Lifecore Biomedical Inc (LFCR) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Landec second-quarter fiscal-year 2011 earnings conference call.

(Operator Instructions).

As a reminder, this program is being recorded.

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

Gary Steele, Chairman and CEO of Landec Corporation.

Please go ahead, sir.

Good morning and welcome to Landec's second-quarter fiscal-year 2011 earnings call, and I have with me today Greg Skinner, Landec's Chief Financial Officer.

This call is being webcast by Thomson Reuters 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 February 4, 2011.

A replay of the teleconference will be available for one week until midnight Eastern time, Wednesday, January 12, 2011, by calling 888-266-2081 or 703-925-2533.

The access code for the replay is 150-1183.

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 2010.

As announced in our second-quarter earnings release, we increased revenues 15% and net income 34% during our second-quarter 2011.

Our Lifecore biomaterials subsidiary had a very good quarter with revenues of $8.4 million, generating $5.4 million of gross profit, resulting in gross margin of 64%.

Overall in the second quarter, our gross margin increased to 16.9% from 12.2% in the year-ago quarter.

In our Apio food business, prolonged cold and wet weather adversely impacted produce sourcing.

For those of you on the West Coast, you know that northern California, southern California, Arizona, and Mexico have experienced torrential downpours and flooding, as well as unusually cold weather during the months of November and December.

Fields are flooded.

Produce yields are way down as produce quality is down.

We project that negative weather-related variances overall for the full fiscal year will be roughly $3.5 million, with two-thirds of these variances recognized in the second quarter just ended.

The timing was not good for consumers, retailers, or for us, since November through January is the high season for many of our produce products as families gather for the holidays and for bowl games.

To add to the problem, retailers have had difficulty getting their trucks to and from the West Coast due to severe snowstorms in the Midwest and on the East Coast.

We last experienced adverse weather of this magnitude during the winter of 2006.

Fortunately, we have a number of positive offsets to the financial impact of produce-sourcing issues, which Greg will cover in his comments.

In our press release of December 13, we provided updated guidance based on our knowledge of the produce supply and retailer demand issues in November and December.

Hopefully, the weather will return to a more normal pattern during the remaining five months of this fiscal year, and our updated guidance assumes this.

Let me turn the discussion of financial results over to Greg.

Thank you, Gary, and good morning, everyone.

In yesterday's news release, Landec reported that for the second quarter of fiscal-year 2011, revenues increased 15% to $70.2 million, versus revenues of $60.9 million for the second quarter of last year.

The increase in total revenues during this year's second quarter compared to last year's second quarter was primarily due to the $8.4 million in Lifecore revenues and from a $2.6 million, or 15%, increase in Apio's export revenues.

This growth was partially offset by a $1.6 million, or 4%, decrease in revenues from Apio's value-added fresh-cut vegetable business as a result of weather-related produce-sourcing issues and from Apio exiting some low margin business during the second half of fiscal-year 2010.

For the second quarter of fiscal-year 2011, Landec's net income increased 34% to $2.1 million, or $0.08 per share, compared to $1.5 million, or $0.06 per share, for the second quarter of last year.

The increase in net income during the second quarter of fiscal-year 2011 compared to the second quarter last year was due to the $2.8 million of net income before taxes from Lifecore.

This increase was partially offset by, first, a $909,000 decrease in gross profit from Apio's value-added fresh-cut vegetable business due to produce-sourcing issues, which were partially offset by lower promotional costs and reduced packaging costs; and second, from a $768,000 increase in operating costs at corporate and Landec Ag due primarily to an increase in stock-based compensation expenses and as a result of the amendment to our agreement with Monsanto wherein, beginning with the third quarter of last year, Landec is now responsible for paying for all of Landec Ag's operating expenses.

For the first six months of fiscal-year 2011, revenues increased 11% to $135.1 million, versus revenues of $121.9 million for the same period a year ago.

The increase in revenues during the first six months of fiscal-year 2011 compared to the first six months of fiscal-year 2010 was due to $14.8 million in revenues from Lifecore and $1.3 million increase in Apio export revenues.

This increase was -- these increases were partially offset by $3.2 million, or 4%, decrease in revenues in Apio's value-added fresh-cut vegetable business.

For the first six months of fiscal-year 2011, net income increased 17% to $4.4 million, or $0.16 per diluted share, compared to net income of $3.7 million, or $0.14 per diluted share, for the same period last year.

