Lifecore Biomedical Inc (LFCR) 2005 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Landec Corporation Fourth Quarter and fiscal year 2005 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. If anyone should require assistance during the call, please press *0. As a reminder, this conference is being recorded. I will now introduce your host, Mr. Gary Steele, President and CEO of Landec Corporation. Sir, you may begin.

Good morning and thank you for joining Landec’s fourth quarter and fiscal year 2005 earnings conference call and web cast. I have with me today Greg Skinner, the Company’s CFO, who will discuss our financial results in a moment.

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 yesterday’s news release as well as in our filings with the Security and Exchange Commission, including the Company’s Form 10-K for fiscal year 2004.

I also want to mention that a replay of this call will be available through next Wednesday, July 27th. It can be accessed by calling 888-266-2081 or 703-925-2533. The access code is 731949 and the web cast will be available for 30 days via the Internet at www.landec.com.

Fiscal year 2005 was a good year for Landec. Net income increased 86 percent to $5.4 million, compared to last fiscal year. Revenues exceeding $200 million for the first time in our Company’s history and our working capital increased 135 percent to $20.9 million. The Company’s debt to equity ratio is now down to four percent and, very importantly, we generated over $13 million in cash flow from operations.

Landec’s results for fiscal year 2005 were consistent with our goals. As a reminder, we had five primary goals for the fiscal year 2005. First, to grow our value-added specialty packaged food business. Second, grow our Ag seed customer base and corresponding revenues for all of our seed products. Third, commercially launch our banana packaging technology. Fourth, continue Ag’s strong strategic partner relationships, and fifth, increase revenues to over $200 million and double last year’s net income of $2.9 million.

With the exception of increasing that income by 86 percent, we achieved all of our primary goals for fiscal year 2005.

Specifically, let me cover some highlights for the year. We grew our value-added specialty packaging fresh-cut product business by 16 percent by growing with this expanding category and by taking market share, increasing our market share to 46 percent from 37 percent a year ago. We grew our Ag business by eight percent and recently announced the planned acquisition of the number two direct marketer of corn seed, which adds over 4,000 new customers in seed sales of roughly $8 million, plus a strong presence in the northern corn belt.

We entered into a joint technology development and supply agreement with Chiquita Brands International to supply our proprietary banana packaging technology to Chiquita. Chiquita has successfully completed the first commercial market test using our banana packaging technology and has now started the second, much larger commercial test. We look forward to Chiquita entering into a nation-wide supply agreement with their first commercial customer in the near future.

We have entered into, or expanded partnerships collaborations for all three of our businesses, adding Chiquita for Apio, adding two new seed alliances at Landec Ag, and expanding our Loriel business relationship. And we have increased revenues to $205.2 million and net income has increased by 86 percent to $5.4 million.

Now, let me turn this over to Greg Skinner who will comment on the financial results.

Thank you, Gary. Good morning, everyone. As outlined in yesterday’s news release, Landec reported total revenues for the fourth quarter of fiscal year 2005 of $56.2 million, versus revenues of $58.4 million for the same period a year ago.

The decrease in total revenues during the fourth quarter was due to several reasons. First, a 40 percent, or $5.9 million, decrease in revenues from Apio’s commission trading business due to severe shortages of commodity export and domestic produce during this year’s fourth quarter. Second, an 84 percent decrease in revenues from Apio’s banana business, which decreased $270,000 from the same period a year ago due to only selling our banana packaging during this year’s fourth quarter, versus selling bananas and our packaging during last year’s fourth quarter. Third, a 15 percent, or $156,000, decrease in revenues from Apio’s cooling operations due to lower volumes resulting from product shortages.

These decreases in revenues were partially offset by an increase in revenues from Apio’s value-added vegetable produce business and an increase in revenues from Landec Ag. Apio’s value-added vegetable produce business increased by $3 million, or by 11 percent, during the fourth quarter fiscal year 2005, compared to the same period last year, and revenues from Landec Ag increased $1.2 million, or by eight percent, compared to the fourth quarter of last year.

