients' lives.
And next generation foods and.
Please provide access to fresh delicious nutrient dense true for a.
Customers to see and nourished consumers across North America.
So our focus on safety, we put precautions and measures and place to protect all of our employees their families and our communities out large book.
Together, we are ensuring that our company remains positioned to produce products and price.
And our collective livelihood and drive shareholder value during the global planned debt.
However.
Our focus on creating shareholder value goes from <unk>.
We are motivated to deliver against our financial targets investing growth driver.
Drive topline momentum that life core net income net our strategic priorities, so and prove adjusted EBITDA margins that duration foods.
In order to execute against these initiatives and it is imperative that we have a capital structure in place to support our efforts.
I'm pleased to share that on December 31st 2020, we entered into a comprehensive refinancing.
The company's credit facilities.
This refinancing was made possible by the consistent.
Profitable growth at life Corp, and the significant demonstrated improvement and cash flow generation exploration foods that was brought about by project Swift.
What's relaunched one year ago.
These efforts drove a $33.4 million year over year improvement and operating cash flow for the first half and fiscal 2021.
Our business is back on track and we are delivering significantly improved financial performance and I am proud of our organization resilience as we work together to accomplish this critical milestone.
As we look ahead, we continue to have confidence and delivering a strong fiscal 2020 on for our shareholders and are reiterating our annual guidance for fiscal 2021 today.
We continue to expect adjusted EBITDA, and a range of $33 million to $37 million, which implies a 59% increase at the midpoint of the range versus prior year.
Year to date for the first six months of fiscal 2021.
We have generated $11.8 million and adjusted EBITDA, which represents an increase of $10.6 million versus the prior year period.
At the segment level, you're at a day duration foods debt at $4.7 million and adjusted EBITDA, which represents an increase of $7.3 million versus the prior year period and life core generated $8.7 million and adjusted EBITDA, which represents an increase of 3.7 day.
Dollars versus the prior year period.
We expect that this trend of improving year to date performance will continue to accelerate through the second half of this fiscal year as exploration food segment marches towards the year at steady state gross margin targets that Weve detailed previously and the range of 11% to 14%.
And then just go 2021 gross margin performance that life for approximately 38%.
Before I share more details on our outlook and priorities for the second half of fiscal 2021 for Lifepoint Curations food I'll turn the call over to Brian on the financial highlights at a deeper discussion around our refinancing and second quarter performance.
Thank you al.
For the second quarter consolidated revenues decreased by 8% year over year to $130.9 million. The decrease was driven by 10 per cent plan decrease and curation goods revenues, which was partially offset by a 2% increase and white core revenues.
Last quarter's year over year performance was driven by a tuning out per cent increase and CDMO business, which was partially offset by a 1.4 per cent decrease and instrumentation business.
Curations foods revenue performance was primarily driven by the planned reduction in our legacy vegetable and trade business in connection with project Sweat and.
And ongoing softness within arc and sort of its business due to co debt.
Combined this resulted and a 12% revenue decrease and art fresh packaged salads and vegetable business.
The planned reduction and the legacy vegetable and tray business is a key aspect to our strategy of focusing on high margin products and on new innovation and the Curations food.
Partially offsetting this was a 5% increase and revenue from our other products business.
Primarily due to ongoing retail distribution expansion of art, and then day that other condo squeeze product and growth and cobbled fresh and brand.
Consolidated gross profit increased 33% to $20.6 million year over year, and gross profit margin increased 490 basis points to 15.8%.
The gross margin improvement was primarily driven by the curation food segment, which experienced a 360 basis point increase versus prior year to 9.4% and puts curations crudes.
Well on its way to achieving our steady state gross margin goals by year end and the range of 11% to 14%.
The improvement and second quarter was led by our other color products business, which benefited from operational improvements and improved raw material sourcing compared to the prior year period.
Additionally, the segment achieved gross margin expansion within its fresh packaged salads and vegetables business.
Despite the planned decrease in revenues and from.
Positive financial impact of consolidating operations, plus the continuous improvement and operations associated with projects.
Life core also contributed to the increase in consolidated gross margin as its business returned to normal on its Crete coated gross margin rates that would further bolstered by an advantageous sales mix driving a 1.9 million dollar or 21% improvement and gross profit year over year.
Year, resulting in gross profit margin.
About 45 point.
0.1 per cent compared to 37.8% and the prior year period.
Landec second quarter net loss was 13.3 million.
