Q1 2020 Earnings Call
Good morning, and thank you for joining Landecs first quarter fiscal year 2020 earnings call.
With me on the cool is Dr., Albert Bowls, Landecs, Chief Executive Officer, and Greg Skinner Landecs Chief Financial Officer.
During today's call. We may make forward looking statements that involve certain risks and uncertainties that could cause actual results to differ materially.
These risks are outlined in our filings with the Securities and Exchange Commission, including the company's Form 10-K for fiscal year 2019.
Let me turn the call over to Albert.
Thank you and good morning, everyone.
As a leading innovator in diversified health and wellness solutions.
Is comprised of two operating businesses.
Core biomedical.
Correct.
Last quarter bio medical is fully integrated contract development and manufacturing organization or seeking them all.
Our first highly differentiated capabilities.
Okay.
So ill finish.
Difficult to manufacture pharmaceutical products distributed syringes and by.
That's a winning manufacturer premium injectable hyaluronic acid or paycheck life car brings over 35 years expertise as a partner for global.
Emerging bio pharmaceutical and biotechnology companies across multiple therapeutic categories to bring their innovations to market.
Great food natural foods business, it's focused on innovating plant based foods.
<unk> clean ingredients to retail club.
Foodservice channels throughout North America.
Duration food, just able to maximize product freshness to it's geographically dispersed not work of growers.
But its supply chain.
And that Breatheway packaging technology, which naturally extend the shelf life fruits and vegetables duration foods brands include eat Smart trust package vegetables and salad.
Oh premium artists and oil and bigger products.
Japan in Kabul fresh avocado products.
We are focused on creating shareholder value by delivering against our financial targets strengthening our balance sheet.
Committing our strategic priorities to approve operating margins actuation foods and investing in growth.
Driving top line momentum half life core.
For the first quarter fiscal 20 consolidated revenues increased 11% 238 million compared to the first quarter of last year.
However, we experienced a class net loss and a decrease in girls profit and EBITDA during the first quarter fiscal 20 compared to the first quarter of last year.
This resulted in a first quarter not was 16 cents, which met our guidance. We are reiterating our full year fiscal 20 guidance, which calls for consolidated revenue from continuing operations to grow 8% to 10%.
EBITDA of 36 to 40 million.
Earnings per share of 20, or 32 cents as we communicated last quarter, we expect to generate substantial profits and the second half of the fiscal year, we're positioned to achieve our goals for fiscal 20, well that team fully engaged at our strategy as a reminder.
Second half acceleration is two to three factors.
Over one the timing of revenues and profits that life core number two.
Timing in revenues and profits from the sale of the avocado products and number three.
Pack from our cost out initiatives, which we expect to yield significant cost savings.
Second half of fiscal 20.
Before I go into more detail concerning plants or fiscal 20.
Yeah, Let me turn the call over to Greg personal financial highlights.
Thank you Alan good morning, everyone.
Revenues increased during the first quarter fiscal 2020, primarily due to the 16.2 million dollar revenue contribution from avocado products, which were acquired on December 1st 2018.
From a 2.2, Megan or 4% increase in solid revenues compared to the first quarter of last year.
These increases were partially offset by first a $3.2 million decrease in green bean revenues due to the extremely heavy rains and flooding in the Ohio Valley during May and June resulting in yields up 35% to 50% of normal.
Second a plan to 1.4 million dollar decrease in revenues and the package vegetables in bags and trace business.
And third a 576000 dollar planned decrease at life for.
A life or decrease was the result of lower fermentation revenues during the first quarter fiscal 2020 compared to the prior year.
Primarily due to the timing of customer shift that within the fiscal year.
The life core revenue decrease was partially offset by 49% increase and product development revenues due to an increase in development activities during the quarter.
Gross profit decreased during the first quarter fiscal 2020 compare to the first quarter of last year, primarily due to a $548000 decrease and the Curations food segment from an unfavorable product mix.