In the fourth quarter fiscal year 2005 the Company reported net income of $4.6 million, compared to net income of $4.4 million for the same period last year, and both periods realized diluted earnings per share of 17 cents.

The improvement in net income for the fourth quarter of fiscal year 2005, compared to the same period last year, is primarily due to, first, a $713,000 gain on the sale of land at Apio; second, a $181,000 increase in gross profits for Landec Ag; third, a $170,000 increase in gross profits in Apio’s banana packaging program, and, fourth, a reduction in net interest and other expenses of $200,000. These improvements in net income were partially offset by reductions in Alpio’s gross profits and it’s value-added business of $257,000 and in it’s trade business of $271,000 due to severe produce shortages during the first half of this year’s fourth quarter and a $375,000 increase in operating expenses at Apio, primarily due to higher sales and marketing expenses.

For fiscal year 2005 Landec had total revenues of $205.2 million, compared to $192.1 million during the same period last year. This increase in revenue for fiscal year 2005 was due to several reasons. First, revenue growth in Apio’s value-added vegetable produce business, which increased 16 percent to $116.7 million from $101.1 million during the same period last year, and, second, an eight percent increase in revenues from Landec Ag seed sales, which increased to $25.6 million from $23.6 million during the same period last year. These increases in revenues were partially offset by, first, the decrease in Apio’s service revenues and the domestic portion of trading revenues to $13.6 million during fiscal year 2005, compared to $16.4 million in the same period a year ago, primarily due to the sale of Apio’s domestic vegetable business in early fiscal year 2004. Second, a reduction in revenues from Apio’s banana program of $1.7 million during fiscal year 2005, compared to the same period a year ago, primarily due to Apio only selling it’s packaging technology in fiscal year 2005. Third, a $139,000 decrease in licensing and R&D revenues to $426,000 in fiscal year 2005 from $565,000 during the same period last year due to the completion of two R&D collaborations during fiscal year 2004.

For fiscal year 2005 the Company recorded net income of $5.4 million, or 21 cents per diluted share, versus net income of $2.9 million, or 12 cents per diluted share, for the same period last year. The increase in net income during fiscal year 2005, compared to last year, was primarily due to, first, an increase in gross profits from Apio’s value-added vegetable business of $1.6 million; second, an increase in gross profits for Landec Ag of $362,000; third, an increase in gross profits from Apio’s banana program of $877,000; fourth, a reduction in net income and other expenses of $540,000; fifth, an increase in gross profits from Apio’s trading business of $220,000 and, lastly, a $713,000 gain on the sale of land at Apio. These increases in net income were partially offset by a $765,000 reduction in gross profits from Apio’s service business, primarily due to the gross profit decrease relative to gross profits generated in fiscal year 2004 from the domestic commodity vegetable business prior to it’s sale in the first quarter of fiscal year 2004 and by a $784,000 increase in operating expenses at Landec Ag and Apio, primarily due to higher sales and marketing expenses to generate increased revenues.

As a reminder, seasonality is inherent in our two core businesses, Apio, our food business, and Landec Ag, our agricultural seed business. Apio is subject to produce sourcing issues during the winter months and Landec Ag recognizes nearly all of it’s revenues and profits during our third and fourth fiscal quarters while realizing no revenues during our first and second fiscal quarters.

Turning to the balance sheet, during fiscal year 2005 our cash and marketable securities balance increased by $8.4 million to $14.8 million. This increase is primarily due to cash-flow from operations of $13 million and the sale of $3.5 million of Landec’s common stock to Chiquita and $1.6 million of cash received from the exercise of employee options. These increases were partially offset by the purchase of $3.7 million of property, plant and equipment and the net reduction of debt of $5.9 million to $3 million, bringing our debt to equity ratio to only four percent. As of May 29, 2005 our cash and marketable securities balance was $14.8 million and we had $13.6 million available under our Line of Credit.