From a loss of 45 cents per share, which includes 4.4 million restructuring and other non recurring charges such as legal and settlement expense net of tax and also include and non cash Windset fair market value adjustment of 9.4 million net of cash.
Excluding these non recurring charges and links at fair market value adjustment after.
After tax charges from $13.8 million.
Adjusted diluted net income per share was approximately two cents.
Adjusted EBITDA increased by $7.8 million versus prior year to 8.7 million during fiscal second quarter, primarily centered and year over year improvements and the creation food segment. Despite.
Despite the strong growth. This performance was muted by headwinds from increased corporate expenses associated with ongoing legal and settlement related fees. They were not part of our adjusted EBITDA add backs.
On the segment level during the fiscal second quarter, Curations foods generated 2.4 million and adjusted EBITDA, which represents and increased 6.7 million versus the prior year period.
And life core generated 7.3 million and adjusted EBITDA, which represents an increase of 1.6 million versus the prior year period.
Further evidence of our improving financial performance can be seen through the balance of our cash flow state.
Cash flow provided by operations was $18.5 million for the six month period ending.
And for 29.
2020, compared to cash used by operations of 14.9 million and the prior year period, which Mark <unk> 33.4 million dollar improvement year over year and.
Additionally, cash from investing activities improved 21.2 million versus prior year, driven by capital by a capital expenditure decreased from 8.6 million and fixed asset sales proceeds of 12.9.
Turning to our financial position the company had cash and cash equivalents of $2.5 million as of November 20, and 2020.
Total debt at fiscal second quarter, and was $170.2 million consisting of its line of credit and long term debt debt.
The company's net leverage ratio was approximately 5.21 and based on its trailing 12 month adjusted EBITDA, which is an improvement of 3.6 turns compared to fiscal year, and 2020 and due to the combination of and crude adjusted EBITDA performance and low.
Our net debt levels.
Subsequent to the second quarter end on December 31st 2020, we closed on a comprehensive refinancing transaction, which we believe provides our business the necessary flexibility to support life course, and long term strategic growth plan, while we continue to build on the recent top.
Moving on and a project Swift and our Curations food business.
This new structure includes a five year $170 million Unitranche term loans, which 150 million was funded immediately upon closing.
The Unitranche turned on carries an interest rate of LIBOR, plus 850 basis point, and we will have access to an additional 20 million via an accordion feature so long as we maintain certain leverage requirements and.
Importantly borrowings under the term loan are interest only for the first few years. This provides a $6 million favorable and more impact to cash flows and the short term primarily related to 12 million and lower annual and scheduled principal payments. This was partially offset.
By estimated incremental annual interest expense of $6 million. The 75 million dollar asset based line of credit carries and initial interest rate of LIBOR, plus 225 basis points.
As a result of refinancing the company's existing credit facilities and the third quarter of fiscal 2020, more Landec well report on 1.2 million dollar charge as a result, and non cash write off of and unamortized debt issuance costs related to the refinancing under the new credit facilities.
Shifting to our outlook.
We are reiterating annual guidance from fiscal 21, that's fall.
Consolidated revenues and the range of 530 million to 550 million, representing a plan decreased approximately 9%.
Like where wrap and it's in the range of 93 million and 97 million representing growth of approximately 11% and.
And Curations foods revenues and the range of 437 to 453 million, representing a decrease of approximately 12%.
From an adjusted EBITDA perspective, we continue to expect consolidated adjusted EBIT Dr. Landec and the range of 33 million to 37 million representing growth of approximately 59%.
Life or to range from 22.5 million to $24.5 million representing growth of approximately 17% and.
And Curations foods to range from 12 million to 14 million representing growth of approximately 193%.
And the second quarter of fiscal 2021, the total corporate overhead and public company management fees of 4.5 million were allocated to the three business segments. As follows 1.2 million to like score 1.4 million configuration foods, and and I mean 1.9 million to Potter.
The total consolidated capital expenditures and the second quarter were $2.8 million invested as follows $1.7 million per like or 1.1 million Procuration foods.
Regarding seasonality, we are updating our statements from last quarter to help shape and sequencing and the second now.
We anticipate that fiscal third quarter revenue will be greater than fiscal fourth quarter revenue from both operating segments and due to variations and <unk>.
Alley.
On gross margin, we believe the Curations foods will continue to generate consistent sequential quarterly improvement and its gross profit margin at the business builds towards its steady state gross profit margin target of 11% to 14% back to school year and 2021.