The increase in net income during the first six months of fiscal-year 2011, compared to the same period last year, was due to the $3.5 million of net income before taxes from Lifecore.

This increase was partially offset by a $1.2 million decrease in gross profit from Apio's value-added fresh-cut vegetable business and from a $1.2 million increase in operating costs at corporate and Landec Ag.

Turning to Landec's financial position, during the first six months of fiscal-year 2011, the Company generated $2.1 million of positive cash flow from operations and ended the quarter with $45 million in cash and marketable securities.

For the first six months of fiscal-year 2011, capital expenditures were $3.5 million and depreciation was $2.6 million.

Gary?

Thanks, Greg.

Let's discuss the substantial progress achieved in the second quarter and let's discuss our outlook for the Company overall.

Lifecore and the management team continue to perform well and exceed plan.

Lifecore's materials are directed towards ophthalmic, orthopedic, and veterinary medical applications, which tend to result in high-margin sales.

There has been substantial productivity yield gains made in the HA manufacturing process at our Lifecore facilities in Chaska, Minnesota.

We are expanding our customer base at Lifecore and we have identified new investment opportunities in the HA biomaterials arena.

We are beginning to see the strategic, financial, and operational synergies of joining Landec's capabilities together with those of Lifecore.

And we are pleased with Lifecore's recently updated five-year strategic and operating plan.

In the licensing area, Chiquita is finding success with the rollout of its Fresh & Ready avocados using Landec's BreatheWay packaging, which are providing substantial reductions in retailer shrink and double-digit sale increases for the retail stores now in the program.

As word spreads and as retailers begin to see the economic benefits, this program is expected to gain momentum.

In our work with Monsanto, the program has moved beyond the benchtop chemistry lab work to initial biological experiments using our Intellicoat seed coatings as a controlled-release delivery system for seed protection.

The business of applying crop protection chemicals to seeds is rapidly growing, and now represents $1.5 billion in annual sales as more and more companies in the ag field work to apply fungicides and insecticides directly to the surface of seeds.

Neither Monsanto nor Landec know of any program outside of our program that has the proprietary controlled-release system capabilities that are anywhere close to commercialization.

The stakes are high.

The next big milestone will be the Springfield trials in North America.

Our five-year licensing agreement with Monsanto ends in December of this year, and we are collectively focusing our efforts over the next four quarters on determining just how we will proceed beyond that date.

Regarding our Air Products collaboration, the R&D funding portion of our agreement ends in March of 2011, while the gross profit-sharing agreement continues forward.

Landec receives 40% of gross profits from product sales to the personal-care cosmetic industry for ingredients that include our Intelimer polymer materials.

Our focus for the past two quarters has been on expanding our penetration of ingredients in lotions and cream-based product lines, and Landec's additives are now found in over 40 products under numerous well-known brands.

An upcoming major milestone for our joint efforts in cosmetics is the launch of a new cosmetic product line based on Landec's polymer materials at the In-Cosmetics show in Paris in April.

Over the past year, we have investigated new areas for licensing our technology and we have recently entered into an exclusive technical evaluation agreement in the area of drug delivery.

This is a six-month program, and we will learn a lot about where, if at all, our materials add value in the delivery of small-molecule drugs to humans.

We are rather cautious about this area since pharmaceutical companies are becoming more hesitant about new investments that will require potentially new clinical studies and FDA review because the FDA process is becoming much more difficult and time-consuming.

This just may be an area where our technology adds value, but it just isn't the right time for licensing partners.

Bottom line, we are making substantial progress in our core businesses.

How are we prioritizing our time and energies to build long-term shareholder value going forward?

We are focusing on two strategic directions for building Landec's future.

First, for leveraging our technology outside of the food business, we are increasing our efforts to find and acquire a business or businesses with existing product and market applications that can be significantly enhanced and/or differentiated by polymer material technology.

Second, within the food business, we are working to diversify and broaden the applications of our packaging technology and build on our leading market-share position in value-added fresh-cut vegetables.

Regarding our efforts to add specific and synergistic businesses, we have found over the years that we can create value faster when we combine our polymer materials science capabilities with an existing company that already has product and market applications that can be significantly enhanced and differentiated by our product technology, and that already has existing access to customers and an established profitable presence in the marketplace.

We have successfully combined our polymer science capabilities with three existing companies that we acquired -- Apio in food, Fielder's Choice Direct in seeds, and recently, Lifecore in biomedical materials.

