Q3 2022 Landec Corp Earnings Call
Good afternoon, and thank you for joining land Dex fiscal 2022 third corner earnings call. During the presentation. All participants will be in a listen only mode. Afterwards, we will conduct a question and answer session at that time I'll provide instructions on how to ask a question.
Now I'd like to turn the call over to Jeff Sonic Investor Relations at ICR.
Good afternoon.
And thank you for joining us today to discuss land at corporations third quarter fiscal 2022 earnings results on the call today from the company are Dr. Albert Bolles, President and Chief Executive Officer, Jim Hall, President of life core and John <unk>, Chief Financial Officer.
By now everyone should have had access to the press release, which went out today just after one P M Pacific or four P M eastern.
You have not received the release, it's available on the Investor Relations portion of land decks website at IR Dot land deck Dot com.
Before we begin today I'd like to remind everyone of the safe Harbor statement.
Certain statements made in the course of this conference call contains forward looking statements.
It is important to note that the company's actual results could differ materially from those projected in such forward looking statements additional information concerning risk factors that could cause actual results to differ materially from those in the forward. Looking statements is contained from time to time in the company's filings with the SEC, including but not limited to.
To the company's Form 10-K for fiscal year 2021.
Copies of these filings may be obtained from the Companys website.
And with that I'd like to turn over the call to al.
Thanks, Jeff Good afternoon, everyone and thank you for joining us today.
On today's call.
Provide a brief overview of our businesses.
Jim Hall will then review recent developments at life core and then John Lorber, who will discuss our financial results and fiscal 2022 outlook, we are reiterating today.
We will then open the call for your questions.
In fiscal third quarter, our life core business grew revenue by 28% to $34 8 million.
We are excited to announce that we added two new projects to the development pipeline.
Business return to more normalized rates of revenue.
Fiscal third quarter.
Following the draw down channel inventory that our customers worked through and fiscal first half.
As a reminder, this was expected.
As a result of pandemic induced delays.
The procedure volumes.
We expect that the reversion to a more consistent operating environment at health care facilities will also create more consistent ordering patterns for life course products going forward.
However, I note that the degree of the rebound.
In fiscal third quarter exceeded our expectation.
As a result.
Liberty timing and mix weighed on adjusted EBITDA generation in fiscal third quarter.
Nonetheless, we expect this to reverse in fiscal fourth quarter.
We are confident.
So we are on track to achieve our guidance for full fiscal year 2022 .
With respect to curation foods.
We believe that our avocado products business remains well positioned within a growing industry supported by favorable consumer trends.
While the business has been impacted by the inflationary environment recently, we.
We expect our pricing actions.
That become effective in fiscal fourth quarter combined with significant operational improvements.
Largely mitigate the associated margin pressure.
Allow us to meet our full year segment guidance from continuing operations.
As we look ahead.
We believe this business is well positioned for long term growth.
Our high pressure processing or H P. P investment is opening in roads with major customers.
Private label placements.
Which is an area of the industry that has experienced recent growth that is more than two times that of the industry as a whole.
We think this asset has significant value.
Our brands have a stronger consumer reception versus our competition.
We have doubled the amount of repeat purchasers compared to our competition.
And we have a best in class efficient and automated.
Production facility in Mexico.
As it pertains to project Swift.
Our team is working through the reverse integration process.
Following our December 13 sale of our eat smart fresh packaged salad vegetables business.
And making excellent progress.
We remain focused on maximizing the value of our remaining assets.
Which we believe are each well positioned in their respective markets bulks.
Both for avocado products and premium olive oils and vinegars.
Our board and I remain committed to maximizing shareholder value as.
As we seek to optimize our remaining curation foods assets.
Ploy excess cash towards debt repayment.
One growth initiatives to meet anticipated demand for life course, accelerating as well.
On the pipeline.
I also want to take a moment to characterize our financial reporting for the fiscal third quarter.