In addition, during fiscal year 2005, our working capital increased 135 percent to $20.9 million at May 29, 2005 from $8.9 million at May 30, 2004.

The account called “Assets Held for Sale” on the balance sheet reflects the pending sale of the fruit land that the Company owns and expects to sell in the first or second quarter of fiscal year 2006.

That concludes my formal presentation. Let me turn the call back to Gary.

Thanks, Greg. Our focus this past year has been on increasing revenues and profits, expanding our core fresh-cut produce and seed businesses, commercially launching our banana technology with our partner Chiquita and continuing to strengthen our balance sheet. We have reported the Company’s highest ever net income of $5.4 million and earnings per share of 21 cents and we’ve exceeding $200 million in revenues for the first time.

Chiquita has successfully completed the first market test of bananas using our proprietary packaging technology and has started the second market test.

In addition, we have increased our cash and marketable securities balance by 130 percent to $14.8 million while decreasing our debt by $5.9 million to only $3 million.

Fiscal year 2005 was a very good year for our Apio food business. Apio increased it’s net income by nearly 75 percent to $5.6 million, compared to $3.2 million last year.

Specifically, revenues in our specialty packaging vegetable business grew 16 percent and gross profits increased by 10 percent despite severe produce shortages during the first half of our fourth quarter, which had a $1.1 million negative impact on our gross profits.

Notably, the sales from our value-added vegetable tray line grew 60 percent and sales of our value-added 12-oz specialty packaging retail product line grew 13 percent. According to A.C. Nielson, for the three months ended March 31, 2005, Apio’s market share for sales of vegetable trays to retail grocery stores in the United States was 46 percent, up from 37 percent at March 31, 2004. Our nearest competitor’s market share in retail vegetable trays is 14 percent.

In our Landec Ag seed business, we grew revenues by $2.0 million and gross profits by $362,000. We expect substantially better growth going forward. In fiscal year 2005 we introduced 26 new corn hybrid seed products and 15 new hybrids with Intellicoat early plant coatings. In sales by other seed companies using our early plant technology nearly doubled in fiscal year 2005, compared to last year.

In addition, we recently announced the planned acquisition of Heartland Hybrids, the second largest direct marketer of seed corn after Landec Ag’s Fielder’s Choice direct brand. With complimentary strengths in geographic areas and sales channels, the new combined organization has the opportunity to develop the most efficient and effective sales, marketing and distribution system in the seed industry, thus, expanding Landec Ag sales of both uncoated seed and Intellicoat coated seed. In addition, Heartland Hybrids has an effective and proprietary computer-based geographic information system called CS3, an advanced system developed which will allow us to provide the best biotechnology traits and seed varieties for increased product performance directly to the farmer. With Heartland Hybrids strong regional presence in the northern corn belt, plus it’s proprietary CS3 system, Landec Ag is well positioned in fiscal year 2006 to significantly increase revenues and profits.

The good financial results we realized during fiscal year 2005 were achieved in spite of three negative impacts on our results. First, a $1.1 million reduction in gross profits in Apio’s value-added vegetable business because of the produce shortages mentioned by Greg. Second, an expected negative net impact on income of approximately $1 million in our banana and what we now call “Apio Tech Program” during the fiscal year 2005. This was to further advance our banana packaging development program and new initiatives underway. Third, a short-fall in revenues and profits from our Ag seed business in 2005.

For our seed business, we are encouraged by our recent experience with a new method of generating leads that help us identify potentially new customers, a method we developed late in this past sales season. We believe that by implementing this new lead-generation technique at the beginning of our new sales season in fiscal year 2006 we will be able to significantly increase our leads and, thus, our revenues.

Another area of improvement involves the growth of our Intellicoat coated seed products. This past year our Intellicoat seed coating team devoted a considerable amount of time and effort focusing on entering into an agreement with one of the big three seed companies in order to incorporate our Intellicoat technology into their products. We were unsuccessful in doing this largely because the big seed companies are currently preoccupied with mergers and acquisitions and expanding their lines of genetically engineered traits. This focus of the big three diverted our limited resources away from promoting our own brand through our direct sales organization, Fielder’s Choice Direct, and away from focusing on regional seed companies who are much more receptive to using our technology as a differentiating feature.

