Lifecore Biomedical Inc (LFCR) 2009 Q1 法說會逐字稿

Good day ladies and gentlemen and welcome to the Landec Corporation first quarter fiscal year 2009 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 conference call is being recorded.

I would now like to introduce your host for today's conference, Mr.

Gary Steele, Chairman and Chief Executive Officer for Landec Corporation.

Sir, you may begin.

Good morning and welcome to Landec's first quarter fiscal year 2009 earnings call.

I have Greg Skinner, Landec's Chief Financial Officer with me today.

This call is being webcast by Thomson CCBN and can be accessed at Landec's website at www.Landec.com on the investor relations page.

The webcast will be available for 30 days through October 31, 2008.

A replay of the teleconference will be available for one week by calling 888-266-2081 or 703-925-2533.

The access code for the replay is 121686.

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 2008.

As reported in yesterday's press release for the first quarter of fiscal year 2009, revenues increased 15% to $71.8 million and operating income increased 26% to $4.6 million compared to the first quarter last year.

Notably during our first quarter, revenues from our food technology business which consists of Apio's value added specialty packaged vegetable business plus Apio's separate packaging technology business grew $4.2 million to $43.8 million, increasing 11% while gross profits increased 17% compared to the same period last year.

In addition, revenues from Apio's commission trading business increased by $4.8 million to $26.3 million and contributed $1.2 million to the gross profit line.

Overall, Landec generated $2.2 million in operating cash flow during the first quarter of fiscal year 2009 and ended the quarter with $62 million of cash and marketable securities with no debt, continuing to strengthen our positive financial position.

Based on the results of our first quarter, we are on track so far for achieving our revenue and net income goals for fiscal year 2009.

Accordingly, at this point time we're not changing our original guidance for fiscal year 2009 which is to increase revenues by 10% and increase pretax net income 15 to 20%.

In the current quarter, our second quarter, we are progressing despite the slowing economy.

Our Chiquita collaboration is proceeding well not only with the sales of bananas to coffee chains such as Starbucks for use in Vivanno smoothies but also in convenience stores and many marts.

In addition, Chiquita is currently working to identify an initial trial partner to test its retail grocery store bananas packaged in our BreatheWay packaging.

In addition, the initial grocery store trials of Chiquita avocados packaged in our BreatheWay packaging are scheduled to begin this month.

Regarding our program with Monsanto Seminis seed genetics business, the initial field trials have recently started with the planting of broccoli seeds for broccoli developed by Seminis to possess unique consumer traits such as enhanced levels of nutrition; for example, products that are high in antioxidants and vitamins as well as down the road unique colors, taste and texture.

All in all we're tracking well through the first four months of our fiscal year 2009 but we do see a slowdown in consumer demand for fresh cut produce products and cost pressures continue on several fronts.

Let me turn to Greg Skinner for details of our results.

Thank you Gary and good morning everybody.

As outlined in yesterday's news release, Landec reported total revenues for the first quarter of fiscal year 2008 of $71.8 million versus revenues of $62.7 million for the same period a year ago.

The increase in total revenues revenues during the first quarter was due to first a 9% or $3.6 million increase in revenue from Apio's value added vegetable produce business, second an over fivefold or $659,000 increase in revenues from Apio packaging and third, a 23% or $4.8 million increase in revenues from Apio's commission trading business.

For the first quarter of fiscal year 2009, the Company reported net income of $2.8 million or $0.11 per share compared to net income of $3.1 million and also $0.11 per share for the same period last year.

This decrease in net income during the first quarter of fiscal year 2009 compared to the same period last year was primarily due to first a $729,000 or 62% increase in our income tax expense due to an increase in Landec's effective tax rate for fiscal year 2009 to 40%.

It should be noted that the percentage increase in our income tax expense for this year's first quarter compared to last year's first quarter is less than what is anticipated for all of fiscal year 2009 because the recorded tax rate for the first quarter of last year was 28% instead of the final adjusted tax rate of 20% for all of fiscal year 2008.

Of the anticipated income tax expense for fiscal year 2009, we are estimating that we will be paying only 10% of our income tax expense in cash for an effective cash tax rate of 4% because of the benefits of net operating losses primarily from the repurchase of subsidiary options in fiscal year 2008 and the tax credit carryforwards from prior years.

The second reason net income decreased was due to a decrease in interest income of $424,000 or 54% due to the Company's decision to invest only in FDI-insured certificates of deposit, US-backed instruments, AAA-rated commercial paper and money market funds; all of which have yields that are considerably lower than those the Company realized from its investments in the same period last year.