As well as our guidance for the balance of the fiscal year.
With the sale of eat smart the fiscal third quarter, we have shifted that business into discontinued operations for the fiscal year to date period.
As you may recall during the fiscal second quarter.
Provided pro forma guidance for curation foods segment, which assumed the elimination of the eat smart contribution for the full fiscal year.
Cause if it had been sold at the beginning of the fiscal year.
As such our guidance for the full fiscal year 2022.
<unk> is in place and reflects the continuing operations of the go forward businesses with an eye curation foods operating segment.
In summary, we accomplished a lot so far this year.
We monetized one set investment ahead of schedule.
<unk> $45 $1 million.
We successfully realized.
73 point filing.
A value from our eat smart business.
Its sale.
And as I discussed, we made significant operational improvements to our remaining duration food assets.
Which we are actively working to optimize.
We recognized shareholder desire to take action quickly and we look forward to providing you additional updates.
We execute.
And our strategy with that I'll pass the call over to Jim for a deeper review of our life core business.
Thank you al we continue to operate in a dynamic C. D. M O industry with strong fundamentals and life course perfectly positioned to take advantage of the growing C. D M O opportunities to deliver attractive financial returns to all of our stakeholders.
We are a beneficiary of the ongoing industry trends towards outsourcing of new drug development further our syringe and vial filling capabilities align perfectly with the favorable trends in new injectable drug applications that are utilizing these capabilities in fact approximately 55.
5% of all new drug applications are injectables and pre filled syringe demand is growing at a 13% compound annual rate gives.
Given the industry's limited injectable drug manufacturing capacity, we intend to take advantage of this incredible opportunity to fill unmet demand with our existing capacity that we've been investing in over the past few years.
Our development pipeline continues to be very strong, which is supported by the initiation of new projects and advancement of existing projects in the fiscal third quarter. We initiated work on two new early phase projects, which expands our development pipeline at 24 projects with 21.
Different customers.
These projects are spread across early phase clinical development with six projects phase one and two clinical development with nine projects and phase III clinical development and scale up commercial validation activity with nine projects.
We also continue to make progress with advancing projects within our pipeline with one early phase project advancing to the phase one and two stage and one of our late phase scale up projects advancing to full commercial stage.
Beyond our existing pipeline, we continue to push ahead and convert new potential engagements. We have dozens of opportunities that are we are pursuing which span multiple end markets multiple classes of drugs and medical devices.
And with an assortment of companies, both large and small.
As you May recall, we invested $1 $6 million into the P&L of this fiscal year, the Florida fire sales marketing and development resources in an effort to expand our reach with new customers and to increase our development services, which ultimately allows us to continue to expand our pipeline.
And to open new sales channels that expand and complement our existing capabilities. There's no question that this has had an immediate impact to the expansion of our prospective pipeline of opportunities.
Our expertise in complex and discus materials and our world class quality management system that supports drugs biologics medical devices and combination products enables us to stand out as a value added and specialized leader and the C. D. M O industry, we continue to feel comp.
And about delivering a multiyear acceleration in our revenue growth trajectory, which is supported by known projects within our existing pipeline.
As we work to attract new customers and projects, we will further enhance our long term growth opportunities.
In terms of operational updates, we continue to advance our C. D M. All platform in several respects quality and safety are hallmarks of the life core culture that we take seriously and have been critical in building trust with our partners over nearly four decades.
In February we received recognition from Osha for our operating sites, two and three which now joined site. One is men sharp certified facilities. This is a great win for our quality and safety program and I want to recognize our team for their long term commitment to safety and excellence.
We've been working on an expansion and enhancement of our quality control labs. Since January 2022, and we are making great progress with completion targeted for may of 2022.
This expansion enhances lab capacity and capabilities and improves workflows for both our team and products. The lab expansion will be combined with the implementation of our New Laboratory information management system in June of 2022, which we expect to provide additional enhanced.
