Landec Corporation

Good afternoon, and thank you for joining LANDEC's fiscal 2021 third quarter earnings call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, I will provide instructions on how to ask a question. Now, I would like to turn the call over to Jeff Sonick, investor relations at ICR.

Good afternoon, and thank you for joining us today to discuss LANDEC Corporation's third quarter fiscal year 2021 earnings results. On the call today from the company are Dr. Albert Bowles, President and Chief Executive Officer, John Moorberg, Chief Financial Officer, and Jim Hall, President of Lifeboard. By now, everyone should have access to the press release, which went out today just after 1 p.m. Pacific or 4 p.m. Eastern time. If you've not received the release, it's available on the investor relations portion of Landec's website at ir.landec.com. In addition, the company may refer to the supplemental earnings presentation also contained on LandEx Investor Relations' website. Before we begin, we'd like to remind everyone of the safe harbor statement. Certain statements made in the course of this conference call contain forward-looking statements. It's important to note that the company's actual results could differ materially from those projected in such forward-looking statements. Additional information concerning risk factors that could cause actual results to differ materially from those in the forward-looking statements is contained from time to time in the company's filings with the SEC, including but not limited to the company's Form 10-K for fiscal year 2020. Copies of these filings may be obtained from the company's website as well. And with that, I'd like to turn the call over to Al.

Thanks, Jess. Good afternoon, everyone, and thank you for joining us today. On today's call, I will provide highlights from our third quarter fiscal 2021 results. Jim Hall will then review some of the exciting developments in the CDMO industry, and John Moorberg will discuss our financial results in more detail and update you on our fiscal 2021 guidance. We will then open the call for your questions. I'd like to start today by recognizing the contributions of all of our workers at both LifeCorps and Curation Foods who show up every day in our facilities across the country. Our incredible operational employees remain on the front lines of the COVID pandemic, and I am grateful for their resolve, fortitude, and contributions. Fortunately, we are now starting to feel like we are seeing a light at the end of this long tunnel. With many of our employees now getting vaccinated, we are working with our county administrators to facilitate delivery of vaccines for our employees. Our organization has been working hard to manage against a variety of impacts from this terrible pandemic, and today we feel like we are making good progress. The added complexity and resulting financial effects of the pandemic has negated the many areas of financial improvement in some instances. And in the fiscal third quarter, we were met with a more pronounced adverse financial impact on our curation food segments, results of operations than anticipated. We experienced indirect impacts from canceled orders, shifting demand of SKUs, and the related write-off of inventories for our perishable products. On the cost side, we experienced higher labor expenses due to the state mandated paid time off for workers, both testing positive to or exposed to COVID, which was implemented in January, as well as the ongoing costs associated with social distancing requirements, expansion of PPE, sanitation, testing, and training. Yet, despite all these challenging impacts, I am very pleased how well we have performed against the prior year, which is a testament to our amazing organization of hardworking and focused employees at all levels in the company. While we are disappointed with our fiscal third quarter results, we view this as a temporary obstacle rather than a permanent headland. We're only now in a period in which we are at the anniversary of the COVID pandemic. we are still benefiting from operational improvements and efficiency as a result of Project SWIFT, which we launched nearly 15 months ago. Since launching, we have now consolidated and closed three offices and two manufacturing facilities, discontinued many unprofitable SKUs, and rationalized G&A headcount across the curation foods segment. We continue to review every facet of our operations to align the various businesses with our strategy for future growth. In helping to take Project SWIFT to the next level, I am pleased to welcome our new CFO, John Morber, who provides an incredible depth of executive and financial leadership to all our businesses. John has helped several organizations navigate challenging circumstances and is quickly getting up to speed in providing a fresh perspective on all of our strategies and businesses. Don is already making meaningful contributions to our organization, and I am confident that he is the right leader to help further our accomplishments we started under Project SWIFT. For the third quarter, on a consolidated basis, adjusted EBITDA increased to $7.6 million, an increase of 12.6% over the prior year third quarter, and consolidated gross margins increased 120 basis points to 14.3% over the prior year third quarter. On a year-to-date basis, consolidated adjusted EBITDA increased to $19.4 million, an increase of 146% over the prior year, and consolidated gross margins increased 230 basis points to 14% over the prior year. While we are pleased with the year-over-year performance, we still are not where we want to be. The impact from COVID had a substantial impact in the third quarter, and we expect the residual impact for the balance of this fiscal year. For some perspective, looking back on our forecast one year ago, when the material impacts of the COVID pandemic to our business first began, we were estimating financial impact to Curation Foods to be a reduction of approximately $4 to $5 million in adjusted EBITDA for fiscal year 2021. Today, we now see the impact to be approximately $11 to $12 million for the full year, or more than double our initial estimate. As a result, we have revised our annual adjusted EBITDA guidance down to a range of $27 to $29 million. which we believe is attributable to the impacts related to the COVID-19 pandemic. Presenting to you today in our fiscal fourth quarter, we are feeling more optimistic about the summer months ahead. Our customers face their own challenges as additional lockdowns took effect over the holidays. We are hopeful to see some of that clearing in the coming months. To give you a sense of the delay, where we had previously planned for some new product introductions in our fiscal second and third quarters based on the initial indicator requests from retail customers. Those retail customers only now starting to schedule the delayed merchandise resets and are planning new product introductions late spring and into summer. We are also continuing to push forward our focus around higher margin plant-based food innovations, and the curation foods business. Our avocado products brands continue to deliver solid year-to-date growth of 5.3%. In our Eat Smart Sell business, we rolled out a new slim bag design that is improving sales velocity, and we are continuing to test other package designs and new product introductions, working in conjunction with our key customers. I am excited to be part of the many top-to-top meetings with our important customers during this next quarter to share the innovations that we have been working on during the pandemic. Before I turn the call over to Jim Hall, our president of LifeCorps, to share the exciting industry trends that the LifeCorps business is addressing, I wanted to recognize LifeCorps' continued outstanding results. In a nine-month year-to-date period, LifeCorps generated a 20% increase in revenue and a 34% increase in segment-adjusted EBITDA. LifeCorps has weathered the COVID pandemic well and is operating at traditional rates of efficiency and we believe continues to be extremely well positioned for continued growth. We are very excited about a robust contract development and manufacturing organization, or CDMO, new business development pipeline, and the category in which we operate. LifeCorp's specialized capabilities in the CDMO space are sought after by its partners, and we are ensuring that they have the necessary capital to meet the long-term plan to generate consistent, high-margin, double-digit revenue growth. With that, I'll turn the call over to Jim.