Life core has reverted to its pre coded gross margin levels and is managing the business to its annualized target of approximately 40%. However, taking into account its fiscal first quarter, which experienced a negative impact to margin due to coated we expect life or to achieve.
Our full year fiscal 2021 gross margin of approximately 38%.
For consolidated adjusted EBITDA, we anticipate minimal quarterly variation between fiscal third fiscal fourth quarter for its consolidated adjusted EBITDA results.
With that I'll turn the call back to al.
Thank you Brian.
Let me go into more detail about the progress we are making at our life core and your Asian foods businesses to maximize shareholder value across our portfolio.
Last quarter continues to benefit from a pharmaceutical market that is seeing increasing demand for new drug development supported by an increasing number of drug products and various phases and clinical development and.
In addition, the CDMO market continues to see positive demand for services and drug developers continue to outsource development and manufacturing services and in order to decrease time to market.
Same cost and reallocate internal resources.
As a highly differentiated and fully integrated CDMO last quarter is positioned to capitalize on these tailwinds and continues to establish high barriers to competition.
Life course speed and efficiency benefit.
Benefits its partners by decreasing their time to market, which has immense value and their ability to improve patient lives through the commercialization other innovative therapies.
Looking forward last quarter, we'll continue to provide long term growth by.
By taking advantage of positive market trends will continue to expand its pipeline with new and existing customers manage capacity to meet customer demand.
And.
And deliver a commercial manufacturing excellence.
During the second quarter to a life course key partners reported positive data from their phase two clinical studies and.
And I've transitioning to phase three development activities.
Life car also initiated construction.
That there are at least site three location right.
Provide additional warehouse and storage space.
On the growing business.
And finally last quarter successfully completed three audits were cash.
Customers and received notification that the LSTA approved a 30 day notice that allows life core to serve as a complete testing and release.
Raw materials and package and components for a key customer with no questions, which is a testament to the world class quality system life core has in place to support its customers.
What's your Asian foods exceptional outcomes and project Swift.
What's real almost on a year ago.
And now stabilized the business and we are seeing those results play out and our financial performance.
While our work is not done.
And we continue to focus on opportunities to improve our operating cost structure. We have built a solid foundation to profitably grow our business.
As you can see on our second quarter results. There is evidence of the gross margin improvement progression, resulting from continuous improvement and our operations and consolidation activities that weve implemented with project Swift.
Further we are and the final stages of strategic analysis and outsourcing our logistics operations, we are targeting a late fourth quarter implementation and.
This strategy.
Well drive greater efficiency and margin improvement, while simultaneously improving effectiveness, what more frequent deliveries to our customers.
This will result, and less customer inventory waste and extend product shelf life for consumers.
We have great confidence and margin improvement from January through the balance of this fiscal year as we work towards the steady state gross margin.
Targets, we laid out in February of last year.
This margin improvement is the key to improve cash flow generation and underpins our adjusted EBITDA guidance for this year.
We are also continuing to push forward on our focus around high margin consumer insights driven plant based food innovation.
Our key current innovation Yucatan and Campbell fresh squeezed continues to deliver growth as we expand our distribution and.
On our existing high margin Guacamole club business is performing well.
According to Nielsen research the Guacamole category is growing at 7% you're in a day compared to previous year.
The curation foods brands continue to outpace the category.
Year to date, all curious on food avocado products are growing at more than double the category growth growth.
With our cobble first brand, leading the way growing at four times the category growth rate.
Our innovative squeeze products now comprise 13% of Curations foods total.
On the pedal products retail sales.
And our eat smart cell business.
Have several innovations that we have launched or are launching this month first we are rolling out a new slimmer bag design that we believe will increase velocity and drive incremental growth with product line expansion.
Second.
We are having success and our plant based innovation co development partnerships, what the club channel.
We have two high margin salads and test market with two separate retailers that are both showing promise and sales trajectory.
We believe the innovation and other new products and our plant based protein platform will drive profitable growth.
And that's why 22.
In summary, we.
We have made tremendous progress and are starting to see the results. The 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 making strategic investments and growth.
We intend to fully realize the potential of each business you the sound and thoughts on execution creative.
Creating sustainable value for our shareholders customers and 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, a confirmation tone on indicate that your line is and the question kill you.
My first star two if you would like to remove your question from the Q per participants using speaker equipment and may be necessary to pick up your handset before pressed and Mr. Marchionne one moment. Please while we poll for questions.
Thank you. Our first question comes from Gerry Sweeney with Roth Capital. Please proceed with your question.