From a $453000 decrease in our life or segment as a result of a decrease in revenues and the timing of production within the fiscal year.
Net income decreased during the first quarter fiscal 2020 compared to the first quarter of last year due to first a $1 million decrease in gross profit second a 3.1 million dollar increase in operating expenses, primarily from the addition of Yucatan Foods third.
A 1.3 million dollar increase in interest expense due to the increase in debt from the acquisition of Yucatan Foods and fourth no increase in the fair market value of the company's Windset investment compared to a 1 million dollar increase during the first quarter of last year.
These decreases in that income were partially offset by a 1.5 million dollar decrease an income tax expenses.
EBITDA decreased $3 million to 314000 during the first quarter of fiscal 2020 compared to the first quarter of last year due to the decrease in gross profit and from an increase in operating expenses, partially offset by an increase in depreciation and amortization expenses.
As Alan noted in his opening remarks, we're reiterating our fiscal 2020 guidance set forth in our fourth quarter fiscal 2019 earnings release.
We continue expect consolidated revenues from continuing operations to grow 8% to 10%.
With life of core growing in the range of 10% to 12% and Curations foods growing 8% to 10%.
We continue to project consolidated earnings per share to be 28 cents to 32 cents and good solid EBITDA to be in the range of $36 million to $40 million.
At the segment level after corporate expense allocations, we expect EBITDA procuration foods of 19 million to $21 million and EBITDA for like or to be 21 million to $23 million.
Corporate is expected to rely on an EBITDA loss of approximately $4 million after allocations to Curations foods and life.
For the second quarter of fiscal 2020, we're providing guidance for consolidated revenues to be in the range of $142 million to $146 million with a net loss per share of four cents to six cents due to certain shipments for life core AFFO and add.
Avocado products expected for the second quarter shifting to the third quarter and a portion of the costs out savings for the second quarter delay to the second half.
EBITDA is expected to be in the range of $4 billion to $5 million.
During fiscal year 2020, we expect quarterly operating income to increase sequentially each quarter with a fourth quarter generating the highest level of quarterly income.
The timing of our income generation during the year is driven by the fact that first life for plans to generate over 80% of its operating income for the year. During the second half in line with historical results based on customer order patterns second all of the operating income.
From the sale of avocado products will occur in the second half of fiscal 2023rd we expect to recognize a large majority of our costs out savings from our costs out initiatives at Curations foods during the second half of fiscal 2002 wanting.
And fourth our green beans supply is now fully recovered and we expect that business to generate substantial profits in the second half of this fiscal year.
We continue project cash flow from operations in the range of $26 billion to $30 billion and capital expenditures in the range of $40 billion to $45 billion with a large majority of capital expenditures invested in capital capacity expansion.
Before and costs out initiatives at Curations foods.
Turning to our financial position at the end of the first quarter of fiscal 2020, we had approximately $165 million of debt, which translated into a debt to equity ratio of 62% debt to tangible asset ratio 39%.
Fixed coverage ratio at the end of the first quarter was 1.9, which is well above our covenant of 1.2.
Our leverage ratio at the end of the first quarter was 4.4 in compliance with our debt covenant of 4.5 or less we expect to be in compliance with all of our debt covenants going forward.
Importantly, we as we mentioned in the fourth quarter fiscal 2019 earnings release at the end of July we are actively engage in discussions with our lenders to amend our debt agreements in order to enhance our flexibility.
We are discussing financial structure that will extend the overall terms of the debt increase the amount of availability and amend our current covenants.
The amendment should give us the necessary liquidity, along with cash flow from operations to accelerate our cost out automation projects and to expand our capacity at like or.
We expect to finalize and announced this amendment within the next 30 days.
Ill now turn the call back that out.
Thanks, Greg.
We are confident about our plans to drive profitable growth in fiscal 20.
We go into more detail about the progress we are making in our life core duration fluids business units.
Core continues to see momentum benefiting from three industry trends number one.
Growing trend among pharmaceutical and medical device companies.
