Good afternoon, and thank you for joining Landec's Third Quarter Fiscal Year 2020 Earnings Call. With me on the call today is Dr. Albert Bolles, Landec's Chief Executive Officer; and Brian McLaughlin, Landec's Chief Financial Officer; and Mr. Jim Hall, President of Lifecore, who is available to answer questions.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 2019.Let me now turn the call over to Mr. Al Bolles. Thank you, sir. You may begin.

Thank you and good afternoon everyone. As a leading innovator in diversified health and wellness solutions, Landec is comprised of two operating businesses: Lifecore Biomedical and Curation Foods. Landec designs, develops, manufactures and sells products for the food and pharmaceutical industry.Lifecore Biomedical is a fully integrated contract development and manufacturing organization, or CDMO that offers highly differentiated capabilities in the development, fill, and finish of difficult to manufacture pharmaceutical products distributed in syringes and vials. As a leading manufacturer of premium injectable grade Hyaluronic Acid or HA, Lifecore brings over 35 years of expertise as a partner for global and emerging pharmaceutical and medical device companies across multiple therapeutic categories to bring their innovations to market.Curation Foods, our natural foods business, is focused on innovating plant-based foods with 100% clean ingredients to retail, club, and foodservice channels throughout North America. Curation Foods is able to maximize product freshness through its geographically dispersed network of growers, refrigerated supply chain, and patented BreatheWay packaging technology, which naturally extends the shelf life of fruit and vegetables.Curation Food brands include Eat Smart fresh packaged vegetables and salads, O premium artisan oil and vinegar products, and Yucatan and Cabo Fresh avocado products.We are focused on creating shareholder value by delivering against our financial targets, strengthening our balance sheet, investing in growth, implementing our strategic priorities to improve operating margins at Curation Foods and driving top line momentum at Lifecore.We are committed to maximizing the value of our portfolio through sound and thoughtful execution in each of our segments, while protecting the planet for future generations, with a sustainable business practice. However, today we are clearly facing a new landscape given the rapidly changing environment and ongoing impacts associated with COVID-19. We are following the guidance from the World Health Organization and the Centers for Disease…

Thank you, Al. First, a review of our third quarter results. Consolidated revenues decreased by 2% to $152.9 million, driven by a 3% decrease in Curation Foods, which was centered and a planned $7.2 million decrease in revenues in the packaged vegetable bag and tray business as we continue to focus on higher margin products. This decrease was partially offset by a $1.7 million or 7% increase in revenue in the Lifecore business, which was primarily driven by a 50% increase in business development revenue.Gross profit decreased 7% year-over-year due to the combination of an 8% gross profit decrease in Curation Foods and a 6% decrease in Lifecore gross profit. Curation Foods was negatively impacted by the sell-through of high-cost avocado products produced during the fourth fiscal quarter of 2019 and the first fiscal quarter of 2020, when the cost of avocados were over two times higher than current costs, and weather related events impacting raw materials supply primarily centered in Eat Smart vegetable bag and tray business.Lifecore was negatively impacted by the previously announced timing of production and shipment. The impact on both businesses is temporary and should improve during this fiscal fourth quarter, noting that Lifecore was a timing issue for production and shipping, and Curation Foods now has sold through a majority of the high-cost avocado fruit inventory and achieved 19% gross profit run rate in our avocado products business at the end of the fiscal third quarter.Landec's net loss was $11.5 million for the third quarter, which included $12.7 million of restructuring and non-recurring charges net of taxes, compared to net income of $1.5 million in the prior year, a decrease of $13.1 million. This translates to a third quarter loss per share of $0.39, which includes $0.43 per share of restructuring fees and non-recurring charges.…

