Landec Corporation (LNDC)

Q2 2013 Earnings Call

January 3, 2013 11:00 am ET

Executives

Gary Steele - CEO

Greg Skinner - Vice President Finance and CFO

Analysts

Tony Brenner - Roth Capital Partners

Morris Ajzenman - Griffin

Chris Krueger - Northland

Peter Black - Wynnefield Capital

Rick Fetterman - Fetterman Investment

Will Lauber - Sterling Capital Management

Matt Sherwood - Cooper Creek

Jim Schwartz - Harvey Partners

Craig Pieringer - Wells Capital

Presentation

Operator

Good day, ladies and gentlemen. Welcome to the Landec Second Quarter and First Half Fiscal Year 2013 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions) As a reminder, this program is being recorded.

I would now like to introduce your host for today's program, Mr. Gary Steele, Chairman and CEO of Landec Corporation. Please go ahead, sir.

Gary Steele

Good morning and thank you for joining Landec second quarter fiscal year 2013 earnings call. I have with me today, Greg Skinner, Landec's Chief Financial Officer. This call is being webcast by NASDAQ and can be accessed at Landec's website at www.landec.com under Investors on the Events and Presentation's page. The webcast will be available for 30 days through February 2, 2013. A replay of the teleconference will be available for one week until midnight Eastern Time, Thursday, January 10, 2013 by calling 888-266-2081 or 703-925-2533. The access code for the replay is 1600693.

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 2012.

Our strategy of focusing on our two core businesses Food and Biomedical Materials is paying off. We reported one of Landec's best quarters ever in yesterday's second quarter earnings release.

Revenues for the quarter grew 41% year-over-year to $114.7 million and net income grew year-over-year by 49% to $5 million before including the $3.9 million increase in income from the reversal of the earn-out liability associated with the GreenLine acquisition. We are increasing our guidance for the year for both, revenues and net income which I will talk about in more detail later in the call.

Our Apio Food business grew revenues and profits in both, our value-added specialty packaged business and our export business. Our growth was both, organic growth and growth through our recent acquisition of GreenLine Holding Company in April 2012.

Our second quarter milestones included, first, growing our Apio specialty packaged produce business unit volumes by 20% compared to the industry category growth of 9%. Second, increasing our overall Food business gross margins by 530 basis points. Third, completing our ERP systems integration work for GreenLine, which allows us to begin the cross selling effort with Apio customers and fourth completing our post acquisition GreenLine operational synergy efforts resulting in annual costs savings of approximately $1.5 million. Fifth, increasing our export revenues by 16% while maintaining margins. Sixth, launching the first of our family of vegetable super food products with significant initial demand nationally. And seventh, initiating the expansion of hydroponic growing facilities at our partner Windset Farm's Santa Maria, California site with doubling our production projected by year end 2013. And lastly, expanding Lifecore's biomedical sterile filling capacity for anticipated future growth with customers.

As disclosed in the yesterday's earnings release, we will not be paying the $3.9 million earn-out to GreenLine former owners as revenue targets for calendar year 2012 that they establish as part of our negotiations were not achieved largely because of the underperformance of our few new products during the last six months of 2012. Our internal projections for GreenLine for fiscal year 2013 that ends May of 2013 are being met and we expect GreenLine to achieve its earnings targets for the fiscal year 2013. We are very pleased with the overall performance of GreenLine.

Also disclosed in the yesterday's earnings release was that Chiquita has elected to go to a non-exclusive status staring January 1^st of this year. And as a result, Chiquita will not be required to pay the minimum gross profit for calendar year 2013. Therefore, Chiquita will pay the company for packaging membrane products purchased on a per unit basis and the company is now entitled to sell its BreatheWay packaging technology for bananas, avocados and mangos to others partners. We will begin discussion with other potential partners early this year.

However, if Chiquita continues to purchase membranes at its current rate and we are not successful in adding new partners, this change will result in a net income reduction of approximately $200,000 in this fiscal year and approximately $750,000 in fiscal year 2014.

In a separate press release yesterday, we communicated that a restatement of our first quarter earnings has been filed with the SEC, because we miscalculated the fair market value of our investment in Windset Farms at the end of the first quarter of this fiscal year 2013. The $2.9 million correction in the restated financial statements for the first fiscal quarter reflects the miscalculation and also reflects a portion of the $500,000 increase in our share of the increased fair market value of Windset for fiscal year 2013.

The company has updated its policy and control surrounding its accounting for the change in fair market value of Windset to ensure that in the future, such changes are reported properly each quarter.

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