These two decreases in net income were almost entirely offset by the $1 million increase in operating income in the first quarter of fiscal year 2009 compared to the first quarter of fiscal year 2008.

Turning to Landec's financial position, during the first quarter of fiscal year 2009 the Company generated $2.2 million of positive cash flow from operations including a 7% increase in working capital to $66.9 million during the quarter.

Cash and marketable securities increased $3 million during the first quarter of fiscal year 2009 to $62 million in total.

That concludes by formal presentation.

Gary?

Looking ahead, we're focused on five priorities for building Landec's shareholder value over the next several years.

First, continue to grow revenues, pretax profits and cash flow.

Second, extend the commercialization of our BreatheWay packaging programs in bananas, avocados and new applications.

Third, strongly support our technology licensing partner launches of new products.

Fourth, continue to seek acquisition targets that use our technology and are synergistic.

And fifth, expand our R&D activities to develop new business opportunities.

In support of our business plan and goals in fiscal year 2009, we expect to spend roughly $3.7 million in R&D, up from $3.3 million spent last year.

And we expect to invest $7 million in capital expenditures in fiscal year 2009 for further expansion of our value added vegetable processing facility up from $4.2 million invested in fiscal year 2008.

We expect fiscal year 2009 to have several challenges, one of which is continuing raw material cost increases which require us to pass on some of these costs to our customers.

We are in the process of passing on some of these increased costs to our customers as we speak.

In addition, we're well aware that consumers are tightening their belts and the latest market data showed little growth in the fresh cut produce industry category this past quarter.

To be successful, we will need to continue to offer innovative products of good value which are high in nutrition and flavor.

A direct result of building a profitable business is an increasing income tax expense.

Landec is transitioning to a tax rate business model.

As a result, net income in fiscal year 2009 is projected to decrease 5 to 10% because our effective tax rate is projected to double from 20% in fiscal year 2008 to a 40% tax rate in fiscal year 2009.

The incremental book income tax expense is expected to be approximately $4.4 million to $4.8 million or $0.16 to $0.18 per share in fiscal year 2009.

More importantly, as mentioned earlier by Greg, we are estimating that we will be only paying 10% of our book income tax expense in cash for fiscal year 2009, resulting in the preservation of cash and a favorable impact on our cash balances.

Although all of our goals could be adversely affected by a continuing downturn in the economy and corresponding consumer demand as well as further increases in raw materials and fuel cost, operationally we expect progress in each of our businesses including first the continued expansion of Chiquita products which use our BreatheWay packaging technology; second, continued advances in research with Monsanto for seed coatings; third, initiation of human clinical trials for aesthetic science dermal fillers which have just started; and fourth, increased sales by Air Products in both the personal care and and (inaudible); and lastly, advances in new applications for our Intelimer polymers from current and future R&D activities.

We are ready for your questions.

(Operator Instructions) Tony Brenner, Roth Capital Partners.

Gary, as I recall, one of the factors in your guidance when it was originally offered was that various cost pressures including energy would be sustained through fiscal 2009.

And I doubt that you got much benefit in the first quarter from the decline in energy prices, but as we go through the year, shouldn't this be beneficial for both your packaging and your raw material costs?

We would like to think so.

We certainly haven't seen that so far and there is -- as you know, there's a long leadtime in those transitions.

All we have seen is costs going up so far.

But as I said in our comments, looking forward we're not sure what's going to happen the next couple of quarters.

But certainly nothing has gone down in our mind and some of our produce contracts we're feeling the pressure from some of our suppliers for further increases.

But we're really trying to hold the line there.

So we're just pointing out that those things are going that we're going to watch very closely; certainly no declines or returns to some of the more favorable pricing of the past.

We have been passing on some of these costs to our customers and for the most part it's sticking so far.

On a different topic, is there any chance that some of these new products that -- Air Products is taking out of its laboratory will actually hit the market this year?

They will be what I call hitting the market from the point of view of customer testing.

And the customer testing in the personal care area goes through a fairly elaborate toxicology and what's called coating, coating process in which it becomes accepted within the mainstream of the target customer.

So I would call that pre-commercialization this year and commercialization the following your.

So I would not expect new products to be a substantive part of growth this year although we are seeing growth with existing customers with existing products at L'Oreal and with a company called (inaudible)

Can you quantify that to a certain degree?