Smiths to our analytical development and data visibility with our clients.
Again. This is another example of the sort of continuous operational improvement that drives life core and allows us to be more effective partners with our customers.
Finally in past calls we've shared some initiatives around human resources and talent development, which we call life Korea University since.
Since initiation in late 2021, we've been able to expedite the training and Onboarding process for key technical manufacturing level positions as.
As an example, we have reduced the time it takes to qualify aseptic filling and formulation technicians by 80%.
Which plays a key role in ensuring life core has the necessary resources to support the growth of our business in a timely and effective manner.
In addition, we've graduated a total of 17 certified lean practitioners one certified six Sigma Green belt and 22, six Sigma yellow belts. This is a great accomplishment for our organization and for each of those individuals.
As a result of this success we are expanding the program to include training on problem solving and investigation excellence along with five best principles.
I'm extremely pleased by these results, which really speaks to the culture of excellence here at life core and our commitment to team members career advancement.
From a capital investment perspective, we continue to focus on maximizing the revenue generating capacity within our current infrastructure. In addition, we are looking to the future to source qualify and optimize our facilities and equipment to ensure we meet our expected capacity needs to drive continue.
<unk> long term profitable growth.
So this and we've been able to shift approximately $5 million of Capex to next fiscal year and now expect our capex spend to be approximately $27 million for fiscal 2022.
This keeps us on track to expand our operational filling capacity from our current 10 million units to 22 million units and beyond to meet expected demand with our pipeline.
In summary, we are very excited about the excellent position that we're in today.
We continue to take advantage of the strong industry trends and our investments in capacity will allow us to continue to generate strong sustainable growth in years ahead now.
Now I would like to turn the call over to John .
Thank you Jim.
As we anticipated lights core had a very strong fiscal third quarter.
The business realized total revenues of $34 $8 million.
A 27, 9% increase versus the prior year period.
Driven by a 33, 1% increase in our CDMA business and a 16, 4% increase in our fermentation business, which is consistent with our expectation for improved sales in the second half of fiscal 2022 as we move past the channel inventory drawdown.
However, as al noted the step up in fiscal third quarter revenue was greater than anticipated due to timing of deliveries to customers.
Furthermore, the complexion of those revenues was geared toward some of our lower margin skus.
Which resulted in a gross margin decline of approximately 540 basis points versus the prior year to 37, 1%.
In turn this resulted in segment adjusted EBITDA growth of five 9% to $8 $6 million for the quarter.
Representing an adjusted EBITDA margin of 24, 6%.
The combination of timing and mix is expected to largely reverse in fiscal fourth quarter.
Making for a lower relative revenues and higher relative adjusted EBITDA in fiscal fourth quarter as compared to our reported fiscal third quarter results.
Given the timing nuance it is more informative to look at the fiscal second half.
Which based on the year to date performance and the guidance. We've reiterated today implies fiscal second half revenue growth of 10% to 15% to meet our full year guidance that calls for growth.
7% to 10%.
Similarly for segment adjusted EBITDA, and our year to date results and guidance implies a second half decrease of approximately seven and a half to one 5% to meet our full year guidance that calls for growth of 6% to 10%.
The primary variable here is gross margin.
Which is expected to decrease by approximately 400 basis points versus the prior year period in the fiscal second half.
However, our guidance implies a sequential improvement from fiscal third quarter to fiscal fourth quarter of approximately 200 basis points.
Again, the normalization of our H any business in second half and the margin mix impact.
Largely explains this phenomenon.
Nonetheless, as the figures imply we are well on our way to achieving our full year guidance.
We are reiterating today.
I'll now shift to curation foods and related financials.
We formally moved our eat smart operations into discontinued operations in our financial statements. Following the divestment of that asset in December .
This change does not impact comparability to the pro forma segment guidance metrics that we provided in fiscal second quarter, and which we are reiterating here today.
