Lifecore Biomedical Inc (LFCR) 2014 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Landec third-quarter fiscal year 2014 earnings conference call. (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 CEO of Landec Corporation. Please go ahead.

Good morning, and thank you for joining Landec's third-quarter fiscal year 2014 earnings call. I have with me today Greg Skinner, Landec's 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 our third-quarter fiscal year 2014, we exceeded our revenue projections for the quarter and met our income target. Our guidance for the year, which includes net income guidance we revised last quarter due mostly to produce sourcing issues, remains on track for the year. While the country struggled with harsh winter weather in our third quarter, we were able to return to more normal sourcing patterns and get our product shipments to customer distribution centers in a timely way. No small feat for our Apio team.

We are currently in good shape to meet our projected fourth-quarter and fiscal 2014 results. We are experiencing significant growth in demand for our new Eat Smart superfoods salad line, and we are currently bumping up against production capacity constraints. We are, by example, now shipping over $1 million per week, with combined sales of Sweet Kale Salad and Ginger Bok Choy, to club stores and retail grocery store customers.

Our new products have margins that are twice the margins of our core value-added product line. We have recently achieved this run rate, and we hope to continue to increase sales in this new category of healthy, nutrient-rich salads made from vegetables. Just think of it: salads made from vegetables that taste great. We are finding that there is a first-to-market advantage based on the combination of great-testing, healthy vegetable salads using our BreatheWay packaging technology, which extends the shelf life of the salad, coupled with our knowledge to determine market needs ahead of others.

In order to maintain this momentum, and in order to alter our product mix to higher-margin products over the next 24 months, we plan to invest, in an increasing way, in new product development, sales and marketing, and to add processing lines during the fiscal year 2015 year. We also will look at selectively pruning lower-margin, low-volume SKUs. The American consumer is asking for healthier food choices that are fresh and conveniently prepared. We must provide compelling reasons to the retail grocery store customers to give us new shelf space, and we think we are building a strong case for them to choose us.

For our Lifecore medical materials business, we are continuing our commitment to moving up the value-added chain by offering hyaluronic acid, our main product, in powder or liquid form. And now, we can also provide it in a finished vial or syringe format. We have been making capital investments at Lifecore to enable us to be a broad product supplier of hyaluronic materials. In addition, we are branching out to selected pharmaceutical company partners who need our unique capabilities for handling highly viscous materials that are hard to formulate, purify, and fill in vials and syringes.

These investments in new products, and expanded capabilities at Apio and Lifecore, are beginning to generate meaningful commercial sales. In summary, over the next 4 to 5 quarters, we are in an investment mode, as we continue to invest in developing longer-term, profitable growth to meet our overall long-term goal of growing top line by 10% or more, and bottom line 15% to 20%, on average, over the next five years.

Let me turn it over to Greg for financial results.

Thank you, Gary, and good morning, everyone. We reported yesterday that revenues for the third quarter of fiscal 2014 increased 7% to $126.4 million from $117.9 million in the year-ago quarter. This increase was primarily due to a 10%, or $8.7 million, increase in Apio's value-added businesses; and a $2.8 million, or 16%, increase at Lifecore. These increases in revenue were partially offset by an expected $2.7 million decrease in Apio's export business, due to a decline in sales volume primarily resulting from Indonesian import quotas on fruit.

Net income in the third quarter of fiscal 2014 increased 33% to $6.4 million, or $0.24 per share, compared to $4.8 million or $0.18 per share in the year-ago quarter. The increases in net income in the third quarter of fiscal 2014 was primarily due to, first, a $1.4 million increase in gross profit in Apio's value-added vegetable businesses, as a result of increased revenues and a favorable product mix; second, a $1.5 million increase in gross profit at Lifecore, as a result of increased revenues; and, third, a $426,000 reduction in operating expenses, primarily because of lower research and development expenses at corporate, reflecting the transition away from corporate R&D and licensing collaborations.