As we move to fiscal year 2006, our focus is on Fielder’s Choice Direct brands and on regional seed companies in order to improve product demand, increase market acceptance of our early plant corn, and increase revenues. Our fiscal year 2006 revenue growth plan for early plant corn of 40 to 50 percent is not dependent on entering into an agreement with any of the top three seed companies.

As we look to fiscal year 2006, we have four primary goals. First, continue to grow our value-added specialty packaged food business with emphasis on retail grocery chains. Second, significantly grow our Ag seed customer base and corresponding revenues and profits, both organically and through acquisitions. Third, expand the selling of our banana packaging technology to Chiquita while working on new packaging initiatives. Fourth, continue to add strategic partner relationships in each of our businesses, including our non-food and non-Ag licensing and supply business.

Our new 2006 fiscal year has already started. As we go forward in the new fiscal year we have important growth opportunities and we certainly have several challenges. By executing on our growth opportunities we plan to increase revenues while maintaining at both Apio and Landec Ag our margins and we plan to grow our licensing business, resulting in overall expected growth overall for the Company of more than 10 percent in revenues and 55 to 65 percent in net income, excluding the impact from acquisitions and excluding the one-time gain in 2005 of the sale of land of $713,000.

Specifically, we plan to increase value-added revenues by over 10 percent and export revenues by five percent while maintaining fiscal year 2005 margins; reduce losses in Apio’s banana and packaging technology program by 65 to 75 percent from the $1 million in fiscal year 2005, primarily by increasing revenues from selling banana packaging technology to Chiquita; increase Landec revenues, excluding the impact from the recently announced Heartland Hybrid acquisition, and to increase revenues in Landec Ag by 15 to 20 percent with gross margins in approximately the 33 to 36 percent range; increase early plant corn and coating revenues by 40 to 50 percent; more than double product sales to Loriel; and enter into at least one new collaborative arrangement outside of our food and Ag businesses.

The challenges we face in 2006, which are factored into our plans, include, first, managing increases in our raw material costs that we expect to increase by approximately $2.5 million in fiscal year 2006, compared to fiscal year 2005, driven by the cost of supply for vegetable produce and for corn seed, which includes technology and royalty fees for seeds with genetics and traits. Second, continue to grow the market share in our value-added vegetable business, particularly in our tray line, now that we are market share leader with 46 percent market share. A third challenge is growing our Landec Ag revenues by 15 to 20 percent in fiscal year 2006 when recent annual growth in the U.S. corn seed industry has been about five percent, thus requiring us to take market share from other seed companies, plus expand the sales of our Intellicoat coated technology. The fourth challenge is to reduce losses in our banana program while depending on the successful commercial launch by Chiquita of bananas in our proprietary packaging into new sales channels, including Chiquita providing very effective logistical support for the new sales channels.

On a different note, we are pleased to now have five research analysts following the company. We are hopeful that the awareness of Landec and of our growth opportunities and progress will continue to expand further broadening the reach to the investment community.

In summary, for fiscal year 2006, excluding the impact from acquisitions and excluding the one-time gain from the sale of land in fiscal year 2005, we expect revenues to grow over 10 percent and net income to grow 55 to 65 percent. We continue our commitment to profitably grow and deliver highly differentialable branded products that provide increasing value to our customers in order to enhance shareholder value. We appreciate your ongoing support and we’re now open for questions.

Ladies and gentlemen, (OPERATOR INSTRUCTIONS). Our first question comes from Peter Black of Winefield Capital.

Good morning. I just have one question. In the guidance you gave for Apio value-added you talked about revenue growth of 10 percent next year and you also point to maintaining those margins from ’05 levels, which I think were about 14.9 percent, I’m just wondering why those margins shouldn’t improve next year given that some of the severe weather that we saw this year and I hope would not reoccur?