As a reminder, our continuing operations reflects the go forward segment, which is now comprised of our avocado products business.
Our O olive oil and vinegar business and breezeway.
Together this represents approximately $75 5 million of annual revenue at the midpoint of our segment guidance with avocado products, representing approximately 85% of the mix.
With that I'll make just a few comments on the curation foods segment results versus the comparable prior year period.
First revenue increased four 6% in fiscal third quarter to $18 3 million.
This was comprised of a 32% increase in sales velocity from O olive.
And a one 9% increase and avocado products.
Curation foods generated an adjusted EBITDA loss from continuing operations of <unk> 9 million compared to an adjusted EBITDA of $1 2 million in the prior year period.
Driven by temporary margin headwind associated with inflation, which is expected to be offset by price actions and fiscal fourth quarter.
Thus, we remain confident with our full year guidance for their curation foods segment.
We are making solid progress with a reverse integration of our business as we work to right size. Our go for infrastructure with a smaller revenue base on both curation foods and our corporate segments.
Now turning to our balance sheet.
Net bank debt on a reported basis for fiscal third quarter as of February 27, 2022 was $117 6 million.
<unk> to net bank debt at the end of fiscal 'twenty. One of 192 7 million, which reflects the repayment of $67 9 million in borrowings following the eat smart disposition.
However, I'd like to emphasize that we've repaid a total of $109 $1 million and borrowings. So far this fiscal year through the utilization of the net proceeds from our one set investment sale.
And the eat smart disposition.
In summary, we've made significant progress in simplifying the business and enhancing our financial flexibility.
We are pleased with our year to date results, which have us well on our way to achieving our full fiscal year 2022 guidance and we are looking ahead to building on our results in fiscal 2023.
And with that I'll turn the call back over to al.
In summary, we are marching ahead and have made significant progress in improving our balance sheet.
So T J actions.
I'll have you in advantage of a significantly more stable cash flow stream.
Due to an improved margin structure.
Believe a growth profile.
It's also greatly improved with the focus we brought to the business through project Swift.
There's still work to be done.
But we have a solid foundation.
Our team to deliver consistent operating results.
That can be better appreciated by the investment community.
As we work to maximize shareholder value.
And with that.
Operator, please open the call for questions.
At this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd 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 keys.
One moment, please while we poll for questions.
Our first question is from Mark Smith with Lake Street Capital markets. Please proceed with your question.
Hey, guys, sorry, just wanted to ask a little bit on the margin profile during the quarter just walk us through kind of what it was the squeeze that margin. So much as you had strong orders in our in the life business.
Yeah, Hi, Mark this is al.
John do you want to you want to take that.
Yeah, Hey, Hey, Mark Yeah, I think thanks for the question I think when you look at margins you really have to you know.
Step back to the beginning of the year as you know we had to work through the inventory rebalancing.
Due to the fewer procedures being performed during COVID-19 .
And that created a mix and timing of normal ordering patterns for the first half of maturity in our ophthalmic viscoelastic products and as Al said earlier.
Fortunately that's now all been worked through and we're back to more typical ordering patterns here in the second half, but as a result, our first half gross margins were approximately 280 basis points.
Higher this year than in the prior year first half and then that in turn also created back half change for gross margins.
In comparison to the prior year second half due to timing and mix.
So overall I think it's the best which I said in my remarks too to really view gross margins in Q3 combined with the Q4 since we are reiterating guidance today.
And as you look at Q4, we're now estimating Q4 margins of approximately 42%.
With the sequential increase of 500 basis points about 150 to 200 basis points less than the prior year and assuming the midpoint of the guidance range and this would then imply second half gross margins in the 39 percentages and.
And full year, and a 38 percentages, which is consistent with our expectations.
So I think that's mark is probably the best way to look at it you got to kind of look at the back half.
And I think.
That pretty much aligns with our expectations.