These increases in net income were partially offset by, first, a $925,000 increase in income tax expense; second, a $649,000 decrease in the change in the fair market value of the Company's investment in Windset, compared to the change in the year-ago quarter; and, third, a $292,000 decrease in gross profit at corporate, primarily due to a decrease in R&D revenues from Nitta.

For the first nine months of fiscal 2014, revenues increased 6%, or $21.3 million, to $355.9 million, from $334.6 million in the same period last year. The increase was primarily due to a $29 million, or 12%, increase in revenues from Apio's value-added businesses; as well as a $4.5 million, or 14%, increase in revenues at Lifecore. These increases were partially offset by the expected $11.7 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 nine months of fiscal year 2014 was $14.6 million, or $0.54 per share. This compares to net income of $18.1 million, or $0.68 per share, for the first nine months of last year. Net income in the first nine 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 primary increases to net income during the first nine months of fiscal 2014 were, first, a $3 million increase in gross profit in Apio's value-added business as a result of increased revenues and a favorable product mix; second, a $2.1 million increase in gross profit at Lifecore; and, third, a $1.8 million increase in the fair market value growth of the Company's investment in Windset, over the $6.3 million growth recorded in the first nine months of last year.

These increases were offset by a $7.4 million gross profit reduction in Apio's value-added vegetable business from operational variances, primarily resulting from severe produce shortages during the first six months of fiscal year 2014.

Landec ended the third quarter with $13 million of cash. During the first nine months of fiscal year 2014, we generated $13.8 million in cash flows from operations, and purchased $10.2 million of capital expenditures for capacity expansion at both Apio and Lifecore. We also paid down debt by $8.5 million during the first nine months of fiscal year 2014. At the end of the third quarter, we had $28.6 million available under our lines of credit.

Gary, back to you.

Thanks, Greg. As stated in our press release, we are meeting our revenue goals for fiscal year 2014, and our revised earnings guidance. We are taking steps to mitigate adverse sourcing risk as much as we can. We are doing this by expanding our sourcing geography; expanding the array of produce commodities that we purchase under contract from growers, and by modifying our contracting approach; and, frankly, getting more realistic about the state of the world's weather conditions. And we certainly hope to lessen, although we cannot eliminate, variances due to weather in the future.

Let me address three issues that we discussed in our press release. First, from one of Lifecore's key customers, we expect substantially reduced purchases of Lifecore's HA materials in fiscal year 2015, based on a corporate policy change at this customer regarding inventory management. As described in our earnings release, it is a one-time inventory adjustment. It has a material impact by reducing their purchases by 50% this next fiscal year.

This key customer has communicated clearly to us that they will return to their previous annual purchasing levels in the following fiscal year, 2016. While it wouldn't make any sense to discuss the specifics of this customer, just let me say that our relationship is outstanding. We have a multi-year contract in place with this customer. And we just have to bite the bullet for this one year, and move on.

Second, we support Windset's plans to take a pause in new construction for one year, and then to resume construction beginning in calendar year 2016. Windset has spent the last five years planning and constructing and starting up the world's highest-yielding hydroponic greenhouse operation, with 6 million square feet of growing capacity in Santa Maria, California. In parallel, Windset has more than doubled its grower marketing agreements with supplier partners in recent years.

We strongly support their plan to take a pause for one year on building expanded facilities. This gives Windset and Landec a chance to jointly investigate several new initiatives that could lead to new and previously unplanned growth opportunities for both companies. While we expect Windset's fair market value to continue to increase, we expect the change in the increase in fair market value in our fiscal year 2015 will be lower than the change recorded in the year that we're in right now.

Without having our fiscal year 2015 budget finished, these two pieces of information, and their impact on earnings in 2015, are now known to us, and we'd like to disclose information as we learn it. And this is important for us to communicate. We are expecting their combined impact of these two pieces of information, both the Windset and the Lifecore customer, to be approximately $0.20 per share in fiscal year 2015. As a reminder, we expect to resume normal shipping patterns for the Lifecore customer in FY16, and for Windset to resume annual expansion of facilities in FY16.