Outsourced development services and manufacturing.
Number two.
Growing number of products seeking FDA approval and number three the increasing trend toward injectable drugs.
According to report by global data far resource.
Projected incremental demand for injectable drug products as expected to increase by 75 to 100 million units by 2023.
As a highly differentiated and fully integrated CDMO.
Life core is uniquely positioned to capitalize on these tailwinds.
Through lack of course 35 years as a global leader in manufacturing premium injectable grade AJ life core has developed the knowledge to process I manufacturer difficult to formulate infill pharmaceutical products in both syringes and vials.
This has allowed life core to establish high barriers to competition and create unique business development opportunities, which will continue to augment its business development pipeline new projects to feel its long term growth.
This has been demonstrated by the 49% increase in our business development revenue during the first quarter fiscal 20 compared to the prior year period.
Life car is also making progress in late stage development customers from phase three clinical studies to commercialization.
Plan decrease in life core revenues into first quarter fiscal 2000 was due to timing.
We're on track to meet our 10% to 12% life core revenue growth goal for fiscal 20 in life, Carl being profitable for the remaining three quarters of fiscal 20.
To make future demand at life core, we'll be investing in approximately $13 million for capacity expansion and fiscal 20.
The next five years as expand sales to existing customers add new customers and continue to commercialized products that are currently in development pipeline.
For our duration foods business into first quarter fiscal 20, we made progress advancing our strategic priorities.
Improved financial performance and we will see the benefit of that progress during the third and fourth quarters. This fiscal year.
Our fiscal year 20 strategy for Curations foods is to focus on growing our higher margin products.
Optimize our operations continue to mitigate the cost pressures facing our industry and to deliver breakthrough product innovation.
Other issues and increased labor costs continued to be the greatest challenge to our business.
Regarding whether we have taken decisive actions to mitigate this risk.
First as part of our guidance for fiscal 20.
Set aside a considerable contingency fund to cover unforeseen produce sourcing issues due to weather related events.
Over and above what we have historically set aside in our plans.
Second in response to weather related lack of supply green beans in Q1 fiscal 20, we implemented an over plant strategy in July for Green beans. This benefited us greatly as we have felt very little impact from hurricane Dorian or heavy rains impacted green bean growing regions.
We are forecasting that we'll be able to meet all of our customer demand for green beans, This coming holiday season.
Regarding efforts to reduce costs.
We advanced our cost out program, which focuses on mitigating risk in our business to offset projected cost increases.
Really driven by cost of labor freight and raw material produce sourcing.
We met our cost of all in Q1, we're on track to deliver $18 million to $20 million in savings in fiscal 20.
Activities focused on managing labor costs, and increasing efficiencies at our plants and supply chain.
Specifically on labor cost, we move to a more efficient five day work week from a six day were weak and renegotiated our labor contract or GLADO multi facility contributing $1.8 million in cost savings annually.
Regarding logistics, capturing synergies with the successful integration of Yucatan food products by integrating shipments of avocado products with eat smart salad products and our refrigerated trucks.
We also realize additional operational efficiencies and logistics by eliminating low margin delivery routes, while continuing to service our customers.
These actions resulted in improved service to our customers will deliver ongoing monthly savings of over $200000 or roughly $2.5 million annually.
Another example of reducing costs R&D and operations team.
Work together to reduce packaging material enough denies production for our fast growing eat smart single serve salad business, which grew 27% during the first quarter compared to the prior year quarter, resulting an improving gross margin for the single serve salad products by 460.
Basis points.
We'll continue our efforts on improving operational excellence and productivity with automation projects and our facilities.
Optimization of the network and reviewing all of our existing and new packaging design.
Formulations to ensure that we are reducing waste and producing products and the most efficient manner.
Further and continuing to strive for operational excellence in September curation food supply chain team successfully started up production in our Mexico facility for avocado products.
Which is important in order to be processing during the months what avocados.
Season, and can be purchased at reasonable prices.
Last year due to the timing of the acquisition.
