Lifecore Biomedical Inc (LFCR) 2014 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Landec second-quarter fiscal 2014 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, today's program is being recorded.

I would now like to introduce your host for today's program, Mr. Gary Steele, Chairman and Chief Executive Officer of Landec Corporation. Please go ahead.

Good morning, everyone, and thanks for joining Landec's second-quarter fiscal year of 2014 earnings call. I am Gary Steele, Landec's Chief Executive Officer, and I have with me today Greg Skinner, our Chief Financial Officer.

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 2013.

For the second quarter of fiscal year 2014, we exceeded our revenue plan with Apio value-added sales increasing 12% and Lifecore revenues increasing 13%, but we missed our net income plan due to weather-related sourcing issues. During the second quarter, total revenues increased $120 million, while net income decreased $3.5 million, or $0.13 a share. Gross profit of Apio's value-added vegetable business was lower in the second quarter and first six months of fiscal 2014, compared to the same period last year, because of severe shortages of certain key commodities, mainly green beans and broccoli, as a result of weather-related availability and quality issues. These shortages resulted in higher-than-projected produce costs, which reduced Apio's value-added gross profit by $4.4 million during the quarter, and $6.8 million through the first six months of fiscal year 2014.

We had several positive financial trends through the first half, which partially offset the weather-related financial impact. Greg will discuss these trends in a few minutes. The most important fundamental trend to note is that demand for our products across all of our businesses remain strong. This was demonstrated by our continued progress advancing our growth plans during the second quarter and first six months of fiscal 2014.

Apio continues to see revenue growth for its new higher-margin Superfood Salad products. And Landec's strategic partner, Windset Farms, is now harvesting from all 64 acres of its newly constructed hydroponic greenhouses in Santa Maria, California, several months ahead of its original plan. Additionally, Lifecore Biomedical continues to increase sales and its capacity for its aseptic filling business.

I will now turn the call over to our CFO, Greg Skinner, who will take us through the financial details for the quarter. Greg?

Thank you, Gary, and good morning, everyone. We reported yesterday that revenues for the second quarter of fiscal 2014 increased $5.4 million to $120 million from $114.7 million in the year-ago quarter. This increase was primarily due to a 12%, or $9.5 million increase in Apio's value-added businesses and a $1 million, or 13% increase at Lifecore. These increases in revenue were partially offset by an expected $5.1 million decrease in Apio's export business, due to a decline in sales volumes primarily resulting from Indonesian import quotas on fruit.

Net income in the second quarter of fiscal 2014 was $3.5 million, or $0.13 per share. This compares to $8.9 million, or $0.34 per share in the year-ago quarter. It is important to note that the net income during the second quarter of last year was increased by $3.9 million, or $0.15 per share, due to an earn-out adjustment associated with the acquisition of GreenLine Foods.

The decrease in net income in the second quarter of fiscal 2014 was primarily due to, first, a $4.4 million reduction in gross profit because of severe produce shortages in Apio's value-added vegetable businesses; second, a $264,000 reduction in gross profit from lower BreatheWay membrane sales, primarily due to the discontinuation of the Chiquita minimums in December 2012 when the agreement changed from an exclusive to nonexclusive rights for Landec's BreatheWay packaging technology; and finally, a $214,000 reduction in gross profit in Apio's export business due to an expected lower revenues.

These decreases in net income were partially offset by, first, a $1.3 million increase in the fair market value growth of the Company's investment in Windset over the $1 million growth recorded in the year-ago quarter; second, a $509,000 increase in gross profit at Lifecore; third, a $741,000 decrease in ongoing operating expenses compared to the second quarter of last year; and lastly, a $1 million decrease in income tax expense.

For the first six months of fiscal 2014, revenues increased $12.8 million to $229.5 million from $216.7 million in the same period last year. The increase is primarily due to a $20.3 million, or 14% increase in revenues from Apio's value-added businesses, as well as a $1.7 million, or 11% increase in revenues at Lifecore. These increases were partially offset by the expected $9 million decrease in revenues in Apio's export business, due to a decline in volume sales primarily resulting from Indonesian import quotas on fruit.