No that's helpful and as we think about the guidance here you know any insight into kind of how the business is trending do you feel like there's is there a level of conservatism built into the guidance or do you have pretty good read through on you know where do you think this quarter rolls out and finishes up.
Yeah, I mean, I mean from my perspective, I think we've got a lot of great insights.
Into what our customers are doing at both life core oriented curation.
Confident I think in the numbers that we see right now.
We feel pretty good about them.
Sure we'd like to beat those if we can but.
We're just comfortable at this point and reiterating guidance today.
And then maybe one last one for me I I didn't do the math, maybe I'll ask you to do it for me quickly. The two projects that were added were these with new customers or existing relationships.
Yeah.
Hi, Mark this is Jim.
Yes, sorry, Al do you want me to take that.
Yeah go ahead go ahead Jim.
Hey, Mark Yeah, there with new customers so the.
The total project load now is at 24 with 21 customers. So.
We're really excited with the amount of activity we have in our pipeline right now I think we're really seeing the benefits of the investment that we've made into our sales and marketing and development efforts to enhance that.
Not only with the addition of new opportunities, but the advancement of products within the pipeline.
Moving through the various stages of development continues to go very well and really.
We're also seeing a continuous build and the amount of projects that were evaluating and that continues to go well with a lot moving forward close to signing deals. So a lot of activity its very positive and I think we're really paying or.
We're seeing benefits for the investment that we've made.
Perfect. Thank you guys.
Okay.
Yeah.
Okay.
Our next question is from Mitch Pinheiro with Sturdivant Sturtevant <unk> Company. Please proceed with your question.
Yeah, Hey, good afternoon.
So.
I guess my first question just sort of a follow up.
Life cores sort of product mix.
What was the mix they said the negative mix margin mix in the quarter.
Due to the C D M O side, where the fermentation side, because you know 33% growth in C. D M O.
<unk> is.
Quite strong.
And was that the lower margin part of the mix.
Yeah, Jim why don't you go through.
Hi, John .
Yes, sorry, either one yeah, Mitch it's primarily in the <unk> side, you know again back to our you know kind of the legacy of our business. The you know the ophthalmic viscose.
Scholastic products really which were impacted in the first half with the the inventory level. So it really has to do with the C. D M O side.
Okay.
Yeah, I'll, just add I'll just add that.
The biggest impact on the on the.
Inventory hit their inventory carryover, we had was with our legacy ophthalmic business.
That picked up and actually accelerated faster than we had hoped and really you know had a large large involvement in Q3 and all of this gets back into more normal loads between the mix of overall <unk> moving forward.
Okay.
And was any of that due to.
Basically overhead cost allocation is.
Is it related to like maybe lower volume.
Through your through your facility.
Facility or <unk>.
Truly like the pricing of the of the products within the revenue.
Yeah, I mean look I don't think it's necessarily pricing, but we do have a mix of skus at various levels of gross margin.
And sometimes.
Sometimes we advanced some higher sales that were slightly lower margin.
But again when you look at the back half of the year for the full assortment again I think what we know is coming and what's on order.
Because we know those orders and we're feeling very confident in the second half gross margins itself.
Okay.
And then staying with the wife core.
The.
Okay.
When we're looking at.
The overhead allocation I haven't seen your Q, you haven't filed the third quarter Q yet.
Roughly what was what was the.
It was the corporate overhead allocation for light core.
I'm alert to that.
Of the second quarter.
Yes.
Mitch we've kept the overhead allocations or the corporate allocation essentially.
The same.
For for life, where we've not adjusted that.
Okay and the only thing we've done is we've really have now taken what used to be under eat smart and have now allocated it back.
Really to the corporate corporate overhead line or corporate.
Other segment line.
Okay.
Switching.
It's a curation.
So you still have that services contract with.
Taylor's that's still happening what what's the status of that.
Yeah.
Mitch.
What's in the process of winding down for us right now.