Hi, Good afternoon, now and Brian Thanks for taking my call.
Happy new year a jury.
Happy new year as well and.
Congrats and looks like Curations.
Turning the corner here, so it's starting to come out on the numbers so its and I started to the new year.
Question revolves around curation I want to see back and actually get this out and the way that.
Makes sense, you're so second half we're guiding you are guiding to 11% to 14% gross margin by year end I get that can you maybe bucket out.
You know.
Some of the items that are going to drive that just from an operational.
And point as well as the market opportunity, obviously on the kind of as a growing.
I'm, just curious about salads salads, a sound like they have a little bit of a refresh coming next year, but just wanted to understand and just kind of refresh per se on on the opportunities and the second half and this year there yeah well.
Yeah, you're right you're right I mean, other panel products business continues to double or having.
You know great success with cobbled fresh brands.
So that's not going to be on a key driver for us as we continue on the second half from a year.
We've also have done a lot and our mix when it comes to eat smart salad business. It all day.
Part of project Swift was you know not only are we did on the core badge business.
Taking pricing.
And.
Getting the cost on benefits and we've talked about before jury, but we've also our swap.
Swapping out salads that are not profitable with more profitable sales that we think are going to turn better.
So we're continuing to work you know that that segment as well and you know weve had a pretty good year, thus far with Green Bean and category. You know this is the first time.
And I and a long time that we were able to non pro customers that Thanksgiving based on the strategy that we took with a.
Our growing strategy, we had a record number of hurricanes.
And minimally impacted.
And Oh, we think weve have figured out from a geographic standpoint.
Now to.
How to manage and better future and we anticipate.
You know that was called that begins to left.
None of us know exactly when that is but with abraxane and we're optimistic.
That some of our businesses that have been affected by coal, but primarily and food service sector will start to come back. So it just stick and Campbell's focus.
And.
We you know have things going on.
Net project zest and our facilities on.
North America with.
Bowling Green that we believe will help us improve our overall margins.
And yeah. He Jerry this is Brian I had a couple of other quick things the drop in the one we're gonna benefit and the second half of the year on for the full <unk> on pick and happy to hear the closure of Hanover, we didn't close that from the beginning of.
The second quarter as well included in the 9.4 are actually above the gross margin line. Some of the restructuring costs that go with and over if you back those out to sort of steady state it and Curations would've had a 10.1% second quarter and on a 9.4 recognized 9.4 and suitable for.
The way to reported but just to give you that contract.
Q4 is a big quarter.
For you could gain on and particular major than bites and good the mile and on.
Memorial day, its our highest margin segment, so to help lift and.
Quarter, which weve, which we've had on you know thus far it's been on experience with the company and.
You know also sort of help slips things and then lastly.
From a raw risk reserve standpoint, the fourth quarter is traditionally the quarter the mild it's the kind of.
And so as a result, the company typically houses on March and that in the fourth quarter that way as well. So I would just add two things to work on now have this debt.
Mother, Nature's, most kind and the fourth quarter it.
Did it.
Not always on a percent collateral that more time.
And.
The Curations he said the 10.1 versus the 9.4 as reported and that was one of my question and I prepared remarks, you did say there were some.
I think a headwind that want adjusted.
Certainly adjusted.
What's that.
700000 up looks like was that all of it or whether others sort of moving.
Maybe not true on time, maybe from you know yeah. There are other.
On a onetime item and and restructuring that we had in the.
And the second quarter and yeah, but.
But yeah, yeah adjustments, but above the gross profit line and it's about it was actually about 730000 and debt related to the Hanover close yes.
Yep.
Got it and.
And that shouldn't be there on a go forward basis or something that's still true.
[music].
Yes, so were going up and going forward, if that's what you're trying to say.
Yeah, Yeah, and jar and you know.
Jerry as we progress with projects swiftly we believe the heavy lifting.
Restructuring costs are behind us as we go as we move forward.
The other question I had was and.
You touched upon it from there, but the food service how much of an impact.
Can you quantify how much but it sort of impact.
I know, it's yeah, yeah, and really across the country and every place and different right now.
Yeah, Yes, it's about it's about two plus million dollars in March and that goes with it being a headwind.
And and we also have a margin impact a jerry.
Our tray business because people.
Our non gathering so we've seen a significant drop on Osha club channel trays and.
And a small about but not insignificant with our single serve salads, just because you know people are going into work they're eating at home.
Got it.