Net income in the first six months of fiscal 2014 was $8.2 million, or $0.30 per share. This compares to net income of $13.3 million, or $0.50 per share in the first six months of last year. As with the second quarter, the first -- the net income in the first six months of last year was increased by $3.9 million, or $0.15 per share, due to the earn-out adjustment associated with the acquisition of GreenLine.

The decrease in net income during the first six months of fiscal 2014 was primarily due to, first, a $6.8 million (technical difficulty) because of severe produce shortages in Apio's value-added vegetable businesses; second, a $600,000 reduction in gross profit from lower BreatheWay membrane sales, primarily due to lower revenues from membrane sales to Chiquita; and third, a $351,000 reduction in gross profit in Apio's export business, due to expected lower revenues.

These decreases in net income were partially offset by several positive financial results in the first half, including, first, a $2.4 million increase in the fair market value growth of the Company's investment in Windset over the $5.3 million growth recorded in the first six months of last year; second, a $531,000 increase in gross profit at Lifecore; third, a $945,000 increase -- decrease in ongoing operating expenses; and fourth, a $1.1 million decrease in income tax expense.

Landec ended the second quarter with $5.8 million of cash and marketable securities. During the first six months of fiscal 2014, we generated $4.3 million in cash flow from operations, and purchased $7.7 million of capital equipment for capacity expansion at both Apio and Lifecore. We also paid down debt by $6.1 million during the first half of fiscal 2014. At the end of the second quarter, we had $27.7 million available under our lines of credit.

That's completes my financial summary. Now I'll turn it back over to Gary.

Thanks, Greg. Let's go into some more detail about our businesses and how they're growing. We are encouraged by the sales growth of our value-added food business during the second quarter and the first six months of fiscal 2014. Apio's value-added sales, as we said, increased 12% during the quarter and 14% in the first half compared to the same periods last year. The reception of our new products has been strong, and we continue to add new retail customers for our vegetable salad line. Additionally, club store demand continues to be high for both of our new vegetable salad products and existing value-added produce products.

Under our Eat Smart brand, we are introducing restaurant-inspired fresh vegetable salad kit products that deliver an exceptional tasting experience with highly nutritious, premium culinary recipes that include convenience for the consumer. We have launched two Vegetable Salad Kits thus far nationwide, and we have plans to have a line of at least six unique salads by the end of calendar year 2014.

In the overall produce world, 71 new salad kits were launched in the US over the past 12 months. Of these, our Sweet Kale Salad is the number one selling salad kit and is selling four times the unit volume of the most -- the next most popular kale salad. Our newest just-recently launched product, called Ginger Bok Choy Salad, is already number 29 of the 71 and rising very fast.

Just to show you how consumer tastes are changing and how health-conscious our population is now becoming, 22% of consumers now eat kale multiple times per month. A survey of restaurants show there is a 382% increase in kale offerings on menus in the last five years, and 104% increase just in the last year. Our goal is to see these new healthy eating trends first, and to capitalize on changing patterns and healthy eating by offering blends, mixtures, and combinations of vegetables that just taste great. For the first half of this fiscal year, the new products launched in the last 18 months represent nearly 20% of all Apio's value-added revenues. And their contributions to revenues are increasing.

Regarding our export business, the Indonesian government's restriction on produce imports continues. Indonesia has been a large buyer of North American produce products over the years. While their government restrictions have affected our export sales, the impact on our export profits is much less as the lower volumes we are shipping are at higher prices. The Indonesian restrictions on produce imports may be coming to an end. We will know much better about this in the next several months.

We have made substantial progress in expanding our Apio California facilities, putting an additional capacity for our new salad lines, adding green bean processing capability on the West Coast in our Santa Maria facility, and adding vegetable processing capacity in our Bowling Green, Ohio, facility. These investments provide us with much more flexibility and scale for future growth.

Lifecore Biomedical is performing well thus far this fiscal year. Revenues have grown 13% during the second quarter and 11% in the first half compared to last year. Lifecore's outlook for the year remains strong and in line with our expectations. We continue to add aseptic filling capacity in our Chaska, Minnesota facilities. And this is allowing us to offer to our key customers the ability to fill and finish hyaluronan or non-hyaluronan products in a syringe-device format that our customers can then sell directly to doctors and surgeons worldwide.