Landec applies its polymer technology to further enhance and differentiate the Company's existing products, and the acquired company provides the marketing and sales capability and the customer base.

Our track record for integrating capabilities and infusing technology with acquired partners is very good.

This approach has worked for Landec, and based on our experience over the past 10 years or so with both acquired partners and licensing partners, we find that acquiring an appropriate business tends to build value faster than licensing partnerships.

Accordingly, we have initiated a new M&A search.

Think of it as looking for another Lifecore Biomedical.

Our search, which is primarily focused outside of the food business, has just begun.

The search is focused on companies that are profitable, have good growth prospects, and that have complementary product- and technology-differentiating capabilities.

We will keep you apprised of our progress.

Regarding our efforts to diversify within our food business, we are building on our successes at Apio, using technology and a leadership position in the precut produce market.

Ideally, this diversification can lessen the impact of exposure to adverse weather on certain product lines and provide new growth at higher margins for added product lines.

Again, we are making progress and will report as we go along.

In summary, we have three core businesses that are progressing well -- our Apio food packaging business, our Lifecore Biomedical materials business, and our licensing business.

Our goal is to grow revenues and increase profits by growing each of our core businesses and by continuing the shift in revenue mix to higher-margin businesses.

Thank you for your time, and we welcome your questions.

(Operator Instructions).

Tony Brenner, ROTH Capital Partners.

A couple of questions.

Gary, the $3.5 million weather-related impact that you mentioned at the beginning of the call, is that the revenue impact or the cost impact of the weather event?

Cost.

It's a cost impact comprised of volume variances, price variances, and what we call manufacturing variances, Tony.

So, it's the cost impact during the months of November, December, and some in January.

The most recent wet weather at the end of December doesn't affect you since you've now moved to the desert for sourcing?

Is that correct?

No, that's not correct.

The desert is flooded also.

I just saw a picture in the last two days of some of the fields, Tony, that look like lakes.

So, it's affected Salinas Valley, San Joaquin Valley, Santa Maria Valley, the Yuma area, and the Imperial Valley, all of the primary growing areas.

So, it's pervasive.

I know that you front-ended a lot of packaging or pack shipments to Chiquita for the avocado business.

The fact that it's being successful, does that mean that that will contribute to second-half sales?

Are you still shipping those patches at the moment to Chiquita?

That's a good question.

I think that third quarter, they are still going to be running down some of that inventory, Tony.

They are well over 1,000 and moving to 1,500 stores, and I think there is some good momentum there, but I don't think you're going to start to see any substantial new purchases until the fourth quarter.

And last question, the comment regarding your collaboration agreement, do you mean to imply that there is no licensing agreement likely to come from this at the end of that agreement?

I'd give it a coin toss, and that's why I want to be cautious about this.

We are excited about what we are going to learn in this technical collaboration, and we think it's a good technical fit.

We have the ability to do about four or five things that seem to be useful to the pharmaceutical industry.

We can reduce the burst effect, we can start with the act of being in very high loading amounts, we can tune the system for delivering a good delivery and good response -- I'm sorry, good dosage response curves.

We can work with insolubles.

We are helpful in terms of easier processing, all in all, all those types of things technically.

But -- I'm not sure how close you are to the FDA, but it's gone from really difficult to brutal, and the pharmaceutical industry is reeling and quite cautious about anything, especially a new polymer materials platform that would require clinical trials and a new FDA process.

So, I don't know how to handicap it, other than to tell you it's probably a coin toss.

Okay, so if there is a licensing agreement, presumably you would need an upfront payment to -- for it to make any sense at all, right?

Yes.

Daniel Rizzo, Sidoti & Company.

You said that retailers in the Chiquita banana -- in that business, are enjoying double-digit growth.

How many retailers are we talking about?

Avocados, Dan.

(Multiple speakers)

We're talking about avocados.

I'm sorry, avocados, I beg your pardon.

Yes, this is avocados.

How many?

Yes.

I think -- well, I just know the store amount.

It's somewhere between 1,000 and 1,500 stores so far, and so, I'm guessing that's got to be about four chains, but I am guessing a little bit here, so take that with a grain of salt.

Okay, and with what you're working on with Monsanto and the Springfield trials, assuming the Springfield trials are successful, what would be the next step after that?

I would guess they'd go to South America for another round of trials.