Really helpful. Oh, Yeah, if you're going to get a role on those up and it's about it's about three and a half to $4 million that goes with that in terms of margin impact what I'll just describe that.
On an annualized basis.
No. That's just from the first half from here.
Okay. So thats considerable I mean that.
Yeah. It is true yeah.
Yeah.
Sure you know it.
It's a cobalt and we don't know whats happening but.
Their vaccine being rolled out things get back on that becomes less.
On the headwind next year, maybe even.
Boost.
On a profitability potentially next year.
<unk>.
And yet.
Okay got it.
And then just real quick on on logistics.
That strategic review would that also free up cash I I'm not sure. If you you know you lease to trucks or do you own on you know, there's a lot of cost yeah.
We we have Ah.
30, plus trucks, Jerry and.
The project on the wanting to get that since I came on board and you.
You know we've had so many other things that we've had to do.
And we just didn't have the resources and helped dual all at once so.
We started this a study on several months ago and.
And you know were and the final stages of.
Compiling and results, but they're they're fairly compelling for us.
So we have 30, plus trups that we do lease I don't think we need all three some trucks.
And there's.
There's going to be a play there for us that we believe is going to improve on margins.
But as if not more important.
Our effective goes to our customers are greatly on improve we're going to be able to deliver six times a week versus three times a week.
Lets get on lead to better product freshness, and it's going to lead to a less shrinkage and the customer level.
And that combined with the launch of our new Schwinn bag. We believe is going to have an impact for us on shelf.
That will impact velocities as well as allow us to achieve more facings with the slimmer bag, which by the way had the same amount of ounces as our current bank has so that all kind of wrapped up in a big.
Fishing C and effect and US a program that is.
He is going to start happening here and the second half and really give us benefits and F y 22.
Got it.
And one just follow up and and.
And on that logistics side is there a surface benefit right.
And so.
Surface Chicago, Yes, six times and set a three times you know you spoilage shrinkage.
Okay and yourself I go to the grocery store, sometimes the day.
Okay. So you improve that could that get you into more stores improve.
And obviously improve the service, but make sales easier or retention better.
Yeah I'll tell you. The sales force is very excited about the about this legit logistics program and the slowing back together to do what you just said all the above so we expect to get.
On more sales, we expect to be able to expense.
Expand on the new customers that we couldn't get to and meet their requirements.
As well as we have some significant shrinkage and some of our customers that we're not going to be able to get after Gerry.
Got it all right I appreciate it I'll jump back in line and after many already thank you.
Thanks Jerry.
Thank you. Our next question comes from Mitch Pinheiro with sort of and income. Please proceed with debt.
Hi, and good afternoon.
And let's just say hey, just a couple of questions.
Your first on the gross margin goals. So you know 11 on Curations, 11% to 14%.
And that's you know.
Somewhere by the fourth quarter was that the second half cash.
Average and then what I wanted to ask is it.
Is that 11% to 14% range and it'd be something that we could count on for.
The following fiscal <unk>.
Yeah.
Yeah, well you want <unk>, yeah, Yeah, I'll, just and you can give the details on your much as Weve you know weve talked before that we.
I really committed to getting this business at a steady state.
And the 11 to 14.
Is is what we expect to cheese and the fourth quarter and Brian said, we're at 10, one now seen and fed significant improvements in our margins. So.
And we expect that to carry over.
And and to fiscal year 22, and.
Well on our job is and done.
Our focus on margin expansion will continue.
And to fly 22, as well Mitch.
Okay.
[laughter] yeah, sorry.
Yeah, No I'm just going to the second part of your question is is that what we're looking for next year, but yeah. There's just a lot of moving parts as al mentioned this year. So the idea is to get to that steady state going forward by the end of this calendar year or by the end of the fiscal year.
[laughter].
If we said the charges that related to.
The put call date I.
I mean, and when is the popular and money when the call day is.
It's it's Marcelo too.
Yeah. Okay go ahead so.
It was a substantial and substantial and you know.
Right now what what drove that.
[noise] yeah okay.
I'll just jump in on this and I apologize I'm you know, it's it's really targeted around and situational issues in particular, the extensive west coast fires that resulted in very dense smoke on.
All up and down the west coast affecting.
Sunlight production volumes and as a result revenue and earnings and all up there.
Greenhouse facilities from California, all the way up and the British Columbia.
And on you know the model is still very solid and.
I think they're going to work to somebody and.
On situational issues.