We continue to seek and find ways to move up the value-added curve. Accordingly, we have stepped up our effort to identify additional customers for our services, especially pharmaceutical companies that have drugs in development that are highly viscous and hard to fill in syringes. This is an area where Lifecore has very unique expertise.

As I mentioned earlier, Windset Farms is now harvesting from all 64 acres, which is equivalent to 6 million square feet, of newly constructed hydroponic greenhouses in Santa Maria, California. This expansion is double Windset's capacity in California to 128 acres, or 6 million square feet. And we're now -- they are now hydroponically growing not only tomatoes but also cucumbers in California, and demand continues to exceed supply for their branded products.

As adverse weather-related issues continue to affect produce sourcing throughout the US, we increasingly believe that Windset's hydroponic greenhouse expertise will be invaluable to customers who seek long-term stability and sourcing produce. We are also excited to see Windset is now selling both packaged cucumbers and packaged peppers using our proprietary and patented BreatheWay packaging technology. And sales of those products have rapidly expanded over the last six months -- last several months.

The produce sourcing challenges during the first half of fiscal 2014 resulted from a highly unusual combination of weather problems along the East Coast, and in California and Mexico, the top three growing areas for vegetables in North America. Along the East Coast, severe rainstorms a few months ago negatively impacted our cost for green beans. In California, there has been a series of produce-growing problems. Through the summer and fall, there have been persistent periods of mixed hot and cold temperatures in California's Central Coast growing region that have affected farmers' yields. At the same time, since July, and for reasons that are not totally clear to the farming community, farmers have also experienced increased pest pressures, resulting in lower yields and product quality issues. And to top it off, Mexico had three severe tropical storms in the last six months.

Now looking ahead, we have just entered the historically difficult-to-predict winter months. As of now, we have adequate supply of produce from Southern California, Florida, and Mexico. And we're hopeful the winter will be mild this year in those regions, so that we can recapture some of the excess produce costs that we experienced during the first six months of this year. We will continue to focus on managing and mitigating our sourcing risk by diversifying growing regions and modifying our contracting practices to deal with these challenges. Our top priority for the next several quarters is stabilizing our produce sourcing requirements, and making sure we can deliver reliable quantities of healthy, pre-cut, pre-packaged produce products to retailers, club stores, and food service operators.

As mentioned in our press release, December storms affected consumers' ability to shop at their local grocery stores and club stores in many parts of the US and Canada, and thus have had an impact on our sales to customers during the month of December, which is the first month of our third quarter. And it appears as though adverse weather is continuing this week as well in the Midwest and Northeast. Also, we still believe, though, that at this time, the impact from lower volume sales in December can be made up in the remaining five months of fiscal year 2014. And therefore, we continue to expect revenues to meet or exceed our original guidance of 6% growth, and we are projecting net income to be flat to up 5% compared to fiscal 2013, after excluding the $3.9 million earn-out adjustment that we made last year. That's barring any significant negative weather-related events beyond the normal historical levels during the remainder of this year.

Looking ahead, we are encouraged that Americans are eating better as they seek better health and longevity, and that the demand for our products are high. We believe we are well-positioned to capitalize on the growth of this healthy eating trend long-term.

You will note that we announced this morning the promotion of Molly Hemmeter as Landec's Chief Operating Officer. Molly's contribution over the last 4.5 years as Head of Business Development and as Chief Commercial Officer, are many. Molly's promotion is well-deserved and allows her to focus on growing our two core businesses, and for me to concentrate on new growth platforms, for Landec to move well past the $0.5 billion-a-year mark.

Across our businesses, our charter is clear. We want to develop and commercialize new products for healthy living applications in both the food and biomaterials markets. We want to bring healthy, nutritious, specially-packaged fresh-cut produce to consumers in North America. We believe healthy eating leads to healthy living. Through our Apio food business, we want to do our part to enable people to enjoy a healthy, active lifestyle. Through our polymer-based Lifecore business, our injectable biomedical materials for ophthalmology and orthopedic markets enable people to stay more active and healthy throughout their lives.

We hold market leadership positions in the markets we serve. We plan to leverage our market leadership and provide improved products to meet the increasing demand and opportunities generated by robust growth and healthy living markets. Landec is profitable with a strong balance sheet, enabling us to take advantage of growth opportunities in the markets we serve.