So we still have it but.
I would say that it's pretty well winding down for us here in the next.
Two months.
Yeah.
When you look at and sort of how.
Was that all in the discontinued operations are the.
Costs and fees.
These for that there or were they in your ongoing.
Yeah, John do you want to clarify that.
Yes, the way we handle the TSA fees, they really just offset G&A costs. So they're not in discontinued ops, they're just an offset to our ongoing spend and.
It really is substantially complete as al said, so there's only just a few more things remaining but is pretty much substantially complete at this time, we're really pleased with that I think it went really well and.
Really now focused on things other than that TSA.
When when the TSA with sort of when the fees go away, it's winding down here.
What happens to the costs.
Associated with the TSA are they being wound down quickly.
Quickly as well.
That's correct and as Al said, the reverse integration that we've been doing has been ongoing.
And so we've been going through essentially a rolling riff of employees that were associated with.
The eat smart business.
Very happy that many of them did get jobs with the buyer itself.
But we've also had to.
Let folks go.
As we're right sizing for the size of the business that we have and that will continue as I think I said last quarter.
We'll probably see that for a couple of quarters as we right size, because we still have to operate the remaining businesses of $75 5 million of revenues.
And we will continue to.
Again, rightsize that over the coming quarters.
Okay.
Getting to speak of the Yucatan.
Is the.
Because the volatility in the avocado market.
Effect.
Maybe the timing of maybe finding a buyer here for you could turn is that is that causing any the way do you still find interest in that asset.
You talked obviously.
I'm confident in the business and you like you think it's a very attractive asset or significant value I think you said.
Because the market itself is that is there any delays here because of the volatility or defined.
Ample interest in that asset.
Yeah. So you know we run a model the volatility I think you're talking about would be in food costs.
Run our models so we.
We buy a fruit when that's low cost. So typically the plant starts to operate late August early fall when the food is at its lowest price and then we we put away fruit as much as we can.
Our yields are very good we had record Yale yields this year.
We've gotten hit yeah, what's inflation like most companies have here in the third quarter. However.
We've been very aggressive.
And pricing.
We took around an 8% price increase 95% of our customers accepted it and that was going to.
Start to roll in here in.
In Q4, it takes 90 to 120 days.
We have pricing stick in the food retail side.
But we're really pleased with how the pricing has gone in.
We've got some exciting things at.
We're doing on the operational side to improve our efficiencies.
And I.
I would like to also mention that the H P P side.
We're starting to get traction here.
Private label and in fact, Oh April .
April 1st we just shipped to a major private label provider.
Our our squeeze for the first time in private label. So we have a lot of positive momentum going on so it's it's exciting you know the private label business is growing twice as much as the.
The branded business, we just we're not in a position before this year to go actively bid on private label since they require.
The H P. P technology. So we all feel really good about where the asset is we feel really good about the growth aspects for that asset.
And is there an interest you know.
In the asset from.
Third parties or.
Is it.
You know I mean, where do we stand with that.
All I can really say is.
Mitch is that we continue to implement project Swift.
And we're working.
Our assets, that's what half declaration foods.
For us to maximize shareholder value really pleased we're able to generate a $109 million this year from Wednesday, and eat smart. So we just continue to work.
Project Swift well, that's about all I can say on that topic Mitch Okay. Okay. And then just last question just.
The $900000 of charges related to the Mexican facility legal costs and consulting is that.
Is that down in that curation.
Yeah.
SG&A.
John you want to answer that.
Oh, yes, sorry, I mentioned is on mute here no. It's a it's allocated to the corporate.
Okay.
The curation.
Okay.
Okay. That's all I have thank you.
Okay.
Our next question is from Anthony Vendetti with Maxim Group. Please proceed with your question.
Hi, This is Matt on for Anthony Vendetti, Thanks for taking my questions.