You know the weighted the discount model works is closer and impacts weighed very heavily smoked lowered earnings correspondingly lower earnings increased on the debt and the discount modeling and the combination of those two and.
Cloaked and and right now is what really drove debt.
And as we go towards the put call date.
You know that the you know the true value will be a function of trailing four or eight quarters, we get the greater the average whichever is more favorable to us and so if the events from the trailing four quarters and March looking backwards are stable and they're not dealing with some of these issues apart from just whatever.
The business model and competitive issues. They may have and then we make.
I have a recovery on the number that we just put on you know that we just wrote down we may not but we know it's and it'll depend on actual numbers and the balance.
And more true [laughter] 20.
22.
Okay, and just one okay very helpful and one more question.
With regard to the and the new financing.
So yeah, [laughter], you know I'm, not a fixed or fixed income guy, but you know eight and a half eight 850 over LIBOR worst seems seems hot.
Doesn't it or is that just no I've not am I, just I haven't really yeah and refinance.
Yeah, I'm really interested debt lately, yeah, no I'm actually very happy with that and if you look back over the last nine months.
The credit markets have changed quite a bit with coded credit underwriting per senior lenders this change quite a bit.
And this is on a blended rate. So when you blend them together or average rate, we think it's going to be somewhere around 7%.
I'm very happy with it with this type of re Bucketing and financing and the flexibility that provides for the company our ability to simple.
To support the growth platforms in particular, the growth platforms at life score and to be able to get that kinda funny and king without some sort of an equity component warrants or whatever and that would be dilutive to the shareholders I am thrilled to that.
Okay, [laughter], but with and I noticed like a lot of the ER and the covenants relate around life core I mean, it's almost like you know I'm not sure. What it is that it is obviously like core has on some capex needs down the road here, so I understand that but.
The fact that it sort of realizing and it's it's it's it's called out in the covenants and life core gross profit is need to be $29 million. It's just a it was kind of odd day you know it wasn't it wasn't you know landec gross profit and dime on well curious if you can comment on that.
Well when you look at just tied to debt. It's a you know it's really a mezzanine piece, it's sort of fit and somewhere between share holders and a senior lender. So there's definitely and enterprise value focus.
On the components on clearly like work and a lot to that equation, if you're sort of in that space behind the senior lenders and.
And what makes sense for the day with you know and.
Well as we you know and it does require that and they are today and I think they're going to continue to shift favorably on going forward and be more balance between curations or.
But it makes sense given sort of where they are and the you know and the capitalization equation that day and relied heavily on sort of the enterprise value and intrinsic value there and accordingly that puts a big focus on on life.
My Corp.
<unk>.
All right. That's all I have thank you that was very helpful color.
Thank you. Our next question comes from Mark Smith with Lake Street Capital Markets. Please proceed with your question.
Hi, guys first one from me you gave us some good insight into kind of foodservice environment, what's been happening there with Cove and <unk>.
Any additional insight and kinda grocery and club on what you're seeing from you know kind of those customers as well as from consumer behavior here recently.
Yeah, Hi, Mark.
The club business has been affected.
Primarily through our through trays, that's been a big or a big impact us we sell most of our cut registry business to the club stores, so that business is down.
10% or more for us and has remained down.
The other issue that we have seen.
And some of the club stores is in their order patterns a.
Based on.
The lines that may be forming to go into the stores, there's been sort of a zigzagging.
Of of ordering that we're we're seeing recently.
And so on the other big impact for Us has been.
On launching our new products you know, we're not able to do sampling programs that are important to us and you know the ability to.
Be as aggressive as we want to be to expand on new products.
Hi, Rob.
You know not as aggressive as they have been and the net flows over to the retail side, which as you know the a lot of the customers and outdoor resets on new products like they normally do.
Good day delaying them a bit based on you know the cold and environment, but we see that you know be getting to.
You know lift here, we believe into Q4 and into Q1. So you know those are the big impacts that we see at the retail level and and club level.
Okay.
And then as we look purely at kind of debt. The avocado products. You know what are you seeing in that market as far as pricing and and you know how confident are you and and kind of.
Where the avocado pricing is today and that help and you got to your gross profit margin.
Goals.
Yeah, well you know.
This is the first full year that we've been able to run the plant with the model that we have where we buy avocados and low cost and the fall and be able to put away on low cost and we were operating at a.
Very very efficiently and we're able to put away a lot of the low cost on cattle products, which helps us and.
Margin and pricing and our innovation as I mentioned, you know the guacamole squeeze is working very well for US we have some [noise] program.