We'd like to open it up to your questions now. Thank you.

(Operator Instructions) Morris Ajzenman, Griffin Securities.

Hey, I want to ask a question I've kind of asked you guys in the past, but -- I was out to your facility, your hydroponic farm out in Santa Maria, and -- last year, and everything clearly looks state-of-the-art. I'm hearing good things about it from other sources. And the question I have of you, which I've asked in the past is, what additional data can you give us -- and I know it's difficult because you only own 20% and there's other issues out there, as far as the other 80% owner wanting to move even more than they have to, for competitive issues.

But again, what's in the 10-Q and 10-K at times is, I believe, misleading to what is the opportunity for this operation to really grow and expand. What information can you provide us to give us a better sense for the growth opportunities that have been happening there?

We can -- well, Morris, the same answer we've given you in the past, which is they're a private company. They're very sensitive about revealing their confidential information. What we have said and can say is that their revenues are well north of $200 million. They're highly profitable. Their demand exceeds their ability to produce right now, and they're able to grow year-round.

So, beyond that -- and they're -- they -- their mix of products in California are now tomatoes and cucumbers. Peppers come from their Canadian operations, and some cucumbers come from up in Nevada. They have tied up or bought land all around their facilities so they can keep expanding, and they intend to.

So, beyond that, I don't know what we are able to share with you, except that it's -- they are hitting the ball out of the park. Their yields, in terms of tomato production, are the highest -- they have the highest-yielding facility in the world. They believe, and we concur with them, that the key factors for success in the hydroponic area are the right location -- meaning they're having the right weather where the days are warm but not hot, and the nights are cool, but not cold. It has -- but they also believe that scale and technology are important.

They've got state-of-the-art technology in those facilities, in terms of how they treat water; how they create the atmospheres; how they dispense the nutrients and minerals. Their tomato plants grow to 70 feet in length. Their cucumber plants -- the plant, not to the cucumbers, but the plants, are growing six inches per 24 hours. The yields are phenomenal. The quality is top-notch. They have -- their largest customer -- it's publicly known -- is Costco. They're very strong in Canada. They're very strong in the western United States, and they're expanding. So, beyond that, I don't know what else we can tell you in terms of metrics, because, you know, it's a private company.

All right. And when would a third 64-acre site be up and running? How does that all play out?

Not for sure yet, but now I'm going to give you kind of a guess, okay? I would guess two years. And the advantage of that is, they now have 6 million square feet; gives them some time to digest and really consolidate the benefits; gives them some time for planning the next activity. But if I were -- this is just a wild guess, I would guess two years.

All right, last question, and I'll get in the queue. The Superfood Salad, about 20% of revenues now, can you give us some sort of handle on what sort of gross margins, assuming there's no sourcing issues, what margins you would have in that versus the rest of the value-added?

I'm going to -- let me just say, Morris, we don't talk about the margins publicly for obvious reasons, but the new products have higher margins than our tried-and-true, core cut-veg products. And we're going to have to leave it at that.

Thank you.

Thank you.

Tony Brenner, ROTH Capital Partners.

I have three questions. First, I'm still a little unclear why, after December volume was below your expectations, you remain confident that this should not affect your full-year guidance?

So, that's -- well, maybe there's some -- a little bit of hopefulness on that in our response here. But, in December -- you have the privilege and pleasure of living in Southern California, but for folks who have been living in the Northeast and the Midwest, during the holidays, which you know is prime time for us, we had all of our sourcing available, everything's ready, but customers were having great difficulty getting to the stores. And correspondingly, produce buyers were calling the industry and saying, hey, we -- our volumes are down. We can't get people in the store.

And my understanding -- and we have folks on the call that can probably verify this -- is that some of this terrible weather is continuing in the Midwest and Northeast in the early parts of January. So, we're hoping that, and we believe, that if we get through some of that stuff -- remember, it's not sourcing issues now; it's consumers' ability to get to stores -- it's our belief that we can make that up for the remaining five months of the year. Also, there's a chance that (multiple speakers) --

(multiple speakers) But why?

