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 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 the weather related sourcing issues. During the second quarter total revenues increased a $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 cost 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 to 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 remained 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 super food 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. Good morning everyone. We reported yesterday that revenues for the second quarter of fiscal 2014 increased $5.4 million to a $120 million from a $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's 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 non-exclusive rights for Landec’s BreatheWay packaging technology, and finally a $214,000 reduction in gross profit in Apio’s export business due to 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…

Thanks, Greg. Let's go in to some more detail about our businesses and how they are 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 period last year. Reception of our new products has been strong and we continue to add new retail customers for our vegetable salad lines. 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 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 U.S. 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 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 restaurant show there was a 382% increase in Kale offerings on menus in the last five years and a 104% increase just in the last year. Our goal is…

Thank you. (Operator Instructions). And our first question comes from Morris Ajzenman from Griffin Securities. Please go ahead.

Hey, Morris.

Hey Morris.

Hey, I am going to ask a question, I’ve kind of asked you guys in the past. But I was out to your facility, your hydroponic in Santa Maria in last year and everything clearly looked state-of-the-art, hearing good things about it from other sources. And the question I have for you which I have asked in the past is what additional data can you give us? I know it’s difficult because you only own 20%, and there is other issues out there as far as the other 80% owner won’t reveal more than they have to for competitive issues but again what’s in 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 are a private company. They are very sensitive about revealing their confidential information. What we have said and can say is that the revenues are well north of $200 million, so highly profitable. Their demand exceeds their ability to produce right now and they are able to grow year around. So beyond that, 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 having the right weather where the days are warm but not hot and the nights are cool but not cold, it [helps] [ph]. 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 atmosphere, how they dispense the nutrients and minerals. Their tomato plants grow to 70 feet in length, their new cucumber plants, the plant, not the cucumbers but the plants are growing six inches per 24 hour, the yields are phenomenal. The quality is top-notch. They have -- their largest customer is publicly known as Costco. They are very strong in Canada, they are very strong in the Western United States and they are expanding. So beyond that I don’t know what else we can tell you in terms of metrics because 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 am 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 plan -- planning the next activity. But if I -- just a wild guess, I would guess two years.

Last question and I will get in queue. The super food salad, is about 20% revenues now, can you give us some sort of a handle what sort of gross margins, assuming there is no sourcing issues, what margins you have in that versus, versus the value added?

I am 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.

Thank you. And our next question comes from Tony Brenner from ROTH Capital Partners. Please go ahead.

Good morning, gentlemen.

Good morning, Tony.

I have three questions. First I am 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 -- maybe there is some, a little bit of hopefulness on that in our response here but in December you have that privilege and pleasure of living in Southern California but for folks who’ve been living in the Northeast and the mid-west 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 our volumes are down we can’t get people in the store. And my understanding we have folks on the call that can probably verify this is that some of this terrible weather is continuing in the mid-west and the Northeast in the early parts of January. So we are hoping that -- we believe that if we can get through some of that stuff, remember it's not sourcing issues now it's consumers’ ability to get to stores, where it’s our belief that we can make that up for the remaining five months of the year. Also there is a chance that…

But why?

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 is reason to believe and I wouldn’t bet on it yet but there is reason to believe that Indonesia is rethinking its export -- its import restrictions, excuse me, and that could be helpful to us as well.

But would that happen in time to impact this fiscal year?

It could, yes.

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

Can I 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.

Okay.

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 Life and that’s what drove the sales increase this quarter, yet gross margins were higher. Can you explain what we might expect from margins from Lifecore?

Yeah, the margins, now this is Greg, the margins in those two areas it stayed fairly stable. So it is just a mix. The revenue increase was actually in both the areas for the quarter and therefore that’s why you are seeing that the margins are same at historical levels, if not slightly higher.

Is it correct that…?

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 Hyaluronic acid to the customers and they would take that stuff and do it or have somebody else to 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 are making these investments.

Okay, thank you very much.

Thank you, Tony.

Thank you, and our next question comes from Reed Anderson from Northland Securities. Please go ahead.

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

You know 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 areas as well as non-salads. And you ought to be think -- kind of roughly speaking think of it as one new significant product per quarter on average and these generally go out at higher margins than our historical core margins. And so -- and we are already up to about 20% of our overall revenues in our value-added business for now from these new products. So we want that trend to continue. We are 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 be - is relatively as broad as your customer base for the other similar products or will it be a little narrower out of the gate?

It's probably going to be narrower out of the gate, probably narrower 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 narrowly and then in short order we will expand it nationwide.

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

Well, the short answer is it is 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 as in the second quarter which we 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 are sourcing most of our products from Mexico or Southern California. We have to obviously get that up to our plant on the Central Coast. So you are adding freight cost, incoming freight cost during the 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 from me now. I'll let somebody else jump in. Thanks. Good luck guys.