Facility was three months late in opening.
Resulted in purchasing high cost avocados in production inefficiencies, both of which are significantly impacting margins as we sell through this inventory.
With our Ontime startup in September we are purchasing avocados that 50% less than we were purchasing them at the end of last year's production season.
Looking forward to the second quarter of physical 20, we have more productivity processes and measures in place to further improve efficiency and improve margins substantially.
The positive impact will flow through with the sale at level cattle products inventory in Q3 in Q4 fiscal Tony.
A key driver of duration foods business growth will be the innovative products that we bring to market along with focus on growth in our high margin products that deliver on trend.
100% clean ingredient plant based foods, notably the newer more innovative products and our eat smart salad line accounted for 18% of salad revenues.
Consumer demand for plant based foods is rapidly growing.
Turning to plant based Foods Association and the good Food Institute.
The retail sales of plant based foods has grown 20% in the last year.
Repair the non plant based foods growing at only 2%.
In line with advancing our innovation strategy during the first quarter duration foods is in market testing to breakthrough products that will drive profitable growth.
Both of these products are representative of my philosophy and experience that small changes to existing products deliver major market impact.
Changes, we have made to these products are embedded with consumer and customer insights and we believe the products meet unmet needs.
First we recently launched Yucatan guacamole squeeze a new first whats kind packaged guacamole product.
Flexible squeeze pouch that allows for greater usage occasions and convenience.
The unique package design allows for guacamole to be used as an everyday condiment.
The technological breakthrough is under design of the cap and nozzle.
Once extends the shelf life, when we do such as food waste because the guacamole does not brown in a squeeze container after the package is open.
This not only meets an unmet consumer needs.
But provides us with a competitive advantage.
Yucatan Guacamole squeeze product is currently in test with Walmart.
We're planning for a national expansion once we compile results of the test.
Second.
We focused our resources on revamping, our patented breatheway packaging technology.
Spansion into new markets.
Well, we'll continue to use our patented packaging technology to maintain optimal atmosphere for individually package proteins.
We have expanded into new markets with a complete supply chain packaging solution.
The Breatheway packaging solution is being used to wrap talents raspberries for driscoll.
California distribution centers.
For retailers this results in reducing SREC, which improves profitability.
For consumers.
This resulted in improved product quality and extended shelf life.
For our natural food brands, we will continue to focus on growing our product lines that deliver high gross margin in growing retail categories.
Turning to Nielsen and IRI syndicated data.
Each of our natural food brands delivered double digit retail sales growth and outpaced the category growth in the first quarter fiscal 20 compare to the first quarter of last year.
Eat smart salads grew 11.2%.
So Brad premium why vinegar olive oil grew 30%.
Look out our products grew 16.5%.
We continue to deemphasize, the low margin low growth bag and tray fresh cut vegetable products.
This shift in our product mix is projected to deliver more than 150 basis points of improvement in gross margin in fiscal 2008 compared to fiscal 19.
And all these efforts remain focused on staying true to our mission of protecting our plans for future generations sustainable business practices.
We recently published our Landecs sustainability Handbook and are actively setting targets to reduce our environmental impact.
In summary, we have confidence in our guidance for fiscal 2000.
Landec teams focused on creating value and delivering against our financial targets.
Strengthening our balance sheet implementing our strategic priorities to improve operating margins at duration foods and investing in growth and driving top line momentum at life core.
I'm confident in our plan in place to make the changes necessary to be successful and secure long term profitable growth to deliver value to our customers consumers in shareholders.
Thank you.
For joining us today and for your ongoing interest inland deck are now open for questions.
Thank you we will now be conducting a question and answer session.
I'd like to ask your question. Please press star one on your telephone keypad.
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Well participant using speaker equipment, you may be necessary to pick up you had said before person is dorky one moment, please while we pull for questions.
Thank you. Our first question comes from the line to Brian Holland with D.A. Davidson. Please proceed with your question.
Yes, thanks, good morning, gentlemen.