Thank you, Brian. Let me go into more detail about the progress we're making in our Lifecore and Curation Foods businesses that maximize shareholder value across our portfolio.Lifecore continues to see momentum benefiting from three industry trends. Number one, the growing number of products seeking FDA approval; number two, the increasing trend toward sterile injectable drugs; and number three, a growing trend among pharmaceutical and medical device companies to outsource the formulation and manufactured products spanning the clinical development stage to commercialization.As a highly differentiated and fully integrated CDMO, Lifecore is positioned to capitalize on these tailwinds and continues to establish high barriers for competition. Lifecore's speed and efficiency benefits its partners by decreasing their time to market, which has an immense value in their ability to improve patient lives through commercialization of their innovative therapies.Looking forward, Lifecore will fuel its long-term growth by executing against its three strategic priorities. Number one, managing and expanding its product development pipeline, Lifecore added one new business development project; increasing its development pipeline to 16 projects in various stages of the product life cycle from the clinical development to commercialization, which aligns with the business's overall strategy. Business development revenue in the third quarter of fiscal 2020 increased 50% year-over-year.Number two, leading customer demand by managing capacity and operational expansion to meet future commercial production needs. Demand stands at approximately 6.5 million units in fiscal 2020 and the facility has the capacity of producing approximately 17 million units annually.And number three, continuing to deliver on a strong track record of commercialization in their product development pipeline. Lifecore currently expects one product and development to be approved by FDA for commercialization in calendar year 2020. The FDA recently recommended approval of Lifecore's manufacturing site for this product based on a recent FDA reinspection that…

Thank you. [Operator Instructions] Our first question comes from the line of Gerry Sweeney with Roth Capital. Please proceed with your question.

Hey, good afternoon Al, Brian and Jim. I think I got everybody's names right there.

Yeah, hi Gerry. How are you doing today?

Good. So we got a lot going on. I mean obviously we have Lifecore, Curation turnaround, and then a dose of COVID-19 just to add a little bit of excitement to everything. So I'm going to start with the veggie business. You know obviously you want to either downsize or sell it. I think this is key to reducing volatility on a go-forward basis and letting some of these cost out initiatives really start to shine through next year and beyond.Where does that business, where does that stand, and the other portion of it is you gave some longer-term objectives on growth and profitability. So the second half of my question would be, what happens to your cost structure if you sell it and/or shrink it down substantially? How do we look at it from that perspective as well?

Yeah. So Gerry, you're absolutely right. We made a strategic decision to sell it. It has always been the source of volatility right, you can't control. We've had – we were working with William Blair; we have put bids out; we have several LOIs that have come back, and we are in the process now of going through the LOI process.We had one the company in our facility over the weekend. Obviously, they had to follow all the COVID requirements before they could go in, but they've looked at the facility, and now that's where we're at. We probably have another four, maybe five that will be joining the LOI process, so it's moving along. William Blair is on the point with it, and we'll know a lot more probably in the next 45 to 60 days.And obviously, if we could sell it, certainly the proceeds will go to pay down debt. If we don't sell it, we have a backup option, which significantly reduces the size of the business by at least half that allows us to focus on a few customers, strategic customers, around 10 or 12 that we will be looking at improving our margins in that business to get them closer to where we need them. In many cases, we haven't taken price increases where we should have, and we are in the process of going through that now.So, obviously we wouldn’t get any proceeds there to pay down debt, but we believe we would end up with a model that enables us to live comfortably with a much, much smaller, but a much more profitable core veg business that's higher margin, that's focused on a few customers that allows us to absorb volatility if indeed we have a weather issue.

Got it. What happens to your -- the cost structure internally though with shrinking versus the selling? Just to point maybe some of the overhead and things like that, how much cost comes out?

Yeah Brian, do you want to handle that one?

Yeah, Hi Gerry. So, we in previous phone calls or chats outlined our work with the Hackett Group, and we have detailed a very clear path and process for either options in order to reduce the cost structure. In either case, we're ready to get us back to at least a break-even on the margin impact, if not a positive.

Got it, okay. And then maybe just switching gears a little bit; Yucatan, great to see the margins at 19%, heading to 28%. Any concerns with some of the transition from like the tub size? Are the other Yucatan products selling pretty well in this environment or is there any concern about that?

Well – yeah, it's a little early to tell Gerry. We've seen – you know in the last couple of weeks they have been a little soft on the bigger sizes, obviously because of the nature of how the product is used in groups and gatherings. We've seen an uptick in our salads as we mentioned, but you know we also see just observationally in the stores that there’s a lot of products that are out of stock. So, we expect the business to come back in the next week or so, but we're keeping a close eye on it.It's not like the bottom is falling out, it's just a little softer than what we had forecasted. But the good news is the products that we are selling now are highly profitable for us versus what we had to live through in the first two and a half quarters of the year.