It sounds like you've had a lot of success. You mentioned you made a $1 $6 million investment in the P&L and fortify to sales and marketing resources you have.
Is there any kind of additional metrics you can provide to us in terms of the return you guys have had in terms of your pipeline expansion there and how should we think about the investment going forward in fiscal 'twenty three.
Yes, well as.
As you know the beginning of the year that was part of our strategy to invest.
More in sales and marketing to.
Drive that part of the business.
And.
We myself, Jim and John we're very pleased with the impact that that.
The investment is.
Just having for us.
I'll, let Jim.
So more color around the two customers that although.
Although we have landed this year.
Yeah.
Yeah, Thanks, Al Hey, Matt So.
What the initial investment was focused on was expanding our.
Our sales and marketing focus we had 11 key positions.
<unk> identified that strat that involve sales marketing as well as development to handle.
And broaden our bandwidth and our development capabilities.
Word.
In very good shape, we've added those key positions and what we're starting to see is more activity within the pipeline. So as an example, the two we just added our new customers, they're not customers that we've worked with in the past and I think what we're more excited about as a number of potential.
Communities that were evaluating so the group's able to take advantage of the tail market when the market tail ones that we've talked about and get more opportunities to the table and then the door and you know year over year from a development standpoint, we're seeing nice gains.
And our development revenue on overall <unk> profile and I think moving forward.
As we focus more to a targeted sales effort.
Effort at life core we are going to be adding additional resources to the sales force we're.
We're looking at where those goal and what makes more the most sense as part of our FY 'twenty three plan.
But things are on track and in line and we're very happy with with what we're seeing in the.
The amount of work coming to life core to be evaluated.
Excellent. Thank you very much I'll pass it on.
Okay.
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Our next question is from Mike Pitofsky with Barrington Research. Please proceed with your question.
Hey, guys. Thanks for the question John I guess in terms of the.
I have missed this earlier, but in terms of the Capex expectation for Q4, I mean should we be thinking roughly 15 $16 million based on what Jim said about the 5 million shifting is that about right for Q4 Capex of 15 and 16.
No actually I think it's going to be closer to 13 for 27 overall I have nothing right now really lined up for curation, we're not spending capital there. If we did it would be in the few hundred thousand range or something so overall that would put us at about 31 and a half.
For the full year.
For everything combined with what we spent even back during the eat smart so.
But I think I think the focus wanted to be honest the $27 million for life core 13 million for Q4.
And then any guide.
Guidance around.
Cash flow from ops in Q4, what you what you expect there.
I'm assuming negative but.
Any guide.
Yeah, I don't I don't have anything formal guidance, but I, just I know al mentioned, it several times too but.
From a cash flow perspective, what we've done this year.
Generated $45 1 million from <unk>, 73, and a half from eat smart.
And you take out the $109 million of debt, we paid down without $118 million.
Our EBITDA that we're generating plus interest and it puts us like free cash flow before capex or any cash restructuring of mid teens.
Before we get to pay for Capex. So.
Think that we're trying to find a way to pay for our Capex capex with EBITDA and judicial use of debt. So.
Certainly we're going to be a little higher than that but I think still in that kind of 130 million of debt by the end of the year.
So.
You know all the things, we're doing to manage cash, including really the looking at the Capex.
Making sure that were aligning with a life <unk> anything that we can.
Push off or from.
From a timing perspective, we do.
Cash is king and we're trying to be very thoughtful around that.
Okay, I'm not entirely sure everybody on the call.
I agree with the sort of asset sales and using that as some kind of metric for generating free cash but okay.
I'm not.
I'm not I'm not trying to I'm just trying to talk about the things that we did in the cash flow yeah.
This year I mean, certainly our focus has been really as you know has been to delever the balance sheet and I think.
You know.
I think we've done a lot there and continue to okay.
Okay.
Alright, I guess al I want to understand on the on the 8% increase that you were able to look like.
Hi.
Get 95% of your Yucatan customers to accept.