What kind of growth (inaudible) is it double-digit sales growth or --?

We're going to double our growth.

But this is primarily with existing products that had been in the works for some time.

You were asking me about will there be some new products launched this year and the answer is they will be launched from a pre-commercial testing point of view.

Last question.

Is there any chance, do you believe, that the McDonald's banana program might be rolled out nationally in your current fiscal year?

I don't know.

I think that if you have ever watched the rollout of new products at McDonald's, they're very methodical and it's painfully long.

All I'm hearing is I'm hearing positive results, whatever that means, and I would think that you would probably start to see if it continues to be positive, I would guess it's going to be more of a regional rollout and then a national rollout if it were to occur would begin I would think early next year.

And that's my speculation.

It's not based on direct information.

They're pretty hush-hush.

Steve Denault, Northland Securities.

Good morning everyone.

The question I guess -- the first question would be on the Apio value added.

What do you think now that you're several months into the fiscal year, it sounds like you have gotten some of the incremental sourcing costs passed through to the customers.

Is there any reason to believe that the gross margin on that segment can be comparable to what it was in the prior year?

I don't think so.

I think that we're not able to pass all of these costs along.

There were some substantial cost increases.

I think there's some competitive pressures out there, especially as the category is slowing.

This category slowdown is most likely the consumer just hunkering down and in many cases saying I don't need to have it already pre-cut, pre-washed, pre-packaged etc., etc.

So the combination of some competitive pressures and the fact that we are only capturing some portion of these cost increases and price increases, I think it would be unrealistic for us to say that we can return to the good old days at least for this year.

So that is my best shot at it.

What do you think that realistic segment growth rates would be for this year?

Wow, geez.

If you had asked me three months ago, I would have a totally different answer.

Right now, the Nielsen reported zero growth in the category this last quarter.

That's the first time we have seen that since we have been in this business.

And so you tell me, is that an overreaction from the consumer that's temporary?

Is that going to persist during the year?

In terms of category growth, boy that is a crapshoot.

I really have a hard time knowing.

I would love to have another quarter of Nielsen data to be able to answer your question.

But let's just assume that category growth is going to be somewhere between flat and 5% for the year, is just my best guess and therefore for us to attain our growth target, we would have to be taking share.

It is a tough business out there right now with competitive pricing.

Do you have any update in terms of the Chiquita program as it relates to points of distribution on the convenience store side?

They're getting away from the number of sites methodology of looking at how to measure success, but they have publicly stated that they want to be in 18,000 sites [and] more this calendar year.

Our understanding is they are on track for that.

The last conference call, Chiquita's CEO was asked about this program.

He said it is a marathon, it's not a sprint.

We really like the program, it's a profitable program for us.

We're devoting more sales force to it.

They certainly are pleased with the way the Starbucks Vivanno banana smoothie program is rolling out.

So I think that it's going well.

I think from everything we can hear from Chiquita, it's tracking according to their plan.

Okay, and the Air Products, I don't know if I heard you correct.

Do you think the business there doubles this year or -- you said something about 2x the growth rate.

Yes, on the -- remember, there's two components to it.

There is a licensing fee.

That has three quarters to run.

So that will be $600,000 this year versus the previous years of $800,000.

And what Gary was mentioning is the gross profit sharing is projected to double this fiscal year.

I think, what is going on there is our partner Air Products, when we got together with them a couple of years ago, has a division called the high-performance materials division.

And in that they wanted to find new growth opportunities.

They identified personal care cosmetic products as a higher growth, high margin business.

They desired to be in this business.

They saw Landec as providing a technology platform to springboard themselves into this business.

But they were new to the business.

It's not as though they are seasoned veterans of supplying the cosmetic and personal care business.

And as a result, there was a learning curve for both of us.

I think we're getting up on that learning curve pretty well and we have established a good relationship with L'Oreal and now the question is how do we expand that to other targets.

And that is why we're starting to feel bullish about expanding the growth of that business because we're up the learning curve and we now have some pretty innovative products in the pipeline which as I mentioned earlier with Tony will start to get in the hands of people for testing.

Okay and just one final question.

The Apio trading last couple of quarters, the growth has been pretty significant.

How should we think about that going forward?

And in addition to that, the gross margin on that business seems to be contracting a bit and how should we think about that?

This quarter, because you're comparing this first quarter this year to the first quarter of last year, there is a fairly big timing component between the first and second quarters in this business.