Thanks, Reed.

Yeah, thank you.

Thank you. And our next question comes from Daniel Rizzo from Sidoti & Company. Please go ahead.

Good morning, Dan.

Good morning, guys. How are you?

Good, Dan.

When would you know if, I mean you see ample sourcing now, when would you know it's not going to be a problem, would it be like by the end of January is your timeframe you have in mind, where those…?

Well, I will tell said, yeah. I would, in past years I probably would have told you that by the end of January or early February we know we've gotten through the winter months. We said we thought that last year you may recall that we had some adverse weather in the March-April timeframes. So I don't want to jinx this year 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 got to keep an eye on the other side, that is the ability of the consumers. We are big on the East-Coast and Midwest so we want to make sure that consumers can get to the grocery stores and buy the product. So I'd say through February we'll know.

All right. And then I would like to see that -- I feel the value added news product is still progressing, did you -- I see in the past that you indicated that we might have had three or four products by the end of fiscal -- of the end of calendar 2013 or did I mis-remember that, are we on schedule I guess is the direct question?

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

Okay. And then finally I know cross-selling has been kind of the thing that 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 am sorry, say the question, again.

In the past, I think we have talked about you potentially cross-selling your products to GreenLine’s customer, restaurant customer?

Well, 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 in cross-selling when you are 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 issue.

All right. Great. Thank you guys.

Thank you.

Thank you. (Operator Instructions). And our next question comes from Brent Rystrom from Feltl. Please go ahead.

Good morning Brent.

Hey, Brent.

Good morning, guys. 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 or early April they had some record freezes. And so little surprising how late that came but the New Yorkers were -- who were vacationing down there were just stunned, what was going on and so it was latter than you might imagine. It was in the March timeframe especially.

Great, so the kind of the Western part obviously because a lot of this produce is supposed to get a freeze …

Yeah, you are right down in the Homestead area.

Yeah.

Yeah, it is -- well no actually it's the eastern, 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.

What I am saying is on Monday, Tuesday next week they are supposed to get a freeze, would that impact you or is it too early in the quarter?

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

As far as the previous question, the previous person asking, I believed at the annual meeting you did say you would have another product out by the end of the calendar year. Have you given any further thoughts as far as some of the new super foods you are 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.

And we are in the third quarter now, as you know.

Okay. And as you look at some of these, would some of these -- I am 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 to more to Australia or someplace like that, are you looking at those sort of things or not really?

I am not sure if we are 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 nutrients first and whether or not we are looking at sourcing in Australia, I just couldn’t tell you. But we are certainly looking far and wide.

Have you thought about -- when I think about Chia, I think of it more as a green and so have you thought about maybe migrating some of your business more to some of the green derived super foods, you are not as exposed.

Absolutely, yes.

All right, thanks guys.

Thanks Brent.

Thank you. And our next question comes from Will Lauber from Sterling Capital Management. Please go ahead.

Good morning, Will.

Hey, Will.

Good morning. In the release you had said that you are 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 avocado, so wonder if you could touch on that at all.

You know, what we can tell you about that is that they are a sizable player in the avocado business. I think they are number three or four, they’re looking for product differentiation. They are 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 sour pretty quickly. And they were also interested in just being able to market avocados in a ripe state, ready-to-eat and so they are looking at both and we are working with them in terms of packaging development right now and we are doing some trials. So a little bit early on but they are 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 what type of fruits they are or when you might be announcing something?

We are interested in the citrus area. I’ll leave it at that broadly without getting too specific, but there are some things that we can 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 are using, I guess specifically is Wal-Mart, Sam’s and/or Costco in there?

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

Sam’s is there, I mean it’s a -- this is in, that’s out, it’s a strange…

So it’s a little bit challenging, Will, as you know to be -- because a big customer of ours are Trader Joe’s and it’s Costco and folks like that. I am trying to remember -- I don’t think Wal -- is Wal-Mart in it?

Yeah, Wal-Mart and Sam’s are in there.

Wal-Mart and Sam’s is in. Okay, so anyway so it’s unfortunately putting the pineapples 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 mish-mash 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 release it’s you are out growing the category and this one it looks like that you are not…

Well, what we found this quarter and that was -- it’s somewhat of a new phenomenon to us and that’s why we expanded the definition is we noticed 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.

Yeah, they are in the salad category. They are 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?

Yeah, there is some of that going on. I think the biggest is that salads in the club stores are not in the Nielsen numbers but yeah there is some of that going on and we are going to continue to do that. It’s -- there is some, there is business we want and there is some business we don’t want. Hence there is some of that in there.

Then, 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 give more and more salads and other items like that new products?

Well, that’s -- with a lot of moving parts, I would 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 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 month. 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.