Yeah, the 19% is great, so we completely get that. And one more question on Lifecore. Obviously that's chugging along pretty well and just outlining the units that you can have manufacturing today versus the capacity, so plenty of capacity and expectation if you're going to fill that, and this is more COVID-related too. Are there any of the drugs a little bit more elective in nature? Obviously that may push some stuff around or any concerns on the COVID-19 on Lifecore?

Well, you know there’s some of the things like cataract you know that is an elective procedure. We have not slowed down any shipping to date with any of our customers, and if there is a slowdown later in the year because of this, it's just an elective surgery that people are going to go ahead and have done anyway, right. [multiple speakers]Yeah, yeah, so no real major concerns, but certainly that's where we are today and we're keeping a close eye on the situation.

Okay, great. I'll jump back in line. Congratulations again on the percentage of the metric through. It's great to see it. Thanks.

Thank you, Gerry.

Our next question comes from the line of Anthony Vendetti with The Maxim Group. Please proceed with your question.

Sure, thanks. I was wondering, you reiterated guidance. Can you talk about exactly how you see the COVID-19 impacting your business in either a positive way in terms of demand, increased demand for some of your products or in a negative way in terms of supply chain inflection?

Yeah, so we're fortunate for being right, both in businesses that are deemed as mandatory right, on the healthcare side and on the food side. We have seen a major uptick in salads where people are staying home. It's not the kind of product that you would be able to store like shelf stable or frozen. I don't think you're going to see the uptick like you are in some other food companies. But those products, you know people are eating at home now, and you know salads we think will continue to do pretty well in this environment and our supply chain has remained largely interrupted.We continually work with our – we have a very close relationship with our growers. We have no issues with supply coming into our facilities. We have our own refrigerated trucks, so we're able to move products around. We're geographically dispersed on the food side where we have two plants on the East Coast, along with the Guad plant in California. So we're able to – on the food side sort of flux with people in this environment.Obviously we put in very high standards for employee safety that we have in place and that's sort of where we're at right now. And once again, on the Lifecore side, you know Jim hasn't seen any change in orders or shipments to date.So my confidence for Q4, I think that's what you're trying to get at, on the COVID environment is obviously there's the revenue piece, but you know there’s a couple of other pieces that are there. One is, it's great to turn the corner on the avocado products business, where we'll be now shipping high margin products that we have not been able to do for two and a half quarters, so we're making money there.We are really tracking very, very well with our cost out program. I know at the beginning of the year, you know $18 million to $20 million seemed like a stretch. We've been project managing it. We're very confident about making our number there, but probably more towards the high end. So that remains on track and it’s also the time of year when we have the least volatility weather wise. Historically the fourth quarter’s been the least volatile from on a produce side with Curation Foods. So our programs are on track and you know that’s what gives us confidence as we are in the fourth quarter.

Okay. And just as the follow-up to Lifecore there, is it possible with all of the biotechnology companies and pharmaceutical companies that are working to develop treatments and vaccines, particularly on the vaccine side, is it possible that Lifecore could see an uptick at some point in some development programs?

That's probably more long term, but I'll let Jim go ahead and answer that in more detail for you.

Hi Anthony. Potentially long term, we've had some interest in not so much the development of those products, but if one's developed down the road, would Lifecore have the capacity or the ability to contribute to production of those vaccines or products. Nothing short term though that we've seen that would impact our development pipeline.

Okay, that's helpful. Alright thanks, I'll hop back in the queue.

Thank you.

Our next question comes from the line of Mitch Pinheiro with Sturdivant. Proceed with your question.

Yeah, hi.

Hi Mitch, how are you?

Hello there. All is well, as it could be. As is well as it could be. Just a couple of quick questions. With the disruption in our food system, do you see any change to the Squeeze roll out or your marketing plans related to that?

No. If you remember, we've talked a bit about in the fourth quarter that we were going to spend more money on our new product introductions. We have two very large customers; one in Canada, one in the U.S. that we are testing right now; various models of trying to drive trial and awareness on the product. We know when we get trial and awareness, we get repeat. So that isn't slowing us down right now in terms of the testing and learning that we want to gain in the fourth quarter.We've seen a little bit of shift from some customers on the resets because of COVID-19, to move from May to June. Those are just minor shifts, but that wouldn't have much of a financial impact on us anyway in Q4. But our plans remain intact to complete our testing with these two major customers and again the learning we need to really build awareness and really Squeeze really begin to work for us in the next fiscal year.