Some years the harvest is early, you ship in the first quarter.

Other years it is a little later.

It just so happens that this year in the buy/sell side we have a small domestic piece that represents about 10% of the trading business.

It was front-loaded this year.

So a lot of the sales that occurred in the second quarter of a year ago -- and this is a 2% margin business by the way -- occurred in the first quarter.

So that's why you're seeing a rather sizable increase in revenues and somewhat of a depression on the gross margin percentage.

It all had to do with the timing of the buy/sell this year.

But on these businesses, if you look at them year-over-year, they're pretty consistently steady.

You're talking about 5% year-over-year growth typically and you're talking about typically 5% margins.

It's just that it gets -- there's these quarterly swings that we have to pay attention to.

So then that maybe suggests that your 10% topline growth is at this point in time based on where the economy is might be a little bit of a push?

We're going to have to work hard to get there.

We still have three quarters to get there but I would not disagree with what you just said.

The concern of course is the consumer demand issue and what is really going on with the category growth because we have had the luxury as you know in past years of having not only the ability to take share but also to grow with the category.

Yes, and I can tell you that I haven't seen a single consumer category where there hasn't been absolute consumer paralysis over the course of the summer.

I don't think we will be any exception to that.

(Operator Instructions) Bill Gibson Nollenberger Capital.

I just wanted to zero in on bananas again and Chiquita's next round of retail tests.

It sounds like it's still a little fuzzy as to exactly what they are attempting to do and I just wanted to get your read on your sense of their enthusiasm for moving forward with this project.

I think the enthusiasm is high and I think that -- I wouldn't use the word fuzzy.

But I think that they have in their mind certain objectives that they want to try to achieve in these trials that require a certain type of a retail partner initially before they go into broader commercialization.

And I think those requirements that they are seeking in these trials -- and I am being intentionally a little vague here -- will cause them to take a little time to pick the partner.

So, I think you are right in the sense that it is taking them some time.

They have -- the package design is ready.

The types of price points that we want to test are ready.

The merchandising approach is ready.

It's just that they want a certain type of testing partner that is unique to help them determine some of the marketing mix issues that are questions for them.

So it is taking a while and I think you are right to say that.

Thanks Gary.

Salomon Kamalodine, B.

Riley.

Could we get capital expenditures and D&A for the quarter?

CapEx for the quarter -- I'm trying to think exactly what it was.

It was around $1 million.

And D&A?

And the D&A?

About the same.

It runs around 3.5 for the year and it's pretty flat.

So it's almost a replacement in the quarter.

As you know we normally run about 3 to $4 million a year in CapEx.

Every so often, we take a year and say okay, it's really time to expand for the next round of growth in our VA business and we also try to improve and automate some portions of our plant to bring in efficiencies and this $7 million year is that year.

Okay, what do you expect your capital expenditures to be in the year behind that?

In 2010 do we get back to 4 to $5 million in CapEx?

Yes.

Okay and then going to the technology licensing business, can you just take this $1.6 million revenue number and break that down between the products that you currently have in place with Monsanto (inaudible) products?

Yes, when you break it down, 1.35 of it is (inaudible) 5.4 divided by four.

So that will be recognized every quarter.

You get $200,000 in there for Air Products license and the rest is gross profit (inaudible) at Air Products and (inaudible)

And the Air Products licensing revenue, the $200,000 that you said that was going to stay in place for another three quarters and then that drops off in 2010?

It has two more quarters to run this year.

We will recognize 600 in total this year, 200 in the first, second and third quarter and then it goes away.

That's the original $2.5 million and it will be done this year.

And then we will be back -- we will be to only sharing profits at that point.

And likewise with Chiquita, can you just refresh my memory on what the minimums are going to be and how they break out between the quarters for the next couple of years?

Well it's too $2.2 million for this year and it's even.

Then next year we haven't really disclosed it, but it goes back to the original minimums that had ratcheted up over a three-year period in the beginning.

So if you look back, you could probably figure it out pretty quick.

But it will go down next year but then it stays flat for the duration of the contract.

Right and it will be recognized ratably throughout the year as well (multiple speakers) we go back to the big Q3?

No, we go back to -- it's now a quarterly minimum from here on out.

And then finally, I wanted to get some commentary on what your licensing pipeline looks like as far as maybe getting into some new verticals, if you could just discuss what you have in the works there?

I would not -- well first of all, let me get to the punch line.

I would not anticipate us announcing another licensing partner this year.

