Landec(US:LFCR)2022-04-06 02:25Financial Data and Key Metrics Changes - Lifecore business revenue grew by 28% to $34.8 million in the fiscal third quarter, with a 27.9% increase compared to the prior year period [7][24] - Adjusted EBITDA for Lifecore increased by 5.9% to $8.6 million, representing an adjusted EBITDA margin of 24.6% [25] - Curation Foods revenue increased by 4.6% to $18.3 million, with an adjusted EBITDA loss of $0.9 million compared to a profit of $1.2 million in the prior year [29] Business Line Data and Key Metrics Changes - Lifecore's CDMO business saw a 33.1% revenue increase, while the fermentation business grew by 16.4% [24] - Curation Foods' avocado products represented approximately 85% of the segment's revenue mix, with a 1.9% increase in avocado product sales [28][29] Market Data and Key Metrics Changes - The avocado products business is positioned well within a growing industry, supported by favorable consumer trends despite recent inflationary impacts [9] - The High Pressure Processing (HPP) investment is opening new opportunities with major customers for private label placements, which are growing at more than double the industry rate [9][10] Company Strategy and Development Direction - The company is focused on maximizing shareholder value through optimizing remaining assets and deploying excess cash towards debt repayment and growth initiatives [10][12] - Lifecore is capitalizing on the growing CDMO opportunities, with a strong development pipeline of 24 projects across various phases [14][15] - The company is committed to continuous operational improvements and enhancing its quality control labs to support growth [19][20] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving full fiscal year 2022 guidance, anticipating a normalization of operations and improved ordering patterns [8][26] - The company expects a sequential improvement in gross margins in the fiscal fourth quarter, despite a projected decrease in the second half of the fiscal year [27] Other Important Information - The company has shifted the Eat Smart business into discontinued operations following its sale, which does not impact the comparability of performance metrics [11][28] - The company has made significant progress in simplifying its business and enhancing financial flexibility, with net bank debt reduced to $117.6 million [30] Q&A Session Summary Question: What caused the margin squeeze during the quarter despite strong orders in Lifecore? - Management explained that the margin squeeze was due to inventory rebalancing and a mix of lower-margin products, with expectations for improved margins in the fourth quarter [36][37] Question: Is there conservatism in the guidance? - Management expressed confidence in the guidance based on strong insights into customer activities and reiterated their comfort with the current numbers [39] Question: Were the two new projects with new customers or existing relationships? - The two new projects were with new customers, bringing the total project load to 24 with 21 customers [40][41] Question: What was the impact of product mix on margins? - The negative margin mix was primarily due to the CDMO side, particularly the legacy ophthalmic business, which had a significant impact on the third quarter [44][45] Question: What is the status of the services contract with Taylor? - The services contract is winding down and is expected to be completed in the next two months [49] Question: Is there interest in the Yucatan asset? - Management indicated that they are working to maximize shareholder value and continue to implement Project SWIFT, but did not provide specific details on third-party interest [55] Question: What is the expected CapEx for Q4? - The expected CapEx for Q4 is approximately $13 million, with a total of $27 million for the fiscal year [62]