Lifecore Biomedical Inc (LFCR) 2006 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Landec Corporation's first-quarter fiscal year 2006 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 follow at that time. (OPERATOR INSTRUCTIONS).

As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Mr. Gary Steele, President and CEO of Landec Corporation.

Mr. Steele, you may begin.

Good morning and thank you for joining Landec's first-quarter fiscal year 2006 earnings conference call and webcast.

I have with me today Greg Skinner, the Company's Chief Financial Officer, who will discuss our financial results in just 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 Securities and Exchange Commission including the Company's Form 10-K for fiscal year 2005.

Let me also mention that a replay of this call will be available through next Thursday, October 6th.

You can access that by calling 888-266-2081 or 703-925-2533.

The access code is 771194.

The webcast will be available for 30 days via the Internet at www.LANDEC.com.

Landec's results for the first quarter of fiscal year 2006 are right in line with achieving our goals of continuing to grow Landec's revenues and profits through growth in Apio's technology-based specialty packaging produce business while at the same time continuing to improve companywide operating margins.

Overall revenues increased 6% while gross profit increased 15% and the net loss was reduced by 25% compared to the first quarter of last year.

As a reminder, seasonality is a part of our two core businesses -- Apio, our food business, and Landec Ag, our agricultural seed business.

Apio is potentially subject to produce sourcing issues during our second and third quarters and Landec Ag recognizes nearly all of its revenues and profits during our third and fourth fiscal quarters while realizing essentially no revenues during our first and second fiscal quarters.

Consistent with the seasonality in our business and with the results from fiscal 2005, we expect that the first half of fiscal year 2006 should show losses and the second half and the full year are expected to be profitable.

We are off to a good start with our first quarter.

But before I elaborate more on our first-quarter operating milestones, let me turn the call over to Greg Skinner who will comment on the financial results.

Thank you, Gary.

And good morning, everyone.

As outlined in yesterday's news release, Landec reported total revenues for the first quarter of fiscal 2006 of $49.7 million versus revenues of $46.9 million for the same period a year ago.

The increase in total revenues during the first quarter was due to revenue growth in Apio's value added vegetable produce business which increased 13% to 29.7 million during this year's first quarter compared to 26.4 million in the same period last year.

This increase in revenues was partially offset by a decrease in Apio's trading revenues to $19.8 million during the first quarter fiscal 2006 compared to 20.3 million in the same period last year.

For the first quarter of fiscal 2006 the Company reported a net loss of $521,000 or $0.02 per diluted share compared to a net loss of $692,000 or $0.03 per diluted share in the same period last year.

The decrease in our net loss during the first quarter compared to the same period last year was due to a $1 million increase in gross profits from Apio's value added business and a $154,000 improvement in net interest from a net interest expense of $107,000 in the year ago quarter to a net interest income of 47,000 in this year's first quarter.

The net loss was increased first by a $774,000 companywide increase in selling, general and administrative expenses primarily due to planned increases in selling in marketing expenses at Apio and Landec Ag and due to consulting and legal fees at corporate as part of the ongoing program to identify opportunities for licensing and supply business.

And second, by a $240,000 decrease in gross profits in Apio's trading business from lower sales of export fruit and a temporary mix change to less profitable export products.

Notably Apio's overall net income grew to 1.9 million during this year's first quarter, an increase of 41% compared to the first quarter of last year.

Turning to the balance sheet, during the first quarter of fiscal year 2006 our cash and marketable securities balance decreased by $3.4 million to 11.4.

The decrease in cash is primarily due to -- first, net cash used in operations of 2.2 million primarily from the increase in accounts receivable due to increased revenues and from the increase in inventory for exports in transit; second, from the purchase of $633,000 of property, plant and equipment for production expansion at Apio; and third, from the net reduction of debt of $1 million.

That concludes my formal presentation.

Let me turn the call back over to Gary.

Thank you, Greg.

We have achieved several important milestones thus far in fiscal year 2006.

First, as mentioned earlier, Apio did well in the first quarter to advance its objectives for the fiscal year.

Apio grew value added revenues by 13% and value added gross profits by 23% due to a more profitable mix of products and better quality in the source produce compared to the prior year quarter.

Notably sales of the value added vegetable tray line increased by 36% and the value added 12 ounce productline increased by 11% compared to the same period in the prior year.

According to ACNielsen, for the three months ended June 30, 2005 Apio's marketshare for sales of vegetable trays to retail grocery stores in the U.S. was 48%, up from 37% for the three months ended June 30, 2004.