Third, in fiscal year 2015, we know we will face substantial cost increases year-over-year from increases in produce sourcing costs, contract labor compensation and benefits, along with increased spending for new product development and marketing and sales. Industry-wide food businesses are experiencing input cost increases, and we are no exception. We will strive to offset as many of these cost increases in the short term, with increased volume sales and product mix changes. We will know more about this, and will provide this information about the costs and our progress when we report our year-end 2014 results, and we will look forward to doing that.

Looking to next fiscal year, beginning in June, we expect substantial growth in our value-added food business from new products. We expect growth in our export business. We expect growth in our Lifecore business, outside of this one customer we just mentioned. And we expect Windset to continue to grow in revenues and market value. Just to be crystal clear on this $0.20 issue, we are still going to grow revenues and net income next year. But had Windset's fair market value next year been flat with this year, and if Lifecore's customer ordered the same amount of product next year as it did this year, our net income would be $0.20 higher next year than we anticipate. Just wanted to make sure people were clear on that.

Our priorities for the next five quarters are crystal clear. First, aggressively continue to launch new value-added products that bring innovation and value to rapidly growing consumer segment -- to the growing consumer segment that is seeking fresh, nutritious, and conveniently packaged vegetable products. Second, expand processing capacity to accommodate this very rapid growth in Apio's value-added business, especially the salad line; and by doing so, change Apio's overall product mix to higher-margin products. Third, continue to take steps to mitigate weather-related sourcing risks. Fourth, expand Lifecore's aseptic filling capacity to meet the ever-growing demand for Lifecore's expertise for providing solutions for materials that are difficult to fill in vials and syringes. And, lastly, work with Windset to identify one or more new, high-growth opportunities to pursue jointly.

We have two substantial tailwinds that are propelling our growth for years to come. First, we are focused on markets that are growing -- for Apio, growing demand for eating healthy foods; and for Lifecore, serving the aging population that increasingly utilizes ophthalmology and orthopedic services. Second, for both of our businesses, we continue to develop and launch innovative and differentiable products that customers value. We are committed to growing sales and earnings over the next five years.

And we're now open for your questions.

(Operator Instructions). Morris Ajzenman, Griffin Securities.

First question, on Lifecore Biomedical, do you have a little bit of feel for the one customer reducing purchasing by 50%? Can you give us an idea of how much of that $0.20 reduction that will translate into -- the Lifecore Biomedical reduction in purchases?

Yes. And Morris, you know why we don't want to go into a lot of detail here. It's a valued customer, and et cetera, et cetera -- but about 60% of the $0.20.

Okay. And one other question, this year, for the first six months of this year -- and I believe it's in the third quarter -- gross margins are impacted by $7.4 million from sourcing, which translates to about $0.25, $0.27 on a pre-tax basis, if that was to all fall through on a normalized basis. But then you talk about next year, increase in product sourcing; I'm not exactly sure -- shouldn't we have a dramatic rebound, returning to normalcy in weather, in fiscal 2015?

Well, there's three things. First of all, we are not assuming we're returning -- we think that normal -- we're planning as un-normal, going ahead, as abnormal. There's no reason to believe, in my opinion -- I think it would be naive for us to believe that the weather is going to be normal next year. So we have to -- I don't think it will be as severe as the year we just had. It's the most severe we've ever had. But we are anticipating that there's going to be weather disruptions; moreso than we've had in the past, and we will put that into our budget. That's number one.

Number two is that of the growers -- as you know, we contract with growers at the beginning of the year. We know our fixed costs, on a per pound basis, of product that we buy from growers. That price per pound is going to go up for everybody in the industry, because the growers' input costs are going up. They've got water issues; they've got fuel cost increases; they've got labor increases, especially in California with the newly enacted minimum wage, et cetera, et cetera. So we know that our cost per pound is going to go up. That's number two.