I'd think you'd want to get -- I think you want to get two bites at the apple.

Monsanto certainly has the capabilities of doing that.

So, in the spring, you would do the field trials in North America.

You would learn some things.

You would do some optimization of formulations.

Then you would go to field trials in South America with the -- hopefully, the more optimized formulated systems, and then make a decision on where you go from there.

Now at that point, you would certainly have to start scaling the coating process, which is at -- it is a continuous process, but it's at a small scale right now, so you would have to start doing some parallel processing of getting that coating operations so that you could really think about some high volumes.

Morris Ajzenman, Griffin Securities, Inc..

I'm going to read right from in back of your release, your item two on Lifecore Biomedical where you had really good results.

You have a statement here.

I presume it's boilerplate, but I just want to read it.

Quarterly results can vary depending on specific mix of business and customer order patterns.

Are you -- is this boilerplate or is there any reason to be concerned that this next quarter, whatever, we could see a big downdraft in revenues based on fluctuations of incoming orders?

Morris, this is Greg.

What we were really trying to signal here is, while they had a fantastic quarter, 64% margins are just not sustainable.

It was one of those quarters where the stars aligned from a mix standpoint, from a customer order pattern, and as a result, the margins were unusually high.

So we just wanted to emphasize that Lifecore has a pretty lumpy order pattern, and dependent on that mix, you could have swings in the margins quarter to quarter, but on a full-year basis, we expect margins to average around 50%, maybe up as high as 55%, but somewhere in that range.

And so, it was more of a signal.

Don't expect another 64% quarter.

(Multiple speakers).

But also, Morris, it also -- we are signaling that as we've gotten into understanding the Lifecore business, we do better understand the lumpiness of order patterns.

So, I'd like to tell you it's going to just be a real smooth four quarters, but it's not.

That's not the nature of the business.

I think when you made the acquisition, I'm trying to recollect, you guided us to revenues about $26 million, $27 million for this year.

Is that correct, or --

That was our original guidance, and I can tell you that we should definitely beat that.

Okay.

I mean, we shouldn't annualize this quarter, but it will be north of the $26 million, $27 million.

Yes.

Okay, just -- you mentioned earlier on cash generation.

I think you said for the first six months, it was $2.1 million.

Yes.

Do you have it for the most recent quarter, for the second quarter?

You know, honestly I don't.

I'd have to -- I don't have the first quarter in front of me, but -- take the difference.

The second quarter is a pretty big quarter from a working capital use standpoint, and with the addition of Lifecore this year, it was even more pronounced during the second quarter.

And we'll be filing our Q, but I'll just tell you that in the six months ended this year, working capital use was about $4.4 million, versus last year, it was basically flat.

So the biggest thing here was working capital.

Okay, so okay, fine.

That's the answer.

Cash flow being down year over year is because business picked up.

Lifecore Biomedical funded working capital.

Exactly.

Exactly.

Okay, and you've given us some more granularity on the Chiquita avocado.

Anything else -- are there new chains that might be coming on?

You guessed at four.

Any other data points you can give us of what's happening here and how it's ramping up from what you've given us already here?

It's ramping up nicely, and Chiquita does not want us to disclose anything until it happens.

So, all I can tell you is what we know so far, which was the number of stores sites and number of chains and the fact that they are seeing significant -- material reductions in shrink and increases in velocity.

So, and I will tell you that the store chains want to see trials.

They want to see it before they actually make a switch.

So you've got to go through that process, but I'd say the indicators are pretty positive.

Chris Krueger, Northland Capital.

I had a few questions on your core veggie business.

First, do you have any sort of industry data for the last quarter or two, whether there has been growth in the industry or how your market share has been?

Yes.

The industry is down three point -- the industry of fresh-cut produce in our category is down 3.4% in volume over the last six months.

So, certainly, it's not turned around.

Now you've got -- so, you also have some weather-related noise in there Chris, so you've got to be a little careful with that, but it's down.

Our market share is roughly one-third market share, and our mix between bags and trays is 65% bag sales and 35% tray sales.

And that's different than a couple of years ago where it was more 60%-40%.

Okay.

The new East Coast facility, I haven't heard anything about that.

How has that gone?

Have you gained any new next-day business, etc.?

I'd say -- we do.

We have some business there, and it's -- I'd call it modest, and what we found is that by the time we got it started in the October/November timeframe, some of the key customers that are targets for us said we don't want to change during the holidays.