You mentioned sitting inside and guidance some cushion for sourcing volatility where do we stand today within that range of outcome. So in other words to what extent did the rains and flooding in the Ohio Valley stretch that contingency and then how quickly can the new protos produce sourcing initiatives you spoken to help to ease some of those pressures.
Well a lot of bar, Brian This is Greg.
A lot of our Afirma history, if you look at that.
Lot of art continue to see uses in the past or produce sourcing issues in the past have been more of a second quarter third quarter items. So while we were talking about it originally what we had set aside for contingencies.
Most of that was associated with those quarters by time, we went out with our guidance for the year.
In July we are a new about the green bean.
Issues and.
The for the first quarter, so that was factored into our guidance. So we still have.
A reasonable and what we feel is adequate more than adequate contingency for the last nine months of the year.
Yes, I just wanted to add add that the over planning strategy is a new approach for us.
Historically, we have not been able to supply green beans, which is a very good product for us.
During the holiday season, and we knew animal Hurricanes happen every here.
So we diversified our geographic regions over planet and now we're in a position we believe to.
Not be prorating customers as we have done historically.
Which we hope well begin to build that confidence in what we're doing.
Okay. Thank you appreciate the color.
The clarity there with respect to Yucatan, what else do we need to do with respect to heavy lifting there right. So you've got a production started on time sounds like the SAP is fully trade what else do you need to implement there and what is the timing on that look like as we move through the balance of the year and I'm thinking.
Long term about initiatives that you have there.
Well you know we've done a lot of heavy lifting during the during the summer months to too.
Build our staff.
Last year, we had a high degree of turnover.
And we put in extensive training programs. This year. So we have the staff in place, we're not seeing high turnover.
Of course, well we have.
Started up on time, what the low.
So that was the heavy lift and we did this share I think I've mentioned before we're putting in metrics.
That weren't there before around.
A lot of piles per day yields et cetera.
Looking forward, it's about automation for us.
We still have a lot of people, particularly those on the second.
In tertiary packaging lines doing a lot of hand work. So we see automation there as a way that we will continually.
Improve our.
Margins just like we're doing it in the Guadalupe facilities.
We see that as an opportunity in the future as we get to capital to automate.
Thanks last one for me on the you could turn into the Guacamole squeeze product curious where the placement is in Walmart for the tests are you sort of with the dips or with the condiments and we're optimistic they would that product be placed as you think about broader distribution.
So were roughly 1300 walmarts.
Geographically dispersed.
We.
And the dairy section right now.
We have some 16 else clock there and.
We worked with the buyer to put it in there. So that's where we are now we're just accumulating the data.
And.
We expect that from that we'll be doing lots of follow ups with the buyer specific regionals stores to get and understand lined the data and find the optimal place for us to put it might be a product that goes on more than one spot.
The store.
Appreciate it but thought gentlemen.
Our next question comes from the line of Anthony Vendetti with Maxim. Please proceed with your question.
Thanks, Good morning, guys.
Alright.
I want to.
Thanks, It's too so just just to talk about a little bit more about the cost out initiatives.
No Allison she came in you can.
Focused on exiting low margin businesses or or businesses that didn't make sense.
As part of the strategy going forward and focusing on the high margin products can you just give a little more color about.
Around.
The exact specificity of those initiatives and and what has caused them to get pushed out just a little bit into the second half of this year.
Well, there's actually it was several things that are going on in the cost out program.
We have been fairly aggressive where we can be.
Taking out the low cost.
Hi costs low margin SK use.
Primarily at our fresh vegetable tray and bag line. So that's an ongoing process that we continually doing.
The big part of cost style is the is the installation of the capital that allows us to automate.
So that is ongoing.
We.
As we said.
A little behind in Q2.
But that's only a timing issue because of equipment, we fully expect that to recover in the second half. So we're really focused.
There on the automation side, and then thirdly, we have gotten very aggressive in terms of looking at.
The kind of packaging, we have how much.