Number three, you recall that one of our mitigation strategies is to go beyond California-Arizona to further-away places for sourcing, to diversify our risk. And as you move away from California, which has the highest yields per acre in vegetable growing, you're going to have produce costs that are higher. And then you've got some of the transportation issues of getting it to our processing facilities. So those are the three things that we mean when we say that we anticipate sourcing costs to go up.

Yes, we don't think that -- we can't expect that the weather is going to be as crazy as it was this last year. But I think we should neither expect it to be, in quotes, normal next year.

All right. So let me just summarize that. So what you're saying, looking out to fiscal 2015, increases in sourcing costs, with the trend line being sourcing costs the same this year into next year; and from there, increase is based on farmers' costs going up, and looking to other regions. Is that a fair accuracy, fair reflection of your statement?

Morris, it's Greg. I just want to make sure. We are not saying that the costs that Gary just described are additive to the $7.4 million this year. The $7.4 million this year was in excess of what we had planned; and so, therefore, we expect some of that to come back, because of less severe weather next year. But, in addition to whatever comes back, we're going to have increases for the produce from growers, and labor on top of that.

We're in the process of putting our budget together now. This is more of a heads-up that it's not all going to come back. I think there was an impression out there that, hey, this $7.4 million, one-time anomaly, add it back to next year's numbers. And that is not going to be the case.

Thank you.

Tony Brenner, ROTH Capital Partners.

Couple of things. First, is the reduction that we saw in the third quarter in R&D a sustainable rate of spending now?

Yes.

$1.7 million a quarter?

That's pretty -- yes. Factor in inflation, but it is mainly labor.

And let's just be clear on terms. So, yes, on your question about R&D. We mentioned in our comments that we were going to step up marketing and sales at Apio substantially, and a fair amount of that is new product development efforts. We're not calling that R&D, but it's looking at new combinations of salads, new mixtures, new things that we can use with our BreatheWay packaging technology. So you'll see that as an increase in marketing and sales. But we do think that the current rate of R&D is one that you should use.

Okay. And last quarter, you indicated that Windset would recognize an increase in fair market value in the second half of this year of between $3.3 million and $3.8 million. Is that still a viable (multiple speakers)?

Yes, I think it is. There are a lot of various inputs, as we've all talked about in the past, on what goes into this calculation. And, obviously, one of the keys for looking at their fair market value is -- how are they doing so far this year, in comparison to the budget? Well, we're not going to know that until they get through the end of their first quarter, which isn't until March. So this particular quarter was fairly conservative, as far as how we looked at fair market value. I think, assuming that they continue to track the plan, they hit plan for their first quarter, we will hit that estimate for the year. So you should see a $3 million impact (multiple speakers) in the fourth quarter.

Okay. So, year-over-year in the quarter, that increase in Windset's recognition, the fair market value, it equates to about a $0.03 a share increase on the bottom line. The R&D reduction, year-over-year in the quarter, is roughly $0.02 a share. In the fourth quarter of last year, Apio evaluated its profit declined versus an easy comparison, because of a six-week freeze that affected GreenLine. And so I'm wondering how you can get to a guidance of flat earnings in the fourth quarter. What else is in there that just fell through the floor?

From a year-over-year standpoint?

Yes.

Well, Lifecore should be flat to slightly down from a year ago. Export is still expected to be down from a year ago. I don't remember the exact Windset numbers from last year. I don't (multiple speakers).

Windset number in the fourth quarter last year was $1.8 million. And we're looking at $3 million-plus in the fourth quarter of this year, so that's about $0.03 a share.

Yes. So, right now, our guidance is obviously to continue to hit the year.

Okay, so you were looking at the year, not the quarter (multiple speakers).

Maybe being a little conservative in the fourth quarter.

Yes, a little. Okay. And this is the first time, Gary, you've talked about 15% to 20% long-term growth. Previously, it's always been 10% on the top line; 20%, on average, on the bottom line. Why the change?