Remember, this is prime time for them.

So, come back to us after the holidays and let's talk.

So, I think what you'll find is over the next couple of quarters, we'll have more to talk about.

It's up and running.

It's modest sales, and our salesforce's focus is now to start calling on targeted customers who will be receptive to this next-day delivery, but now that the holidays are done.

So, we had to wait for the holidays really to get this going.

Okay.

On a couple of the other newer initiatives, how about the Windset cucumber launch and the other related launches related to that agreement and your on-the-go cup products?

Any update on those areas?

Cup products have not done well.

A lot of shrink, and to be honest with you, I don't know whether we just needed to promote it better or what, but it just didn't seem to get picked up very well.

So that's been very limited in terms of impact.

And then on the Windset line, a lot of excitement, a lot of enthusiasm.

We really like the Windset people.

We have been working on -- as you know, we provide the breathable membrane, and we've been working on getting a film that has certain, what's called, high-vapor moisture rate transfer properties, so that with cucumbers and peppers and tomatoes we can get some of the moisture out, and that's been a little bit of a rate-limiting step.

I think we're very close to having that film selected and for us to be starting with Windset.

But they're really solid people, and now that we have the film and the membrane, I think we can start doing something.

Do you have an idea -- do you think something will happen in the next quarter or two?

I do.

Okay.

And they're a market leader in hydroponically-grown products that they grow primarily up in Canada.

So, really good people.

Then moving over to the Lifecore area, first, can you provide a sales growth rate for the quarter versus its -- what it did as before you acquired it last year?

You know, no.

I mean, I can.

Do I have that readily available?

No, I don't.

Sorry, Chris.

I can call you off-line.

Chris, let me make sure I understand the question.

You're saying what was its quarter-over-quarter growth prior to us acquiring them, versus what they're doing with us now, together with us, you mean?

Yes.

See, we'd have to restate.

Remember they were on a calendar basis, so that's why we haven't looked at it.

That's right.

Okay.

But in general, Chris, it was relatively flat pre us, but some of this was in the works, so I don't want it to sound like we've worked magic here.

They were working on the magic themselves.

So I think when we get that information to you, you'll see that it's been a really good increase in the last couple of quarters.

The last question on Lifecore.

Can you indicate how is the -- the pipeline of potential new business for Lifecore, is that continuing to get bigger, or how should we think about that?

One word, solid.

Solid.

It looks solid to us.

That's what we were finding in our due diligence, and you know, knock on wood, so far, so good, but it looks to us as though they're on a roll.

Okay.

So what I was getting at there is beyond knowing you had some contracts in hand when you acquired it that was going to lead to a nice year you're having, there's hopefully more and more of them.

There's more.

Okay.

That's all I've got.

(Operator Instructions).

Walter Schenker, [Bass Partners].

A couple of things, first of which is just comments, one of which is good to see you bought some stock in and disclosed it.

Secondly, having -- you guys have done it, too -- looked at -- being old -- thousands and thousands of acquisitions, they usually look good in the first year.

So, let's not declare victory yet, although hopefully it will continue to do very well and exceed expectations on Lifecore since it seems to be a very nice business --

Very fair comment.

-- one would not expect it to (multiple speakers), but rarely does someone buys something and within six months and say, oh, my God.

That happens, too.

Sure enough.

I was somewhat surprised that Apio export was actually up year over year meaningfully.

I would've thought that given the shortage of vegetables -- I realize some of it is not the same stuff, but you would've normally moved some stuff that would be exported into domestic application.

I think some of this, Walter, is that some of the -- by the way, a lot of this export was fruit, and a fair amount of it was -- were sales that we thought we were going to get in the first quarter that were delayed to the second quarter.

There was some stone fruit delays in terms of maturing of the fruit that got delayed from the first quarter to second quarter, so, without stealing any of the thunder there, I think some of that was just a timing issue.

So, it may be a year-over-year timing issue because of the delay.

On 12/31 with Monsanto, you said the end of the year, so I'm assuming it's 12/31 (multiple speakers)

12/1 actually.

Okay, on 12/1 with Monsanto, if they do not do anything, then all of the rights to the technology come back to you, including their rights to purchase and everything else?

Walter, this is Greg Skinner.

Yes, what would happen if they do not exercise their option is we would receive a $4 million termination fee, and at that time, all of the technology that's currently licensed to them, which is one specific field, would revert back to us and we would own it and they'd have no future rights, and then we would be able to go out and potentially license that to another partner.