Good morning, Peter. First of all, our growth is expected to be over 10 percent. What I just mentioned was that a good portion of that $2.5 million in increased cost of goods is due to produce increases that we will experience this year. We believe it’s kind of a one-time catch-up adjustment for farmers that are delivering our kind of produce and it is significant this year. That is coupled also with, we use a lot of film and plastic in our packaging, as you may recall, and those our petroleum-based and that’s increasing as well. That combination is what is offsetting what we believe are some fairly substantial improvements in our plan as well as our hope for a better weather year. There are some offsetting effects. Now, can we do better? We sure will try.

Okay. One final question, when you were talking about the potential markets that you could sell your Chiquita banana technology into, in the past you had spoken a lot about national coffee chains and I noticed that in the commentary here you mentioned some other markets but you didn’t talk about the coffee chains. I’m just wondering if anything happened in the first round of trials that lead you to believe that that’s not a potential market anymore or is there any color on that?

No. As a matter of fact, in our press release from about a month ago, what we stated was that these trials are being done for three reasons. One is, and first and foremost and most important to Landec, is does the technology work, does it actually extend the shelf life of bananas four to five days. Second reason for the trial is these are new markets where bananas haven’t gone before. They have some logistical challenges and can Chiquita get its organization and it’s wherewithal together to deliver these products reliably 365 days a year. Third, is the customer of Chiquita, is that group happy. We’re three for three, they’re all positives. The technology is working, Chiquita is doing a good job dealing with the logistics issues, the customer is happy. We’ve mentioned four categories, national coffee chains, national drug store chains, national convenient store chains and national quick-serve, otherwise known as fast-food chains. All four segments are primary targets for Chiquita. Things are going well. Things are expanding. We are either in advanced stages or preliminary stages in two of those four segments, Peter.

Okay. Terrific. Thanks.

Our next question comes from Bill Gibson of Nollenberger Capital.

First, just sort of a housekeeping one, on the land sale and the gain you booked in the quarter, where did that show up or was that out of T&A?

It’s netted in SG&A in Apio.

Okay. On the new category Tech, is that solely bananas or will there be other products in the packaging?

The way you ought to think about Apio Tech, which, as you know, was announced a few weeks ago, is this is a group within Apio that is focusing on the broad-based application of our Breathe-Way packaging technology outside of our fresh-cut vegetable business. Bill, you are aware that our fresh-cut vegetable business is the mainstream of our value-added business. It’s a captured business in the sense that we buy produce from farmers, we process, we package and we sell directly to retail stores and club stores around America. Think of that as Apio’s core business, but there are many other uses for packaging technology, one of which is packaging bananas. There are other targets for whole fruit, there are other targets for whole vegetables. There are other targets, potentially, down the road in fresh-cut fruit. There are targets of large containers, shipping containers, pallet shrouds. There is potential for packaging things that go from different continents, trans-ocean, etc, etc. That team is focusing on those new applications outside of the fresh-cut vegetable business. The first program within Apio Tech is the banana program with Chiquita.

Good. One last question, on the guidance on value-add growth, I understand you’ve got a bigger piece of the pie and so the growth flows, but what’s happening on the Dole front? I assume you haven’t built in any potential growth of landing Dole in the national chains there?

Okay. I got a little confused there at the end. Just for everybody’s background, we have a brand licensing arrangement with Dole in which we are allowed to use the Dole name on most, if not all, of our vegetable products so we can offer Eat Smart we can offer Dole for trays and bags and things like that. That has gone well. We’ve exceeded our joint expectations. Whether or not that’s something we do long term is a function of whether Dole and Landec/Apio want to keep doing this together.

Then you mentioned something about national chains and that’s where I got a little confused.

Using the Dole brand, I was hoping that you would be opening up cut veggies into more national chains in the sense of your packaged product, whether trays or bags into the, say, Safeway’s of the world, or something like that?