(multiple speakers) Oh -- there -- because we have plenty of source -- because our sourcing is in such good shape right now. So we have the availability, and we can do a variety of promotions and work with partners to really let it rip, so to speak. We also have -- there's reason to believe -- and I wouldn't bet on it yet -- but there's reason to believe that Indonesia is rethinking its export -- or its import restrictions, excuse me, and that could be helpful to us as well.

Well, would that happen in time to impact this fiscal year?

It could. It could. Yes.

Okay, second question. One of your strategies to improve your sourcing and alleviate the commodity risk is to increase your sourcing from Mexico and other parts of Latin America. For the third quarter, what portion of your sourcing comes from outside the United States?

Got to get back to you on that. I would hate to give you a bad answer, Tony. Can we get back to you on that? I can give you a more precise answer, but I'll have to do it after the call.

Okay. Then last question, my understanding is that the aseptic filling business for Lifecore is a lower-margin business than the traditional HA business. Yet -- and that's what drove the sales increase this quarter, yet gross margins were higher. Can you explain what we might expect from margins for Lifecore?

Yes, the margins -- this is Greg -- the margins in those two areas have stayed fairly stable. So, it's just a mix. The revenue increase was actually in both of the areas for the quarter. And therefore, that's why you're seeing that the margins are staying at historical levels, if not slightly higher.

(multiple speakers) Is it correct that --?

(multiple speakers) But Tony, one thing that's important here is, recall that prior to our buying Lifecore, we were not capturing any of that filling margin. That was -- we would be shipping powder and fluid hyaluronanic acid to the customer, then they would take that step and do it, or have somebody else do it. So this is -- the margin percentage is lower for aseptic filling than it is for powder. But in terms of incremental margin, this is all incremental for us. And that's why we're making these investments.

Okay, thank you very much.

Thank you, Tony.

Reed Anderson, Northland Securities.

Thanks for taking my questions. Maybe for Gary -- Gary, on the new products, you've talked a little bit about it, but I'm just curious, how should we think about the ramp of some of the new things you've got coming up here over the near-term, in terms of breadth of distribution, pricing, that kind of thing?

The -- we mentioned to you that we have a number of new products coming out in the next couple of quarters, both in the vegetable salad area as well as non-salads. And you ought to be thinking -- kind of roughly speaking, think of it as one new significant product per quarter, and -- on average. And these generally go out at higher margins than our historical core margins. And so -- and we're already up to about 20% of our overall revenues in our value-added business are now from these new products.

So we want that trend to continue. We're investing heavily, Reed, in new product development. It's a big deal for us. It's our future and we want to be the innovative leader in our space.

And just as a follow-up, would the distribution, though, be as -- relatively as broad as your customer base for the other similar products? Or would it be a little bit narrower out of the gate?

It's probably going to be narrower out of the gate. Probably narrow, because there are a couple of reasons. One is you want to not get ahead of your supply line, so to speak. And you want to make sure that you've got it all under control, that your lines are working well, your sourcing is lined up.

Secondly, sometimes we will give some lead-time advantages to a couple of key customers as a thank-you for taking it on and trying it. So, it's probably going to start out a little bit more narrowly. And then, in short order, we'll expand it nationwide.

Okay, good. Then, Greg, on the value-add side, on the margin, I mean, you should get a nice lift there in the second half. I'm just curious, though, if you look at the third quarter, I mean, would you be -- would it make sense the third-quarter margins in value-add could be at or better than what we saw in 2Q? Or is it a little early yet to tell?

Well, the short answer is it's a little too early to tell. But, in theory, yes, it should be, but it's going to be based on sourcing. I mean, we had $4.4 million in sourcing hits in the second quarter, which we are -- hopefully, will not occur in the third quarter.

There is one thing to note, though -- in the third quarter, historically, our margins are lower in that quarter, because we're sourcing most of our product from Mexico or Southern California. We have to, obviously, get that up to our plant on the Central Coast. So you're adding freight costs, incoming freight costs, during that third quarter, which you really don't experience during the other nine months. So, it's historically a lower-margin quarter. But should it be better than the second quarter? Yes.

Okay, that's good. Good. That's it for me and I'll let somebody else jump in. Thanks. Good luck, guys.

Thanks, Reed. Yes, thank you.

Daniel Rizzo, Sidoti & Company.