And in a related question, so that wasn't really my last question, when you restructured Monsanto, part of the reason was to give you more flexibility in other areas in the seed plant area.

Is anything happening there?

Fair question.

We have identified over the last four months three companies, three to four companies, that are leaders in the -- what you would call the crop protection and genetics area that are interested in receiving our materials, sampling them, testing them, evaluating them, giving us feedback, and that's what we're doing right now.

So that process has begun, and it's a process that requires some lab experiments, and then they test it in the fields this spring.

So this spring is an important area of time for us to get some of these materials that represent what we think value outside of our collaboration with Monsanto, and that was one of the benefits of us reconstructing the field definition with Monsanto.

So that is starting.

Will Lauber, Sterling Capital Management.

My first question is kind of following up on the previous caller on the Landec Ag.

I guess he answered that, or you answered that question pretty well.

I'm sorry.

But Monsanto -- this is, I guess, a pretty short timeline for them.

I guess it's taken quite a while to develop.

Do you think that's enough time for them to make, I guess, an informed decision as to whether they go ahead or not with this?

Will, it's interesting you ask that.

We asked that same question.

Among us friends here, we thought, well, if they needed a little bit more time -- I mean, keep in mind that they only decided about 20 months ago to get into the seed treatment business, and they've really put a lot of effort into it.

So, that decision wasn't that long ago.

And so, that's when we really turned our sights on the program that we are working on now.

They have informed us that they think that's enough time.

So, let's go with that response.

So, we're hopeful that it is.

But boy, it sure says a lot of work has got to be done in the next four quarters.

Being here in the St.

Louis area, I've noticed these last couple of years have been pretty rough for Monsanto, and as you know, they were laying a lot of people off.

And I've noticed it looks like they're starting to hire up again.

Have you noticed any kind of switch in their business that would -- I know one of the reasons why they wanted to restructure the deal is they were laying off a lot of people at the same time that they were funding Landec Ag and some other things.

Have you noticed any kind of change in their kind of posture and --

Yes, we have.

We have.

We've noticed that they're putting more people on this joint program, some of whom have been hired from the outside.

So, it seems to be indicative -- if nothing else, it certainly is indicative of their interest in the collaboration that we have underway with them and the strategic importance.

So, you're right.

A year ago, it was pretty grim in St.

Louis, and that was partly why we've restructured our agreement, and it looks as though, through reallocation of resources and some hiring, they're really putting some emphasis on the seed treatment area.

Okay.

And my last area was Chiquita and the avocado business.

This is, I guess, kind of more of a long-term, bigger picture issue, but with the success that Chiquita has seen in that program, do you think longer term they'd be more willing to do the same thing with bananas in grocery stores?

I guess I'm trying to look at it from their perspective.

Obviously, the stuff that the grocery stores throw away doesn't necessarily immediately affect their profit line, but with this increased orders that they're seeing on avocados, and -- how does the balance between increased orders and (multiple speakers) of course, as customers --

Right.

I understand your question.

The honest answer is, don't know.

My experience, and I'm sure in yours, success breeds confidence, and this is the first really demonstration in retail stores -- remember, the banana program is in convenience stores, in 7-11s and coffee chains and things like that, so what we call alternative sites.

So this is the first real broad application of the BreatheWay technology in the retail stores, and it gives people exposure to this technology.

So, we're not giving up.

But I think we need to get some success with the avocado program.

We need to continue to work with Chiquita on several other programs, which we haven't announced yet, but -- outside of bananas and avocados.

And then, each time we meet with them, we bring up this question, Will.

We don't let it die, and I'm hopeful that -- I mean, consumers have told us that their greatest issue with bananas is the waste issue, how much is thrown away.

But they also told us during the recession that they didn't want to pay more for technology.

So, to make a long story short, don't know how to answer your question.

We're certainly not letting up on it, and let's see how it goes.

But I would think a store that is having success with avocados would be more likely to consider some type of approach with our packaging in bananas over time.

So you're saying that more from the store perspective rather than Chiquita's perspective?

Right, from the store perspective.

Yes.

John Walthausen, Walthausen & Co..

I wanted to follow up a little bit on Lifecore and the success that you are reporting there.

If I remember correctly, that's -- you've primarily been in the ophthalmics in that, but had a lot of other opportunities.

Are some of those actually jelling in terms of real sales or are they still in the trial phases more?