We are in nine of the top ten national chains, Bill. Not every store, but we have penetration in nine of the top ten. To be honest with you, I think we can do this with the Eat Smart brand and/or the Dole brand. What we’re finding is that both these brands are working for us. While we have had good success with the Dole brand, it’s going well, the customer does have to pay a little bit more for the Dole brand because we have to pay Dole the royalty. We’ve actually come to the conclusion that both are working and both can go either way to achieve our market penetration goal. Do we have to have Dole to get that last national retailer? It turns out, no.

Okay. Good. Thanks, Gary.

Our next question comes from Jonathan Litzer of Sidoti.

Just a quick question on Landec, how can you be confident that the 20 percent turnaround in the fourth quarter at the end, that you were talking about, is sustainable and it wasn’t just a one-time turnaround there?

It’s a very fair question because we haven’t done it yet and, actually, we were disappointed in the eight percent growth last year. We thought we could have done better. There are a couple of things going on here. One is that we’ve got more feed on the ground in terms of sales capability at the beginning of our sales year and, Jonathan, our sales year has started. We’re out of the chute right now selling product and, so, more feet on the ground. Secondly, this technique that we haven’t disclosed, but that we have learned is very useful to us for generating leads. We only had the benefit at the very, very tail-end of our fiscal year and it was working for us. Unless something changes in the world, we are going to use that for the full year. We think that that is a plus for us. Third is the product performance of our seed line-up this last year was very, very good. We’ve got good performance to our credit and so we have that going for us. Last, but very much not least, - - I don’t know how I can say this diplomatically, - - we wasted a lot of time last year trying to cultivate and convert one or more of the big seed companies to come in and use broadly our coating technology. There was a lot of effort that went into that that was for naught and we’ve gone to Plan B, which is we can sell very profitably the coating technology through our own direct sales force and, now with Heartland Hybrid, which is now undergoing training and getting up to speed to do this themselves, and we’ve got these alliance partners that had a good year with us. Seven to ten of those guys that are now up on the learning curve. So, is it a slam-dunk? No. Is it something that we feel we can achieve? Yes.

Thank you.

Our next question comes from Hank Finestein of Gannon Securities.

Good morning, Gary and Greg. Congratulations on a great quarter. I had a question about the land sale. You carry the asset for sale on the books at $1.2 million. Do you anticipate that the gain, when sold, will be somewhat comparable to the gain that you experienced last year on the sale of land?

No. They are two separate - - from last year it’s a completely different situation. We had a note out there, secured by land, the note wasn’t paid. We took the collateral of the land and turned around and sold it. The gain was, basically, the difference between what we received and what the carrying value of that note was. The current year, the Asset Held for Sale, is a legacy from the fruit days that’s been there for years. Its land that is out there in the Fresno County area and it’s for produce that we don’t sell anymore. There are grapes and stone fruit and we just want to sell it. We expect a small gain, but it won’t be near the magnitude of the $700,000.

It won’t be material.

It won’t be material, but it’ll be at a gain, a small one next year. Okay. The second question I have is related to the Heartland Hybrid acquisition. It doesn’t appear anywhere that I can see any goodwill additions from that acquisition. Did you manage to get it at such a good price that there aren’t any goodwill numbers on here?

We haven’t closed it yet.

Oh, I see.

It doesn’t close until August.

So it’s not incorporated into the quarter - -

No. It’s not in our numbers at all. You will see it - - well, the first time you’ll see it, probably, will be in our second quarter results because we probably won’t close it until the beginning of our second quarter.

And do you expect that it will be accretive?

We do expect it to be accretive.

Terrific. Okay. Thank you very much.

Our next question comes from Paul Dietch from Dietch and Fields.

Good morning. On the packaging technology for Chiquita and Dole, I’m just trying to understand, are they entirely different technologies and is there an exclusivity for each company?

