Landec(US:LFCR)2022-01-07 21:13Part I. Financial Information Financial Statements This section presents the unaudited consolidated financial statements for the quarter and six months ended November 28, 2021, including balance sheets, comprehensive loss, equity, and cash flows, highlighting goodwill impairment and business dispositions Consolidated Balance Sheet Highlights (unaudited) | (In thousands) | Nov 28, 2021 | May 30, 2021 | | :--- | :--- | :--- | | Total Current Assets | $154,521 | $148,321 | | Goodwill | $37,329 | $69,386 | | Total Assets | $422,124 | $502,924 | | Total Current Liabilities | $122,264 | $101,888 | | Long-term debt, net | $124,194 | $164,902 | | Total Liabilities | $265,922 | $300,140 | | Total Stockholders' Equity | $156,202 | $202,784 | Consolidated Statements of Comprehensive Loss Highlights (unaudited) | (In thousands, except per share) | Three Months Ended Nov 28, 2021 | Three Months Ended Nov 29, 2020 | Six Months Ended Nov 28, 2021 | Six Months Ended Nov 29, 2020 | | :--- | :--- | :--- | :--- | :--- | | Product sales | $129,492 | $130,904 | $258,280 | $266,547 | | Gross profit | $12,992 | $20,637 | $30,511 | $36,983 | | Impairment of goodwill | $32,057 | $— | $32,057 | $— | | Operating loss | $(37,030) | $(1,466) | $(40,838) | $(13,935) | | Net loss | $(38,441) | $(13,301) | $(47,918) | $(24,301) | | Diluted net loss per share | $(1.30) | $(0.45) | $(1.63) | $(0.83) | Consolidated Statements of Cash Flows Highlights (unaudited) | (In thousands) | Six Months Ended Nov 28, 2021 | Six Months Ended Nov 29, 2020 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(4,306) | $18,456 | | Net cash provided by investing activities | $33,172 | $5,478 | | Net cash used in financing activities | $(29,070) | $(21,996) | | Net (decrease) increase in cash | $(204) | $1,938 | - The company recorded a goodwill impairment charge of $32.057 million related to its Eat Smart business, driven by lower market valuations and decreased projected cash flows64 - On June 1, 2021, the company sold all equity interests in Windset for an aggregate purchase price of $45.1 million9649 - Subsequent to quarter end, on December 13, 2021, the company completed the sale of its Eat Smart business to Taylor Farms for $73.5 million in cash139 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the financial condition and results of operations, comparing current and prior periods, covering segment performance, operating expenses, liquidity, cash flows, and debt obligations, including a significant refinancing Corporate Overview and Strategy The company operates through Curation Foods (plant-based foods) and Lifecore Biomedical (CDMO for sterile injectables), with Curation Foods implementing 'Project SWIFT' and the company completing key business divestitures - The company's two main reportable segments are Curation Foods (natural foods) and Lifecore Biomedical (CDMO for sterile injectable pharmaceuticals)151153 - Curation Foods' strategy includes 'Project SWIFT', a program designed to improve profitability by simplifying the business, realigning resources, and optimizing its operational network155 - Lifecore is a fully integrated CDMO specializing in the development, fill, and finish of sterile, injectable-grade pharmaceutical products, with expertise in Hyaluronic Acid (HA)151162 Results of Operations Total revenues decreased by 1% in Q2 FY22, driven by Curation Foods' decline offset by Lifecore's growth, while gross profit significantly dropped due to Curation Foods' challenges, partially mitigated by Lifecore's improved gross profit and lower SG&A expenses Revenues by Segment (In thousands) | Segment | Three Months Ended Nov 28, 2021 | Three Months Ended Nov 29, 2020 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Curation Foods | $104,546 | $107,685 | $(3,139) | (3)% | | Lifecore | $24,946 | $23,219 | $1,727 | 7% | | Total Revenues | $129,492 | $130,904 | $(1,412) | (1)% | Gross Profit by Segment (In thousands) | Segment | Three Months Ended Nov 28, 2021 | Three Months Ended Nov 29, 2020 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Curation Foods | $1,277 | $10,163 | $(8,886) | (87)% | | Lifecore | $11,715 | $10,474 | $1,241 | 12% | | Total Gross Profit | $12,992 | $20,637 | $(7,645) | (37)% | - The decrease in Curation Foods' revenues and gross profit was driven by planned reductions in its legacy vegetable business under Project SWIFT, COVID-19 headwinds, and increased raw product sourcing costs175180 - The increase in Lifecore's revenues and gross profit was due to a $3.1 million increase in CDMO revenues from higher development services activities and a favorable sales mix176181 - Total SG&A expenses decreased by 14% for the three months ended November 28, 2021, primarily due to a decrease in legal fees from compliance and other litigation matters185 Liquidity and Capital Resources As of November 28, 2021, the company had $1.1 million in cash, with net cash used in operating activities of $4.3 million, while investing activities provided $33.2 million from the Windset sale, and financing activities used $29.1 million primarily for debt repayments - Cash and cash equivalents stood at $1.1 million as of November 28, 2021194 - Net cash used in operating activities was $4.3 million for the six months ended November 28, 2021, a significant shift from $18.5 million provided in the prior year195 - Investing activities provided $33.2 million in cash, primarily from the $45.1 million sale of the Windset investment, partially offset by $13.0 million in capital expenditures197 - Financing activities used $29.1 million in cash, primarily due to $41.4 million in term loan debt repayments, offset by a $13.0 million net increase in the line of credit198 - The company refinanced its debt in December 2020, securing a $75.0 million revolving line of credit and a $170.0 million term loan facility, with $42.0 million outstanding on the revolver as of November 28, 2021200207 Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes to its quantitative and qualitative disclosures about market risk since its Annual Report on Form 10-K for the fiscal year ended May 30, 2021 - There have been no material changes to the information regarding market risk from the Form 10-K for the fiscal year ended May 30, 2021209 Controls and Procedures As of November 28, 2021, management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures are effective as of November 28, 2021210 - No material changes to the company's internal control over financial reporting were identified during the six months ended November 28, 2021211 Part II. Other Information Legal Proceedings The company is involved in various legal proceedings, including an internal investigation into potential environmental and FCPA compliance issues at its Tanok facility in Mexico - The company is involved in various legal proceedings and refers to Note 1 of the financial statements for detailed disclosures on legal contingencies214 - A key legal matter involves an internal investigation into potential environmental and Foreign Corrupt Practices Act (FCPA) compliance issues at the Tanok facility in Mexico, which began prior to its acquisition8990 Risk Factors The company reports no material changes to its risk factors as previously disclosed in its Annual Report on Form 10-K for the fiscal year ended May 30, 2021 - There have been no material changes to the company's risk factors since the last Annual Report on Form 10-K215 Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the period - None reported for this item216 Defaults Upon Senior Securities The company reported no defaults upon senior securities - None reported for this item217 Mine Safety Disclosures This item is not applicable to the company - Not applicable218 Other Information The company reported no other information for this item - None reported for this item219 Exhibits This section lists exhibits filed with the 10-Q report, including the Asset Purchase Agreement for the Eat Smart business disposition and Sarbanes-Oxley Act certifications - A key exhibit filed is the Asset Purchase Agreement, dated December 13, 2021, for the sale of the Eat Smart business to Taylor Farms Retail, Inc221 - Certifications from the Principal Executive Officer and Principal Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are included as exhibits221