(multiple speakers) When would you know if -- I mean, you see ample sourcing now; when would you know if it's not going to be a problem? Would it be like by the end of January? Is there a time frame you have in mind (multiple speakers) where that's --?

(multiple speakers) Well, I'll tell you -- in past years, I probably would've told you that by the end of January, early February, we know we've gotten through the winter months. We said we thought that last year, and you may recall, that we had some adverse weather in the March/April time frame. So I don't want to jinx us here, but I sure would like to get through February. And you want mild weather in Florida for the beans, and you want decent weather down in Southern California and Mexico. And right now, those are the -- that's true.

And then we've got a keep an eye on the other side. That is the ability of the consumers. We're big on the East Coast and Midwest. So we want to make sure the consumers can get to the grocery stores and buy the products. So I'd say through February, you know, we'll know.

All right. And then I'm glad to see that the Apio value-added new products is progressing. Did you -- I forget -- in the past, did you indicate that we might have had three products -- three or four products by the end of fiscal -- of the end of calendar 2013? Or did I misremember that? Are we on schedule, I guess? -- is the correct question.

Yes, I think we're on schedule. Maybe we're a quarter late, Dan, but it's not material. It's -- maybe we're off by one quarter. But I think we're -- we had -- we did have some capacity start-up issues in the Sweet Kale Salad line that delayed us a quarter. So, we're probably off by about a quarter.

Okay. And then finally, I know cross-selling has been kind of a thing you want to focus on, but it's been a little tough. Has there been any headway there between you guys and GreenLine?

Could you be more -- I'm sorry, say the question again.

Well, in the past, I think we've talked about you potentially cross-selling your products to GreenLine's customers, restaurant customers.

Oh. Yes, I -- well, you know, I think the issue there, we have been cross-selling. That is going okay. The reason it's not going great is we've had, since we bought them, we first had a drought, then we had freezes in Florida, and then we had these heavy rains in the Carolinas. So, it's hard to be aggressive and cross-selling when you're worried about your supply. So, I think that it's going to come. It's just coming a little bit slower than we had hoped for because of the sourcing issues.

All right, great. Thank you, guys.

Thank you.

(Operator Instructions) Brent Rystrom, Feltl.

Just out of curiosity, last year, could you remind us of the timing of the issue with GreenLine down in Florida? Was that a January/February kind of timing issue as far as weather impact?

It went later. It was more -- we were lulled into thinking everything was okay in January. And then towards the end of February and through March, early April, they had some record freezes. And so, a little surprising how late that came. But the New Yorkers who were vacationing down there were just stunned at what was going on. And so, it was later than you might imagine. It was in the March timeframe, especially.

Right. So the kind of the western part of the state that grows a lot of those products is supposed to get a freeze on (multiple speakers) the 6th and 7th.

Yes, you're right. Down in the Homestead area.

Yes.

Well, no, actually it's the eastern -- actually, it's all over the state. It's eastern and western, but it was the Homestead area, which is on the eastern side that (multiple speakers) --

(multiple speakers) No, what I'm saying is, on Monday, Tuesday of next week, they're supposed to get a freeze. Would that impact you at this point? Or is it too early in the quarter?

Oh. You know, it's too early in the quarter to say. Right now we're doing just fine, so.

As far as the previous question, or the previous person asking, I believe at the annual meeting, you did say you'd have another product out by the end of the calendar year. Have you given any further thoughts as far as some of the new superfoods you're looking at?

That product, by the way, was Ginger Bok Choy, Brent, so that is now launched.

Okay.

And there are -- we'll be announcing one in the third quarter and we'll be announcing one in the fourth quarter.

Okay. (multiple speakers)

And that's -- we're in the third quarter now, as you know.

Okay. And as you look at some of these, with some of these, I'm thinking of, like, one of the hot, fast-coming ones right now is chia. As you look at some of these, do they offer you some sourcing opportunities, particularly if you might be able to go more to Australia or someplace like that? Are you looking at those sort of things? Or not really?

Wow. I am not sure if we're looking at that or not, to be honest with you. And I couldn't spell kale five years ago. I didn't even know what it was. So, we are looking at things that are coming down the pathway. We have access to culinary experts, nutritionists. We want to know the new trends first. And whether or are not we're looking at sourcing in Australia, I just couldn't tell you. But we're certainly looking far and wide.