In addition, Apio increased net income 41% and generated $3.2 million of cash flow from operations.

Second, with Chiquita the Apio Tech division successfully completed an expanded initial commercial market test comprising approximately 300 stores and started a second commercial market test using our Intelimer based Breatheway packaging technology combined with Chiquita branded bananas.

Third, Landec Ag purchased Heartland Hybrids Inc., the second largest direct marketer of seed corn to farmers behind Landec Ag's Fielder's Choice Direct brand.

This acquisition will add approximately $8 million in revenues during fiscal year 2006 and is expected to generate a positive contribution to net income for this fiscal year.

Fourth, Landec Ag introduced 37 new corn hybrids for 2006 bringing the lineup to 121 hybrid seed varieties, 48 of which are hybrid offerings that will be using Early Plant Intellicoat seed coating technology.

And fifth, we are actively pursuing and continue to receive interest from potential partners and/or supply customers for applications of our technology in areas ranging from personal care to industrial coatings to medical devices.

As part of that ongoing effort, we have engaged a consulting firm to assist us in identifying and securing new licensing and supply partners.

On a different note and related to our license agreement from the past, Landec renegotiated recently and amended its existing polymer supply agreement with Alcon so that it would expire on May 28, 2006 instead of November of 2012.

This resulting in the recognition of an additional $550,000 of revenue and net income during fiscal year 2006.

The Alcon PORT Dry Eye device program using Landec's Intelimer material was approved by the FDA in July 2004.

However, Alcon has not commercialized the PORT Dry Eye device and we have mutually agreed to an earlier expiration of our polymer supply agreement.

Alcon still has exclusive license rights to commercialize the PORT product on its own or to sublicense it to a third party.

It is unclear to us whether Alcon will eventually sublicense the PORT device to a third party and whether that third party would purchase Landec Intelimer materials for the device.

Therefore, as part of our need to focus on new opportunities for licensing and supply businesses, we wanted to reduce the time frame in which we were obligated to supply materials to Alcon for this program.

Looking to the future we have five primary objectives for fiscal year 2006.

First, continue to grow our value added specialty packaging food business.

Second, increase the growth of our agricultural revenues for uncoated seed products and for our Intellicoat coated seed products.

Third, commercially launch our banana packaging technology with Chiquita.

Fourth, continue to add strategic partner relationships in each of our businesses with specific emphasis on opportunities for Intelimer polymer applications outside of our food and agricultural businesses.

And fifth, increase overall revenues by 10 to 15% and increase net income by 55 to 65% compared to fiscal year 2005 results.

The revenue and net income goals include additional revenue and net income of $550,000 from the change in the Alcon agreement in fiscal year 2006 and exclude the impact from the Heartland Hybrid acquisition in fiscal year 2006 and exclude the gain from the sale of land of $713,000 that we recognized in fiscal year 2005.

As we mentioned during the last conference call, we have a number of challenges this fiscal year that include a significant challenge in managing increases in our raw material costs expected to increase by approximately $2.5 million in this fiscal year compared to fiscal year 2005, and that comes from a combination of sourcing costs across both fresh produce and corn seed.

Another challenge that we face is continuing to grow marketshare in our value added vegetable business, particularly in our tray line now that we are the market share leader.

Another area of focus is growing Landec Ag revenues by 15 to 20% in fiscal year 2006 excluding Heartland Hybrid revenues when recent annual growth in the U.S. corn seed industry has been less than 5%.

This requires us to take marketshare from other seed companies and requires us to expand the use of our Intellicoat coating technology.

And lastly, we are working to reduce losses in the Apio Tech business based on the successful commercial launch of packaging for bananas into totally new sales channels by our partner, Chiquita Brands International.

And at the same time being dependent on Chiquita's effective launch and logistical support for serving these new sales channels.

As we look to the future we believe that we're up to meeting these challenges and we're pleased that our core businesses are growing, that our management team is in place, that our balance sheet is strong and that our priorities are clear.

We continue our commitment to grow profitably and deliver highly differentiable 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.

(OPERATOR INSTRUCTIONS).

Mr. Steele, I'm showing no questions at this time.

Okay.

Well, we thank everybody for being on the call today and we appreciate your ongoing support.

Thank you.

Ladies and gentlemen, thank you for participating in today's conference.

This does conclude the program.

You may all now disconnect.

Have a great day.