That doesn't mean that we're not working on it but our licensing focus which usually have long lead times which is more in the coatings and nonfood packaging arena, a lot of what we do here at Landec is provide unique polymers that are interesting in coating applications.

As you know we coat seeds.

We actually coat a porous membrane that goes into our packaging technology.

And these coatings can be in the form of a thin film or they can be in the form of a microsphere where the temperature is the switch or it can be (inaudible)

So those are general areas that you're looking at.

We are also I will say for the first time beginning to look -- we have stated publicly we have been interested in M&A in the food arena.

We are starting to turn additionally our focus and interest in nonfood M&A areas as well that would absolutely piggy back on our polymer technology and we are about to engage someone into that M&A area outside of food to help us in this arena.

So we're looking more broadly than we were a quarter or two ago.

We have got the wherewithal to make a selective acquisition that can help us in our growth plans.

Okay, thanks.

[Peter Mork, Mork Capital].

I just had a quick question just regarding some competition and -- if you can you even call it that.

But just on like TV infomercials I have seen -- just recently seen a bunch of these green bags that -- they're specifically used with bananas or whatever.

Is that a legitimate technology there?

Do you know anything about it?

I know a lot about it and we are asked this question a lot.

It's called the ebbie Meyer Green Bag.

It's mostly marketed over television and what it is, it's a thin polypropylene film that has little clay particles embedded in it.

I would be happy to send you three or four university research studies on it and and its claim is that the particles in the film act as absorbers of ethylene gas.

And ethylene gas is the gas that helps fruit and vegetables ripen.

The produce would normally produce it itself.

So if you can absorb the ethylene gas molecules, the theory is that you're going to slow down the shelf -- you're going to extend the shelf life and slow down the ripening process.

So that is the theory.

What the research articles show is that there is enough ethylene gas in the Earth's atmosphere to tie up those ethylene particles in the green bags such that it effectively does not work for that purpose.

I'm going to let these articles speak for themselves.

I'm not trying to slam this company.

But they basically say they don't work.

And then there was a consumer report article came out recently saying that they don't work.

What does work is that you're putting produce in a plastic bag and then you either seal it or you fold it over and so it's retaining moisture.

It helps you retain moisture in your produce.

In our own laboratory experiments when we have looked at the green bag, it does retain that moisture and that is good for most produce.

But the little grocery bag you pull off the racks in the produce section, they would do the same thing.

So what we have concluded from our own laboratory experiments and what we have seen in the literature is that it doesn't work as advertised.

But boy, it's very effective marketing.

It does say something about consumers' interest in preserving produce.

Now let me remind you that in our technology, we need what's called a hermetic seal.

We need a total and complete seal for our membrane technology to work.

If there are leaks -- Ziploc's leak.

If you tie a bag with a little tie thing, it leeks.

So that's why our packages are sealed in our plant and then shipped because we can be ensured and guarantee that this seal is hermetic and that our membrane is going to work as advertised.

But in the meantime, we get quite a few calls asking us is this competitive to our technology and the answer is no.

Does it work?

Well, no and yes.

No, it doesn't work as advertised.

Yes it retains moisture.

Does it work for bananas?

It will allow bananas color to last longer but the taste of the banana coming out of that bag is pretty awful because it's got a big CO2 buildup and that affects the taste.

So thank you for asking.

I should have brought that up myself.

But we don't see this as a direct competitive threat for us.

Well, just kind of back -- given that you guys need that complete seal, there isn't just -- there must be some consumer interest in this bag just given the number of commercials and you mentioned that yourself.

Do you see any way that you could introduce a product using your technology or it just needs to be done in your factory so that would not be feasible?

We would have to -- we're looking, but we would have to find an ability.

We would have to find a Ziploc or some type of a closure device that is more effective and is a hermetic seal.

And we haven't found those yet in commerce but we're looking.

But right now it's not out there.

So we're going to go with the way we do it now.

Thank you.

Will Lauber, Sterling Capital Management, Inc.

You had touched on the M&A kind of strategy and I had two questions on that.

With the markets the way they are now, are you seeing any increased interest from people that you have been talking with?

That's a fabulous question because I don't need to tell you that in the past when folks had -- here's the answer.

We probably will.

We are in that transition but I think that what you're finding is that people who are even remotely thinking about selling or being approached about selling or having to recalibrate on their values, their perception of their own values -- let's face it.