Have you thought about -- when I think about chia, I think about it as more as a green. And so, have you thought about maybe migrating some of your business more to some of the green-derived superfoods, so you're not as exposed?

Absolutely.

All right.

Absolutely, yes.

All right. Thanks, guys.

Thanks, Brent.

Will Lauber, Sterling Capital Management.

In the release, you had said that you were working with some new partners on several high-volume fruit items. I had noted that, I guess, one of those partners, Agro Export, had announced a deal on avocados. I wondered if you could touch on that at all?

What we can tell you about that is that they are a sizable player in the avocado business. I think they're number 3 or 4. They're looking for product differentiation. They're looking -- they came to us and said they were interested in both extension of shelf-life of avocados. As you know, they -- once they go ripe, they go south pretty quickly. And they were also interested in just being able to market avocados in a ripe state, ready to eat.

And so they're looking at both. And we're working with them in terms of packaging development right now and we're doing some trials. So, a little bit early on, but they're pretty jazzed about this, as are we. So, stay tuned.

And then, I guess, you had mentioned several. Can you give any other color as to what type of fruits they are or when you might be announcing something?

We're interested in the citrus area. I'll leave it at that probably without getting too specific. But there are -- there's some things that we could do with citrus where we can hold certain types of citrus products in a really stable state for 30, 40 days. So, those are areas, as well.

Okay. And my next question was, what exactly is in the Nielsen category that you're using? I guess, specifically, is Walmart, Sam's, and/or Costco in that?

So, here -- this is a long answer. Could I give you a short one? Which is to say that what's not in there is there's no Costco; I don't believe there's any Trader Joe's. I don't think there's any -- is Sam's in there?

Sam's is in. (multiple speakers) Smart & Final's.

Sam's is in.

I mean, it's a (multiple speakers) --

(multiple speakers) It's a --

This is in, that's out; it's a strange grouping.

So, it's a little bit challenging, Will, as you know, to be comparable, because big customers of ours are Trader Joe's and it's Costco and folks like that. I'm trying to remember, I don't think -- is Walmart in it?

Yes, Walmart and Sam's are in.

Walmart and Sam's is in, okay. So, anyway, so it's unfortunately, pardon the pun, apples with oranges. And all I know is that when you look at all of our categories, we are growing at or above the Nielsen category growth. But it's kind of a mishmash of comparisons.

Because I guess I was asking, ever since I can remember, I don't know if it goes back five, six, seven years or something, that usually in the releases, you are outgrowing the category. And in this one, it looks like -- that you're not?

Well, what we found this quarter, and it was somewhat of a new phenomenon to us, and that's why we expanded the definition, is we noticed the -- because of the percentage of our revenues from salads are now so high versus historically, it has kind of caused that comparison to be out of whack as far as what we've shown historically.

Because our salads are not in those Nielsen numbers.

Yes, they're in the salad category. They're not in the category that our historical products are in.

Okay. And would it have anything to do -- I know a couple of calls ago, you had mentioned about the possibility of walking away from low-margin business. Would that be affecting this at all?

You know, yes. There's some of that going on. I think the biggest is that the salads in the club stores are not in the Nielsen numbers. But yes, there's some of that going on, and we're going to continue to do that. There's business we want and there's some business we don't want. And there is some of that in there.

And, I guess, leaving out the weather issues, looking forward maybe three years, what do you think is a realistic gross margin for the Apio business? I would assume it will be higher as you get more and more salads and other items like that, new products?

Well, with a lot of moving parts, I'd say 10% to 12%, Will, if we can continue to change the mix with new products.

Okay. And then here in the Midwest, we're expecting below-zero temperatures over the weekend and early next week. So, that's your update from the Midwest.

Well, sorry to hear that. I hope that will change.

Okay. All right, thanks, guys.

All right. Thank you.

Thank you. And this does conclude the question-and-answer session of today's program. I would now like to hand the call back to management for any further remarks.

I want to thank everybody for being in our call today, and we look forward to keeping you apprised of our progress, especially as we get through the winter months. And many thanks for being with us today.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude today's program. You may now disconnect. Good day.