When you go through several quarters like we did at the beginning of the year with weather-related events, you get a little bit squirrelly. Our goals are still the same: it's 10%, 20%, Tony. That's what we're striving for. That's what we believe we can do over the long haul. And if we can continue to launch these types of products that are generating $1 million a week, that should be sustainable and doable. You get a little squirrelly after you've had a couple of quarters of weather beating you up.

Okay, so your fourth-quarter guidance is abnormally conservative, it sounds like. And your next-year guidance is just coming from having been battered all year long from the events that we've seen recently?

No, next year, we're just saying --

No, I understand. There are some Windset, and the Lifecore --

We've learned some things in the last couple weeks that tell us that we have a change with one customer. And we --

Right, I understand that (multiple speakers).

So that's just news that we want to get out there. Because we know it, and we share it as soon as we learn these things.

Got it. Okay, thank you.

Andrew O'Conor, Bank of Montreal.

Congratulations on your progress. I may have missed this -- how do we dissect the $0.20 per share earnings reduction to Lifecore, Windset, and Apio? I think I heard, in response to a prior question, that Lifecore is 60% of the $0.20 reduction.

And the change in -- the smaller increase in fair market value, Windset, we're estimating 40% of that $0.20.

Okay.

So those are the only two buckets that go into the $0.20.

Okay. And then --.

The cost increases, we are going through the planning process. We don't have the specificity of it. Pick up any newspaper; everybody is saying food costs are going up, et cetera, et cetera, so we're going to experience that as well. We just don't have the plan, the budget, finished at this point. And we'll report that as we give guidance in our year-end release.

Okay. And then, if I might, just a couple of other things. What's the nature of the increase in the contract labor compensation and benefits for Apio? Has Landec signed a new labor contract with Apio workers?

No. There's two things driving this. One is California likes to be in the lead for regulating things. And so we have -- Governor Brown has signed an increase in the minimum wage here. Just so you know, this isn't affecting our salaried workers. We have 550 salaried workers. We use contract labor in our plants, and most of these are in California. And so it's an increase in the labor rates. And, as you know, it's not just the lower-level people that -- when you have a minimum wage increase, it kind of ratchets up everybody that's in the direct labor pool. So that's number one.

And number two, we are anticipating that this contract labor group will be impacted by the Affordable Healthcare Act -- sometimes known as Obamacare -- and those cost increases will be passed on to us. So those are the two things that affect labor for anybody out here in California that is working with hourly employees.

Okay, thanks for that. And then lastly, from this point on, how feasible is it for Lifecore to expand its customer base for HA material? How should investors think about it? Thanks again.

Yes. I think that they will continue to expand their customer base for HA materials. And they've shown that in the last -- since we've owned them -- in the last few years. Their EBITDA when we bought them was $2.9 million, and this year it's roughly $14 million. So in a couple of years, they've obviously shown that they can do that, and that's been largely on expansion of HA materials.

But also we -- since we've owned them, we -- maybe we just had of fresh pair of eyes, but we noticed that they did a remarkable job because HA is a highly viscous, difficult material to purify, extract, and to package. We felt that those capabilities were of great value to people such as pharmaceutical companies who were developing and trialing new chemical entities that are highly viscous.

And so we are working with several pharmaceutical companies now, where we either formulate or we package the materials and put them in syringes. And there aren't many people who can do it. So we see growth coming from, not only that core HA business, but outside that area as well, with their capabilities

All right. Thanks again.

Chris Krueger, Lake Street Capital.

Looking at the salad kits, it sounds like you're doing over $1 million a week in sales. I know in the past it was primarily at a large club store chain. Can you tell us where that's at -- other additional retail grocery chains that are taking that on? Or is there a lot more to go after?