Ill plastic.
We have in the package, we have the optimal formulations.
All those things we are actively looking at we formulating it so that weve dealt to supply that consumers, we optimize what we're putting into our bags that's ongoing and.
Yes pretty much the third leg if you all the cost out up opportunities that I see.
Okay any any.
Any chance you did did it just gets pushed out.
Into.
Not just the second half, but into the fourth quarter or is it really just just right now it sounds like a little bit of a timing issue and nothing nothing major and then as you as you're moving towards these high margin products and calling some of the low margin products.
Do you expect because this quarter rate be the revenue if we exclude you could Todd.
Downward I think what didn't have to 2% 1.7 I think.
Do you expect.
Organic revenue growth to start to.
Show, an acceleration as we move into the second half of the year or is the culling process going to prevent that from happening until fiscal 2021.
No we we.
We see that the organic revenue will grow.
And the second half.
As I mentioned it all our single serve.
Salads are are really growing really well for us at retail.
We've got a lot of work going on improving margins thinking and I mentioned.
We havent.
With that by 460 basis points. So it all our sales continue to grow.
We also have a whole new line of.
Restage coming with eat smart, it's been a long time since that brand has been refreshed.
Consumer data that says.
We can drive velocities by the improvements and changes that we have done to the.
To the brand restaged and you'll see that it's going to be implemented in January .
And we have allow us coming on as well, which.
Were projecting a bumper crop.
And that well off.
That will continue and in the second half as well.
We see more organic growth coming from our.
Yucatan line and from squeeze.
Until two two national roll off.
And ill just your first question.
I don't see we're not forecasting we're confident about our cost out number for the year, but costs out is going to be away a life here.
We see more and further years as I mentioned theres opportunity in Yucatan, and we will continue to be cost out as part of our culture to improve our our margins at our profitability.
As we continue.
And you know.
The one area that we still have under investigation is optimizing our network, we have a lot of facilities.
And we're looking at those similar nonstrategic assets.
Karen went logistics.
We have a fall team dedicated to that and expect to start to see some impact of that.
Not only in the second half of into fiscal year 21 as well.
Okay, Great I will hop back in the queue. Thanks.
As a reminder, if you would like to ask your question Press Star one on your telephone keypad.
Our next question comes from the line of Chris Krueger with Lake Street Capital Markets. Please proceed with your question.
Hi, good morning.
Alright, great.
I just couple of questions on new products first on the Guacamole squeeze product I believe you stated you're testing at about 1300 Walmart stores.
Is there a timeline for that.
How long the test phase will take.
Typically us around about three months is a typical test we went out there three weeks no way before.
We haven't that all Wal marts.
Ill for that a lot of times, but I will tell you are getting into the data store by store and are seeing some encouraging results.
So we plan on.
Continuing that test.
And there's a lot going on here replace lower price point.
Well.
All these things that we just want to.
Test with a partner.
Learn and then we're making plans now for the National launch.
Hello.
You will be you'll see the national laws will be available in the second half of the year.
Q3 c national launch as we are not just Walmart rather.
Other stores as well, yes, yes, okay, we're planning on.
Other retailers and maybe even clubs.
Welcome.
Then just out of curiosity out how long do take a develop that product.
Well.
There are so.
Early prototypes done.
In Q1, I think Q4 Q1.
And.
Equally what I saw and we've got into the consumer insights.
We accelerated the launch of that product.
We want to be first mover into category.
And we also have some opportunities too.
Create some competitive barriers to competition.
You'll probably see other squeeze packages come some follow us but.
Right now we will have the feature that we are really emphasized on is that we have this proprietary nozzle closure flexible package that once you use a air doesn't.
Go back on the package and it doesn't brown, what's just one of the number one silver compliance.
Locked Molly.
So there's very little waste with this product. So we it's one that we moved from the back prior to the front burner.
Focused resources.
Project management team in place and executed it.
I think very well given a short period of time.
Okay.
My last question is on the Breatheway.