Programs and plays well that's a currently our lowest margin product, but it's growing the most.
We are going to be significantly improving the gross margins of the squeeze product and let it successful.
And.
Kabul fresh is getting a lot of good traction.
I've talked before and market at this brand really resonates with with millennials and we're seeing that in terms of the growth rate that was that we are experiencing and with the cobbled crush spreads.
Great and and and then this might be too broad of a question, but you know following the refinancing and what are kind of next steps that we look at and a and and the turnaround of this business as we've moved through a lot of Swift and what what are the big picture items that we should be looking at now.
Well, we still have you know a few things to do on the swept program as I mentioned.
I would say this is a baseball game, where probably and.
Ah seven setting, but the heavy restructuring costs that we've gone through.
Well, what we did this past year with.
Ah you know closing head over taking it out of production overhead and.
Elevating our our offices it on Rightsizing our lefties.
I would say a majority of that is behind us and we'll probably have some restructuring whatsoever logistics project, but we think the paybacks are tremendous.
But for me the Big focus now is we've got a pipeline loaded with innovation.
And as we move forward into.
You know Q3 and into Q4, we really began to transition the curations food business from one of you know getting there by cutting costs to really growing profitably.
And our categories of.
On the cattle products and.
Our our salads, primarily based on a plant based protein salad. So it's really set us up for growth Mark that's really really looking forward to having a momentum take us from a second half the year and two that's like 22.
And it's really a transition from turnaround to now kind of operating and growth.
Right I would say were.
No I don't.
And inflection point right now.
And you know we have really improved the relationships with our key customers, they're very healthy you know.
And we've got a lot of innovation.
That we are planning on launching and a lot of innovation and were working directly with them on a very collaborative way from.
The relationship you know, we don't really talk about this work with the relationship with our customers on.
We were a year ago versus today is absolutely night and day so.
So I remain very confident that as we move forward that Oh, we're going to be growing this business through our or innovation, while we continue to have.
On a cold eye on costs.
Okay sounds great. Thank you.
Thank you Mark.
Thank you. Our next question comes from Anthony Vendetti with Maxim Group. Please proceed with your question.
Thank you good evening, so I just a couple of questions. One is you up.
You talked about the logistics review can you quantify what you found when looking at that and logistics of your operations and and and.
What were the what would the quantifiable benefits that you were able to extract from that.
Well, we don't have all the numbers Oh figured out yet, but I will tell you just worry on right now there is a you.
You know.
Several million and savings we believe we can we can we could achieve we also believe there is as I said just not only the.
The efficiency standpoint of logistics, but there's a the effective tax rate, which we really won't know.
What that is until we get into it but it's pretty clear for us by decreasing shrink getting a fresher product on the shelves the opportunity to.
Expand our facing Holistically, we pull this up program, we'll have a a really great pay back for us.
So that's a that's where we're at with this and it's going to take us a little bit of time, it's not something I can just turn the light switch on but as I mentioned, that's we're going to be Oh, and I'm, sorry, Q4, with a with doing this.
Okay, and then and interest on the new innovations.
Al you you know the single serve you and nice improvement and the Curations.
Gross margin higher margin products that seems to be a.
Starting to bear fruit can you talk about.
On the incorporation of plant based.
Alternatives and what's the opportunity that you see there.
And when can we expect to see.
And start to.
Be a.
Contributor for you.
Yeah. So you know our focus has been on you know really gaining insights here with our.
With that consumer is working with our customers and.
Oh, we know there's a growing.
Ah flux, and Terry and consumer out there that's a nod vegetarian, but they're trying to you know a less meat.
So we have really focused on innovation around that and.
We've launched a.
And the club store level, we had two launches that happened here just recently, they're very promising a these are a higher margin products for us and we'd rather lost before and new product. So we've got a lot of discipline and our processes about.
About what we send out to door. It is not only got to be the right product. It has got to be a delay margin level for us. So you know we're betting that we're going to start to see you know impact of that and the Q4, well and and begin to really pay off force and that's why 20 [laughter] <unk> Co. good has slowed us down.
In terms of the rate that we would like to expand.
The feedback that we're getting from the customers says that you know we have very strong products yet.
So that the debt.
And that you said you launched at the club store level, but that that opportunity.
Is it still would you say on the nascent stages.
Because of Kobe, and and eventually and we as we as we go forward here. This this could become what is is it fair to say you believe this could become a significant opportunity and the not too distant future.