Ophthalmics still dominates their focus in sales.

They work with market leaders.

It's -- it really is -- if you look at the applications for HA, or hyaluronic acid, across the board, it tends to be the higher-margin opportunity.

It's -- for example, one of the applications is cataract surgery, which is a large market and you have an aging population, et cetera.

So, it's still dominates the sales of Lifecore.

But I will tell you that we've hired a new VP of Business Development, Rick Curtis, who is a seasoned veteran.

We have a very capable staff there, and I'd say that much of the new programs that they're considering and evaluating are outside of ophthalmology.

So -- but that's not going to be this year or next year's revenues.

So, it's going to take us a little while to develop those.

They do have smaller businesses in the orthopedic area and they have a nice niche business in the veterinary medicine area.

But once again, ophthalmology is still the mainstay of Lifecore.

And the main driver of the growth we're seeing this year?

It is, yes.

Will Lauber, Sterling Capital Management.

I just had a quick question.

As far as your VP of Business Development, Molly there, what is -- I kind of take it with this announcement of hiring an investment bank that probably most of her time is being spent on acquisitions, and I guess with the Lifecore as well as opposed to licensing deals.

Can you give kind of like a breakdown of her time between those two categories?

Well, I'm going to probably surprise you a tad bit here.

We've thought about how we can use her many talents, and the -- a good part of what she's going to be doing in the next year is working with our CEO at Apio and looking for new growth opportunities at Apio and in our food business.

And you recall that we are looking for opportunities to diversify from some of our core product lines at Apio and look for new growth opportunities, and Apio tends to be a business that's a little bit closer to what I'd call consumer marketing and consumer types of orientations.

And Molly brings a lot of experience there.

So, she's going to be spending a fair amount of time looking at growth opportunities at Apio.

In addition, she will be quite involved, as you surmised, with the acquisition search, which is primarily focused outside the food business.

So, I'd say those are the two main things, and then, as appropriate and where possible, we will continue to do some licensing searches.

But as I mentioned in my comments, we just seem to do better when we own and operate an enterprise that has the marketing, sales capabilities, the customer base, and we infuse technology.

It's just -- Walter made some good comments about you've got to be careful in the M&A area, but we've done particularly well in that area, so Molly will be involved in M&A, licensing, but particularly a focus on growing Apio.

By growing Apio, are you talking introducing new product items or new SKUs, or is that finance?

Yes, all of the above -- acquisition, partnering, new product, new product additions to our current product line.

Obviously, if we can find anything that can help us not eliminate, but minimize some of our weather-related risk, we'd be all over that.

So we're looking at that as well.

Craig Pieringer, Wells Capital Management.

So absent from the discussion thus far was much mention of the banana business, and I'd love it to have an update on the Chiquita-to-Go banana business, as well as any impression that the success in the avocado rollout might return mass retailers to -- grocery retailers to the banana initiative.

I cannot tell you that that's true.

The latter question.

We had a little bit of a discussion on that earlier.

I have no knowledge from Chiquita or directly that the success of avocados will lead to a return of revisiting the consumer bag in -- for retailers for bananas, but I can just tell you from Landec's point of view, we're going to keep encouraging that look, that evaluation, and that point of view, and I'd like to see, with some more success here in the avocado area, I'd like us to revisit that, and we will -- we are specifically discussing this with Chiquita.

But, Craig, to go beyond that, I can't tell you anything about timelines or whether it will happen, but certainly there is a thought process that we're all having on this phone call that says, well, shoot, if it works for avocados and retailers, why can't we bring back this issue of bananas and retailers?

So I can tell you we're very much for that.

Regarding (multiple speakers).

Go ahead.

Yes, that was my thought exactly, that it might return some interest to the mass retail channel.

We have a lot of interest in this subject.

A lot.

And Chiquita-to-Go?

Regarding the alternative sales, the alternative site sales, it's pretty much a steady as you go, pretty steady state, more conversions of gas station sites, more conversions of Starbucks sites, et cetera, so no dramatic changes there.

Just kind of steady as you go.

This does conclude the question-and-answer session for today's program.

I'd like to turn the program back to management for any further remarks.

We just want to thank you again for being on our call, and thanks for your good questions and we look forward to keeping you updated.

All the best.

Thank you, ladies and gentlemen, for your participation in today's conference.

This does conclude the program.

You may now disconnect.

Good day.