How does that generally if you have any sense, how how does that sort of flow through to the end user customer I mean does that then get sort of marked up again by the by the grocery store how did like essentially what what what is the customer going to see on their end as far as a price increase.
I mean is that going to be like low double digits is that can be 8% I mean, what do you do you have any sense for that.
Yeah.
That's the thing.
Eight and 10% thereabouts and that's pretty.
Pretty much in line, where our competition is okay. So its mainly to cover inflationary issues that we're seeing.
And we're also.
<unk>.
We evaluate everything for cost as you know, but since the war started.
You know, there's been 25% increase in diesel.
Work with the customers that we can for a temporary surcharge.
Our fuel as well because that gets passed on to us pretty directly from our customers. So.
Those are the kind of things that we.
We're working through.
Okay.
And I guess, just one one quick one for Jim Jim When you when you when you think about life core the facilities. What you guys are doing in terms of.
You know building out your capabilities I mean is it reasonable to think you know over the next couple two three years that you know the projects, maybe 35 or 40 projects. How do you. How do you sort of think about that as you sort of think over sort of the multiyear investment you're making there and what you sort of hope to be running through that facility.
Over the next couple of years and it's not formal guidance I'm, just trying to get a sense of what's reasonable to think about.
Yeah. Thanks, Mike that's a good question and obviously, we're setting the organization up to handle more and more and more.
Without.
You know building too far ahead, but really it's the whole reason, we're putting in a more targeted sales and marketing approach to get people get more people to buy a car and get more of them on boarded and.
While it's hard to project specific numbers I can tell you we have targets every year on.
New projects to add what's hard to characterize is what may fall off the existing pipeline, but the overall goal is to get that continuing to increase.
It wasn't that long ago, five six years ago, we had less than five projects right now are at now we're at 24.
We have out of the 40 plus that we're currently evaluating I think there is somewhere between 456 that are closer to onboarding that we hope we can they meet our criteria and what we are.
In our niche.
The offering that we have so the number will go up it's hard to say how much but the overall goal is to build that pipeline to make sure. We're continually back filling and then more importantly, making sure. The organization is built to handle it and support the increase in projects.
Do you have any any preference in terms of new projects. I mean would you would you rather sort of go deeper with existing customers and add to the footprint of customers is there any is there any sort of bias there.
How do you think about that.
There's not really a bias obviously, you'll have long relationships with our top customers and we have several projects in our pipeline.
And that are part of.
That customer list, but in reality as we continue to expand our commercial offering as things get through the pipeline one of the goals is to.
You know diversify the customer base and get more customers in there.
Yeah listen if I could pick handpick projects I would pick things that are already on the market and just do a tech transfer we actually have some of those like you've heard me discuss the further to the right and that development cycle. They get the less risk there is of them being approved but in reality.
You know, we're pretty agnostic to who we're working with as long as they meet the.
The criteria and utilize our niche skill set.
To drive value okay.
Okay last one does the 5 million that gets shifted.
Is that likely to sort of hitting Q1 Q2 of the next fiscal year or is that can be spread out.
Hmm.
We continually refine the timeline and need for capital.
It's just a balancing of capital.
Most of that will shift into next year, but we're continually.
Doing evaluations on when it makes sense to pull the trigger on capital based on what we're seeing.
It's not a reduction in capital and it definitely doesn't have an impact on us meeting.
Our capacity needs for our growth objectives, but.
A good chunk of that will be in next year, but.
Like I said, we haven't we haven't provided guidance into what next year's Capex is yet, but that will come as part of our FY 'twenty three plan.
Great. Thanks, guys I appreciate it.
Yes.
We have reached the end of the question and answer session and I will now turn the call over to Doctor Al Bolles for closing remarks.
Thank you again for your interest in <unk> Corporation, and we look forward to talking to you once again.
When we release, our fiscal fourth quarter results.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
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