Everybody's value has been going down and if somebody has thought that their business is worth -- I'm picking these numbers out of the air -- 10 times EBITDA and the reality is it's now seven times EBITDA, there is an adjustment time that has to go on for these people to get a reality check.

I don't think we have got those folks through that reality check quite yet, yet.

I think you have got maybe a couple of more quarters of this pretty nasty situation to convince folks that if they have any interest in selling or they have a need to sell that they better get recalibrated.

But I think your comment is astute.

I think that you'll see in the next few quarters that people are getting adjusted to the fact that there's very few buyers if any out there.

Certainly the financial buyers are sitting on the sidelines and they're going to have to deal with the reality of adjustments in values.

So we will see but that's my hypothesis.

We are a couple of quarters away from that.

Okay and for your financing, if a good attractive acquisition came along at the right price and for some reason you guys needed access to debt markets, have you guys explored that at all?

Can you get financing at attractive terms or somewhat attractive terms?

Believe it or not, yes.

If you look at our cash flow, if you look at our cash balances, if you look at our last five years of history, we have a pretty darn good profile and we have a very good banking relationship with our bank.

So far we are told that we're bankable at reasonable costs.

My next question is kind of I guess a longer-term strategy issue.

It seems like from a lot of what I'm reading that produce is probably -- is gearing caring more towards locally grown produce and I guess you probably have a couple of different factors.

The environmentalists are pushing out along with the higher fuel costs.

I don't see either of those kind of trends changing in the longer-term.

How does that affect your business?

Is it something where you would think about licensing out your technology for growers that are in different areas?

I know broccoli and cauliflower when I have looked, about 90% of its grown in California.

Is that not possible to grow those in any great quantity in other parts of the country?

The answer is no but your point is still a valid one in that there is that -- you've got that convergence of gee, I would like to buy locally and I like to support the local farmer and fuel costs and transportation costs.

The reality is that most of the inputs that we use, the major products that we use such as cauliflower -- and I'm just picking on these -- but cauliflower and broccoli and carrots and things like that, 90% plus are grown in California.

It's very -- you've got very sporadic seasonal kind of areas -- you can grow broccoli in Maine in the summertime; that kind of thing.

In our kind of business you have got to be a viable supplier 12 months out of the year.

You can't be coming in and out of the marketplace.

You're not telling Wal-Mart that gee, I can get it to you in July and August but call me next year when you need it again.

You have got to be there every day, every week and that is why I think that this issue, to be honest with you, even though it's got that kind of sex appeal, is not a very practical issue for us.

It's not a realistic thing to be supplying much volume in the types of commodities we work with year round.

It just isn't happening and it won't happen.

My final question was -- I know that you guys were talking about the McDonald's national rollout.

I know a few weeks ago and probably a lot has changed in that two weeks, but the McDonald's COO at the Bank of America conference had mentioned that they were going to start rolling out nationally in like mid-2009 to 2010 for the smoothies.

Since then I have seen things in the papers that some of the McDonald's franchisees are having trouble accessing credit and that might slow down their coffee and I'm sure their smoothie initiative.

Have you guys talked with anyone there or Chiquita about any more particulars on that?

The short answer is no.

We've not talked with them directly.

We haven't heard anything further from Chiquita other than what you just said was in the public domain that the COO or CEO had announced.

So I think that they've got -- these smoothies do require specialized equipment that does require purchase and I would expect it will have some effect for some of the store sites, not all, in terms of their rollout.

Have you gotten any feedback -- I know Dole is a supplier to that as well.

Have you gotten any feedback as to your guys bananas holding up a lot better?

It's anecdotal and I worry that it's through our looking glass.

What we're hearing is our bananas hold up better and as you would expect we're using technology they're not.

I would ask that question next quarter when we have had a little bit more time under our belt and I just don't want to throw out anecdotal remarks that are probably through our own biased view of the world.

But we would expect over time that trying to support -- by the way as you know, McDonald's hates the thought of having one supplier.

They have always been that way so they want to have somebody out there that could be a second source.

So they have let McDonald's do some of these trials.

But they're not using technology.

I don't see how that's going to work day in and day out.

And give us another quarter to actually see some data.

At this time, I'm showing no further questions.

It was a good first quarter.

Thank you for being on this conference call today.

We'll keep you apprised and posted as not only our corporate partner relationships progress, but also as we get a better handle on margins in the next few quarters and continued growth.

We do appreciate your support and thanks for being on this call today.

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

This concludes the program.

You may now disconnect.

Good day.