Technology to be used for.
The supply chain perishable items.
I believe in your initial press release, you indicated you had a customer.
Yes, so we.
Well, we started with.
And they wanted to start with raspberries, because that's the most perishable very there is so we are testing with a now we're supplying.
The sale and our Breatheway patch.
And then we'll be rather retrofitting it on their existing.
Larry lines. So it's some test style and we're working with them on the details for for wrapping it up but it's it's it's a great opportunity for us because it's a it's a low capital.
Play for Us and it takes advantage of scaling the Greenway technology, which we historically have not really been able to do.
And provide great value to that only.
Just goals, but to the customers to consumers and we have plans for other.
Adjacent fresh categories as well that are separate from barriers that we'll we'll be testing in the upcoming.
Alright, thank you.
Our next question comes from the line of Mike, but do you see with Barrington Research. Please proceed with your question.
Good morning.
So on the acceleration guys expecting salad going forward, how much of that hinges on new product.
Okay.
Well.
As I said, our signal serving set single serve salads are growing.
And have been growing fairly rapidly so our focus there has to continue.
To feel that at retail, that's where they are growing and to improve our margins.
We do have a new line that we plan to introduce.
In the second half of the here, we have a major customer who has already agreed to put it into test with us. So we will continue to add innovation into our salads, but we're going to be very very targeted and while we do and we have higher.
Today outside firm.
Innovation firm to help us in terms of being able to find insights with consumers that weekend.
Applied to sell so you're not going to see what we have historically done which just to put a lot of salads out there and see if they stick.
We're doing a much better job upfront gaining consumer insights partnering with customers.
Put on a test and learn process that we can learn together and not the.
Pat a high cost of tuition in case it doesn't work. So we've taken a far more targeted approach, but certainly eat smart salads as an area that.
Given where things are goal with.
Well at plant based protein levels, and just people eating more as I mentioned in my.
By upfront talk that.
So the whole area of.
Plant based foods is really growing.
We have a lot of tailwinds here that I think we just need to take better advantage of.
Okay. So not entirely clear so is that the second half excel or the really be acceleration for the rest of year, if I'm reading them really is that.
Around an acceleration in single serve and a new product introduction or what.
Well there there's there's three things so just to be clear. So one is single serve is growing and our focus is to improve the large inlet as it grows.
Number two as we'll be testing a new line.
The second half.
The year and third as I had mentioned on the previous call or that we have.
Hello, Restage going out with eat smart brand.
Weve Doug.
Several months of testing on and believe that is going to drive velocities of our existing products.
But a long time, just refresh of the Squire brand and its frankly.
Outdated and we have some from temporary packaging graphics that we believe will improve our velocities.
And just a question around.
The guidance.
The third consecutive quarter there wasn't any.
Bump from on the.
Fair market value of Windset investment running through the income statement and I guess, what I'm wondering what's assumed for the year.
In terms of at income statement in line.
In your guidance thanks.
Well, it's right now that we just got a new five year.
Plan from them and whenever you get a new one kind of resets everything.
And then there will be given us their new budget for 20 coming up probably not total third quarter. So I would assume for now that.
The growth.
As we get closer to the put call date is going to slow down and so I would think somewhere in the.
300000 range per quarter is probably a reasonable estimate.
Going forward.
Okay and you have in 300000 in the second quarter.
That is part of our guidance, Okay. All right and then just last question just and catch it if you mentioned it.
From option contract for the quarter. Thanks.
Yeah.
Going forward no for <unk> for Q1.
The Capex I'm, sorry, so that again cash flow from off and Capex.
Capex for the quarter was about 10 million.
It's about a quarter or the low end of our range for the year.
And.
Cash flow from operations going to approximate our loss.
Very good thanks, guys slightly higher.
And.
Mr. Bose, we had no further questions at this time I would now like to turn the floor back over to you for closing comments.
[laughter] once again, thank you for joining us today and for your ongoing interest and Landec.
Thank you.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.