Yes, I know, we have we've watched and we watch and the club stores, but we haven't been able to expand like we normally would be on this call that environment and we are expecting and has come in and for expansion and the second half of the year.
And this is a big big platform for us that we've invested in and that we believe in.
He is going to be a differentiator for us as we move forward.
Excellent and then just last question I don't know if you gave this number but on the avocado squeeze product you had 6000 I believe points of distribution.
On the last call.
Where is that.
Where's that now in terms of our points of distribution.
And do you have a goal by.
By the end of this fiscal year and in terms of how many how many points of distribution you want to be and with that product.
Yeah, we're actually focused on the per cent AC the and you know right now.
Squeeze is that.
Ah, 19% HCV and.
And our goal is to just to kind of give you a point on that Yucatan that 46, and a half percentage TV.
So we continue to see squeeze a growing they see the force and as I said, we have some things planned that we see margin expansion and a squeeze product as well.
Okay, Great and I'll hop back in the queue. Thanks appreciate it.
Thanks Anthony.
Thank you our last question comes from Mike Morales with won't help and income. Please proceed with your question.
Hey, good evening folks. Thanks for taking my question I Hope you all standard safe and well [noise].
Hey, guys I want to start off on the wins that portion and.
You know understanding the operational challenges that they've had with everything that was going on and help me understand you know as we get closer to this book called they whereas the confidence coming from that when thats going to actually be able to afford a redemption of the preferred if you guys actually do put it to that you know with all the operational challenges, it's not unreasonable to think that that creates.
Financing needs that they might need yeah, Oh and.
Where is the confidence coming from.
Yeah, Brian will actually take that yeah, yeah, exactly well, there's it and there are a few things my sense is yeah, but worse just.
Poking at this with them and that they're going to substitute us out somewhere in there and you know capital structure on behind their senior lenders. We you know the way that our Formula works and it's and it's a and it's a very low multiple and that segment Oh the EBITDA.
I am very confident I think there are all sorts of books lining up at least from my initial discussions with them on and the different advisors and they're talking to and that yeah.
And you know the data and very likely way for them to take us out I don't see them, writing a check and it's a very asset intensive business model and if you have the greenhouse stage.
On your you know your platform is going to grow there's a lot of demand for that space. Some amount of greenhouse space has reported over to the cannabis world, which is put more.
The demand on Windsets model, there and excellent player on their operational model is very very solid they're doing very well and.
You know they do have a fair amount of debt I'm not too much given you know on the you know and if you you know close to their ratios, which are you know.
On that I do think that if they have the ability to on.
Tapped into senior.
Regulated bank on money.
And think that they're going to use that to continue to explain and there you know their their platform and their growth model and the and I believe they have many options two behind.
And behind a senior lender group and and being able to finance their growth declines and substitute us though.
Oh sure sure and.
And I guess and L. mindful that you guys were just talking to credit it was about <unk>.
You know do you anticipate you said, you're not anticipating I'm, having any problem with the debt load, but they do have and arranging more financing.
Tom I I do not I think the debt I think that they [noise].
Our Financeable day, just actually quit a brand new financing arrangement in place.
And it's you know, it's a very strong on.
So I'm very close to it.
Sure.
Understood.
And turning over to the credit agreement Bear with me on this one but a few interesting things stuck out to me and this one relative to previous agreements.
And our previous question noted that consolidated gross profit was really just to find and life cores growth gross profit so not really considering duration and not at all I know you guys have a.
Specifically defined term for what a permitted curations say on might look like.
And I found it interesting that there was a clause for allowing equity awards and anticipation of a spin off of life Corp. So all of that taken together and mindful of the good work that you guys have done and kind of improve and curations operating structure or the certainly seems like much more tangible language than we've seen in the past as we think about value creation and so.
Okay and apologies for that long question, but I guess that the total of it as you know can you guys just give an update on how the board is thinking about value creation mindful of this refined and and the work that you've done to improve the operating structure of the business.
Well I'll answer that the you know I.
Continuing to work with my Board and and you know that we've expanded the board at a similar life science Oh folks on their expertise. If you will and you know as we move forward and continuing to work on my board to how we can enhance and create more shareholder value.
So it's part of our strategy.
Understood understood that's.
That's all that I had I'll take the rest offline I appreciate it folks and hope you guys stay safe and well.
Thank you very much.
And I think everyone today [noise].
For having their interest in and Landec and.
Happy new year to go on and Ah stay safe. Thank you very much.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation have a wonderful evening.