Those are good questions. Let me distinguish the two. We have a relationship with Chiquita that is a world-wide exclusive license to sell products in the field of bananas using our packaging technology. The value that we bring to the party is that this technology will extend the shelf life of bananas three, four, five, sometimes six days. In that relationship, within that exclusive world-wide agreement, there are certain specified fields of application, areas where they can use our technology exclusively and that is limited just to those areas. We could work outside of those exclusive areas with other players, other banana companies, other retailers. There’s still plenty of room for us to work with others if we choose to do that, Paul. We can work with others outside of the exclusive fields. We have not published or identified what those exclusive fields with Chiquita are but, obviously, they’re interested in some of these new markets such as the coffee chains and the convenient store chains, etc., etc. I imagine that that’s a focus of theirs.

Regarding Dole, we do not currently sell them any of our packaging technology. What we have with Dole is a different relationship. That’s a brand licensing relationship for our fresh-cut vegetable business in which we pay them a royalty and we use the Dole brand on some of our products that we sell through our own sales force. That is not a licensing arrangement with Dole of our technology, it’s a licensing of their brand that we use on our products.

They’re very different. Chiquita is using our technology. In the case of Dole, we’re using their brand name.

I see. Could you be a little more specific on the geography of Chiquita’s second market test?

I can tell you that’s it in the United States. The next announcement that gives you specificity as to with whom they’re working, where they’re working, the magnitude of the scale and rollout, that next announcement is going to come from Chiquita, not from Landec, by agreement. They’ve asked that that come from them and we’re good partners and we will honor that.

I see. One other question, with all the media attention we’ve had in recent years on healthy foods, fruits and vegetables, are you aware of the consumer actually consuming more? Are there any trends there that you can spot?

Yes. The category is growing, as you can imagine, not only for what we call “leaf” products, pre-cut salads, but it’s also growing for vegetables and fruit. That is because of the government’s program to increase awareness. There are new initiatives out. I think that people are much more conscious about their diet and their health. They’re backing off a little bit on the low-carb trend. Clearly, the category is growing and we are, frankly, beneficiaries of that. I don’t see that changing. I think you also will see, over time, that the growers, the genetics guys that are developing the seed, the core seed that goes into growing fruits and vegetables, are also looking at improvements that they can make in terms of genetics and traits that will make these vegetables and fruits even more appealing and healthier in the future. We want to be at the forefront of that as well. We are talking to seed genetic suppliers all the time. That trend is a positive. It continues to be a positive and we want to be in the forefront of that.

Right. Thanks very much.

Our next question comes from Craig Pyringer (ph) of World Capital Management.

Regarding your appointment of David Taft to spearhead your licensing and supply efforts outside of food and Ag, can you give us some color about what that’s all about? Is that an admission that the third leg of the stool, namely, licensing, has not been growing very rapidly or is it the result of some new indications of interest, perhaps people waking up to your Intelimer technology?

It’s a combination of things. It’s an admission that that was an area that was woefully neglected and orphaned for a number of years, starting with me. As we put the pieces of the puzzle together for our food and Ag business, Craig, no question about it, we neglected that area. That’s the first thing. Second is it’s a recognition that our technology - - we’ve spent $50 million over a number of years developing this technology. It is useful for things outside of food and Ag, but for the last five to seven years we just didn’t feel like we had the bandwidth to capitalize on that. The word here at Landec was focus, focus, focus and, so, now we feel that we’re at a point where we can begin to broaden our horizons, but we’re going to partner with people in this licensing and supply business outside the food and Ag area. We’re not going to develop and commercialize products on our own. We will seek partners, such as we did with Loriel.

The third thing that happened, and these are convergences that just all came together, we had the good fortune of identifying a young man by the name of Ron Midyad (ph), who was senior vice-president of operations at Dole, and we hired him to come in and be our COO at Apio and work with Nick Tompkins, our CEO at Apio. He brings 19 years of produce operations experience. We got kind of a win-win out of this. We wanted David Taft back to help us run and expand this licensing and supply business, which had been neglected, and we got Ron helping us down at Apio. It was a convergence of all those forces, Craig.