We have several, new, large retail chains that are taking on that line. And, you betcha, as they say, there are -- this is at the beginning of our aggressive campaign to transform traditional salads -- which are made of leaf lettuce inputs -- to vegetable salads, which are really tasty and conveniently prepared. So we feel that we're just at the beginning of this. And so we have the large club store customer, both in the US and Canada. And then we have several retailers that are taking it on. And we are making our sales approach to other large retailers in the salad line.

And our dream would be, a salad a day. You can come into a store and see seven of our salads, and you pick the day -- which one you want for that day. They are all healthy as can be. And you don't have to buy all the inputs, and waste all the product, and deal with the labor. It's all ready to go, including the topping. So we think we're just at the beginning of a wave here. And, over the next 24 months, our goal is obviously to change the product mix so that a higher percentage of our products are from new products; not only the salad line, but some other things we're coming out with.

We've just launched -- we're launching nationally a Stir Fry Kit that we think is going to be a barn-burner, and we want more of those. And so to offset some of these cost increases that we expect, we have to boost volumes and change product mix to higher-margin products. So that's our game plan. And we also have to quickly expand our salad line capacity. We are right up against -- we're going seven days a week now. We're really challenged to keep up with demand.

Is your next expansion, is that going to increase capacity by 50%? Or how should we (multiple speakers)?

Well, we need to increase it. We need to double it. So we don't want to go up 50%; we want to double it.

Okay. Changing gears here, I know this past year has been really tough on sourcing, and it has probably delayed your ability to cross-sell with your GreenLine acquisition and your Eat Smart brand. But can you give us an update on those activities, or where you're at?

Yes, you're right. It's hard to go out there and pitch cross-selling to formerly GreenLine customers that we didn't have, or Apio customers that GreenLine didn't have, when you've got one hand tied behind your back, and you know you couldn't deliver on all of it anyway because of this weather sourcing issues. And by the way, we also had some startup issues in our salad line, so I don't want to put all the monkey on the sourcing issues.

But anyway, to make a long story short, we can now start -- we now feel is -- we're in better shape, and the cross-selling is going full-bore. And we're starting to see the fruits of that, and we'll report on that over the next four quarters. We'll tell you more about that. But we're going at it. And we have the benefit of combining these two customer bases, and cross-selling now.

Okay. That's all I got. Thanks.

Walter Schenker, MAZ Partners.

I understand, historically -- this is just generally -- about the vegetable business, that in the worst year we can ever remember in weather and sourcing, we have a problem. What I don't understand is, going forward, just as a general commentary -- if there are known cost increases coming to your suppliers -- be it minimum wage in California, and California is a very large factor in sourcing for the whole country; Obamacare, et cetera, et cetera -- why does pricing in the industry not move up to reflect known cost increases? And so, why -- I understand why you eat it, because you have commitments to supply, and pricing commitments in what may or may not be an abnormal year, depending on how one looks at weather.

But in a normal business, knowing there was a steady trend in cost increases for minimum wage or something; and, therefore, your suppliers are telling you, I'm going to be charging you more -- why aren't you selling to your customers -- because your competitors are facing the same thing -- pricing is going up?

Excellent, excellent question, Walter. You must be listening in on some of my conversations with our team. A couple things. One is, as you know, we are in multi-year contracts with a number of our customers. Those multi-year contracts, usually two years, have us locked in on pricing. There's no wiggle room. It is what it is, until you come out of those contracts. So just keep that in mind. Number one.

Number two, and I'm going to give you a personal opinion here. But I see our customer base -- which are these large retail chains and club stores -- have been consolidating. They're getting bigger. They're getting more powerful. They are moving, more and more, to private labeling. They are looking for their margin improvements. And they are powerful, powerful customers, and they are bifurcating. Some are still very interested in quality, service, innovation. And others are gravitating more, I don't give a rip; as long as it's cheap, give me the cheapest supplier out there.

And we have lost a couple of customers in the last year because of that bifurcation, and because of our unwillingness to get down and dirty, as they say. So we will make the efforts -- you are asking the right question. If we could just pass these things along, life would be terrific. There are no Act of God clauses. This is just the way the industry works. There is some competition out there. There are a couple of competitors that are willing to do things that perhaps we are not willing to do.

So, Walter, all I can tell you is, we will do everything we humanly can to pass on these cost increases as we come out of some of these contracts. It's not a mystery, what's going on. The customer base and the buyers know what some of these cost increases are, because they're experiencing it themselves. So all I can tell you is, you are right on, in terms of having that as a central challenge for Landec and other food companies. And we will try our darndest to pass these on. It's not easy.

And just a quick second question. If one remembers Landec, Landec was a technology company which also happened to sell fruits and vegetables -- at least in some people's mind -- and now is a fruit and vegetable company. Is there anything interesting happening, or relevant from the technology side that you've developed over the years, away from the --?

Yes. Our packaging technology is now being used by Windset Farms in peppers and cucumbers. It's a real growth opportunity for them, and for us. We are working with an unnamed partner in the area of berries. And it looks as though there are certain types of berries that can -- where we can help them extend shelf life considerably. We are working with a partner in the avocado field, where this would allow the partner, which is one of the leading avocado suppliers, to provide avocados that are already ripened and ready to eat. And we are also looking at citrus, specifically limes and lemons, where we seem to be able to extend shelf life considerably. So we have an active program in that regard.

Without saying too much, some of our R&D efforts will be starting to merge with Windset's R&D interest, in terms of longer-term ideas on how our capabilities in packaging -- processing, packaging, branding, selling -- can combine with their hydroponic greenhouse technology capabilities.

So there is a -- and as I mentioned, up at Lifecore, we are investing quite a bit in the area of formulation, know-how, and vialing and packaging know-how, which is highly differentiable, highly unique to us. So we are an innovation company. And so maybe it may not look like it did 10 years ago, in terms of pure polymer chemistry play, but we are investing heavily in new product development and innovation. So you'll continue to hear about this as we go along.

Okay, thank you.

(Operator Instructions). Will Lauber, Sterling Capital Management.

I saw that Windset is going to start growing strawberries now. Is that -- when you had mentioned berries, is that something that (multiple speakers)?

What I was talking about berries, I was talking about a partner we're working with that will use our BreatheWay packaging technology for berries. Windset is looking at strawberries. It's very early. I couldn't even tell you where that's going, because I don't know that they could tell you where that's going. But we're obviously interested, as they are, in looking at totally new targets for hydroponic growing.

Let's be realistic here. The world would love -- it would be better if everything were grown hydroponically in greenhouses, as long as it was cost-effective to do that. And the reasons are very clear: buyers want safe products. They don't want products that are grown in dirt, if they can avoid it. They want products that can be grown year-round, and don't get calls from suppliers that say, man, we just can't get it because of weather. And the quality that comes out of these greenhouses is just unsurpassed.

So if we can identify -- if Windset can identify, or we can identify, with them, other targets -- but let me just say, strawberries is really early on. Don't know where that's going, and I would hate to mislead you, and tell you that that's going to be huge. We just know yet.

There's another possible partner besides Windset for berries?

On the BreatheWay side, yes.

Okay. And then on Lifecore, I don't know if I'm reading too much into this. But I saw that they're advertising a job opening for regulatory affairs specialist with experience in submission for new products and product changes. Are they hiring up in the FDA compliance area, or is that just replacing people that have left, or do you know?

No, it's just -- I think we had something like 22 FDA audits and visits last year, and it's just the workload. As they expand their sales and their -- by the way, this is not the senior person, regulatory affairs. We're very happy with our management team up there. It's just bandwidth. It's bandwidth issues.

Okay. All right, thanks.

Thank you. I'm not showing any further questions at this time. I'd like to hand the program back to management for any further remarks.

We just appreciate you being on the call today. And thank you for your interest in Landec, and we look forward to keeping you apprised of our progress and our plans. Thank you.

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