So, he’s going to go out and try to find opportunities, it’s not so much that those opportunities have all of a sudden arrived at your doorstop?

That’s right. He’s not only - - along with Steve Bentler, our head of R&D - - proactively looking for partnering and applications, but we have even hired a third-party consulting firm to help us identify some of these partners. We’re serious about it. How long this take is a little tough for us to measure at this point.

Okay. Thank you.

Once again, if you have a question, please press the “1” key at this time. Our next question comes from Zack Liggit (ph) with FIM Group,.

I have two questions. One, I’m just generally speaking on the competitive landscape, are you seeing any similar threatening technology either on the seed side or the packaging side? The second question would be, on the international front, I know you guys have quite a bit on your plate domestically, but is there anything cooking on the international front?

All good questions. Let’s take the seed coating technology. To the best of our knowledge we see nothing, zero, zip, nothing from a competitive threat point of view in terms of competing with our coating technology. Our competition is share of mind in the sense that most everybody else is consumed and passionately interested in new traits that come from genetic engineering. We have to show, demonstrate and convince farmers and seed partners that this coating technology is, a, complimentary, and, b, very beneficial to yield improvement. In a sense, the competition is share of mind, not something directly competitive with the coating technology.

In the food packaging arena, there are people that take standard polypropylene clear film and punch little tiny holes in the film - - you can’t even see these holes - - and that’s called “micro-perforation”. It’s useful and works for pre-cut salads because lettuce is very low aspiring, it’s not very demanding. It gives you a little bit of shelf-life extension on fresh-cut vegetables and fruit, but not much. We haven’t seen anything directly competitive with our technology, which truly creates and maintains a new atmosphere inside the package which is different from what’s outside in the air that we breathe. Not anything directly, but people are all interested in extending shelf-life, as you can imagine.

Internationally, to be honest with you, Zack, we’re so focused on building our North American business that we haven’t spent a lot of time internationally other than we do have a substantial export trading company that is positioned well for accessing Asian markets. What we’re doing there, internationally, is focusing on technology where we are strong and that is in packaging technology that can either package a large pallet of produce or a container which contain large volumes of produce and changing that atmosphere. I think our foray into international markets is going to be because of our technology, not because we put feet on the ground in Europe or Asia. I think it’s going to be through a technology play and that’s going to take us some time.

Okay. Fair enough. Thanks a lot.

We have a follow-up question from Craig Pyringer of World Capital Management.

You seem to be positioning yourselves for continued drag on earnings from the banana effort, you know, reducing losses by 65 to 70 percent from the $1 million experienced this year. In your wildest dreams could that not come to pass, i.e., could you somehow generate some sort of profit from bananas in this fiscal year or is it just purely a function of timing from Chiquita? You must have some metrics that you put together for this 65 to 75 percent reduction number.

The short answer is yes.

In your wildest dreams it could be profitable?

Yes, it could. The thing that’s going on here, Craig, is that when we’re talking about Apio Tech, which houses the banana program, obviously, the investments that we are making to support the Chiquita program will continue, but we’re building revenues. The revenue growth is dependent on the roll-out of Chiquita with its customer base, which we just reported on, but we’re also stepping up our own investments and new initiatives and new applications for the packaging technology. The banana stuff is looking good, but we feel bullish and we feel we owe it to our shareholders to continue investing in the future. Some of these things I’ve talked about, pallet shrouds, containers, packaging whole fruit and vegetables, that is stepping up. That investment is stepping up without revenues this next year. Those are the dynamics going into Apio Tech and that’s a mixture that we’re reporting on. Even with that step up of investment, because of the scaling of the Chiquita program and the sales of our banana packaging technology to them, we see a rather sizable drop in the overall lose for Apio Tech.

Okay. So that 65 to 70 percent drop from the $1 million lose is applicable to all of Apio Tech and not just bananas?

That’s right.

Thank you.

Once again, if you have a question, please press the “1” key at this time. Sir, we have no further questions.

We want to thank all of you for joining us today and thank you for your support of Landec. Thanks again.

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