Okay. As far as Lifecore, you know with raw material shortage from your supplier, I know it normalized. Is anything with the COVID activities impair your ability from that supplier again or are you comfortable with that?

You’re talking about the syringe supply issue?

Yes.

No, but Jim, is there anything else that you want to add to that?

No, just – hey Mitch, just to clarify, that issue was not through an actual supplier, but with one of our customers that was providing that, and that supply has been sure to open. It's very stable now and shouldn't be impacted by this and hasn't been. So it's something like all our raw materials and critical supplies that we're keeping an eye on and working very hard to make sure we have enough on during this COVID period.

Okay. And then two other things; any update on BreatheWay?

We're continuing our testing and roll out with Driscoll's raspberries. It's going very well and we continue to want to expand that and we have into the development cycle for BreatheWay, which we don't talk much about. We have some other very interesting customers where we believe the technology can bring a benefit to their product line, a higher margin product line, and we're working with them to prove that.What we're really are trying to do with BreatheWay are find customers that we can have scale. In the past we've kind of worked around with smaller customers. We really are very particular about who we work with and to make sure that we partner with somebody, that there’s going to be enough scale for us to get the profitability that we want to achieve.

On your own products, does the longer shelf life aspect to your product, has that been something customers are aware of due to the current environment?

Yes, they're aware of it. We don't put it on all our packages, only those that we get the benefit of an extra few days of shelf life. But to be quite honest with you, they don't pay for it. So the benefit is us in terms of being able to decrease shrinkage on our side, but it's not a benefit that the customers are willing to pay for, unlike some of the other projects that we're working on with BreatheWay.

Okay, and then just final question. Any update to your capital spending plans for this year? What that number might be by year-end?

Yeah, I'll have Brian handle the capital numbers.

Yeah. So we're managing those numbers much more tightly. During the Q2 call, I believe we drew out second half spend numbers in the $22 million to $26 million range as part of our focus on adding discipline to our capital spending process and becoming very stingy about where we're spending money, while at the same time really making sure that we're supporting the right growth platforms. That number’s been reduced to somewhere in the $18 million range or lower perhaps. So we are very focused on becoming very, very disciplined and diligent about how we spend money on capital and putting it in the right places.

So with that, where do you think you'll end up for the year, for the fiscal year?

The bank amendment has a number of $37 million in it and I'm confident that we will come at below that number.

If I may, just on the capital side, just a couple of things. I think it's fair to say that in the past we haven't had a “disciplined approach to capital,” the Ontario facility being an example. We have put in a capital committee, a capital process across the enterprise, where we're much more stricter on capital and expecting that if we spend the money, we're going to get the returns.And the automation, I mean a lot of the Cost Out Program, the $20 million has come from capital investments through automation, which was greatly needed. That's essentially done and that's why we're moving the Project ZEST, which is more operational cultural shift to zero mindset of waste and a real focus OEV of our equipment, so that we start to get more efficiencies out of the equipment that we have. So that's going to decrease our usage of capital at Curation Foods.Obviously, our priority is to continue to provide the capital needed on the Lifecore side to generate the growth that they need there. On the Curation Foods side, we think that we can over the next few years, achieve a lot of productivity and efficiencies through ZEST, without having to spend a lot of money on capital.

Alright, thank you very much.

Our next question comes from the line of Mike Petusky with Barrington Research. [Operator Instructions] Mike, please proceed with your question.

Thanks. I may have missed this, but did you guys give Q3 revenue for salads and the guacamole businesses or could you?

Brian?

Yeah, no, we have not and we normally would not give that kind of guidance. We manage it at the full segment level.

Okay. Can you say how much? They were either up or down or any guidance on how they actually performed, sort of the key portion?

Yeah, sure. As was indicated in the press release as well, we are up in salad on a year-to-date basis, $9.4 million, and that would be on a year-over-year basis about 7%. You can even do the math backwards there.On the core veg side we've indicated that we're down, we're managing that down purposely. It's a highly volatile segment and a lot has been said on core veg already. On the bean side, we've had – it's a high margin category for us. We have had some supply issues there, not anywhere near the sort of cost variance issues that we're having core veg, and so we're down year-over-year in that area as well.

Guacamole, I think at one point you guys had said that you thought Q4 would come in at $18 million to $20 million. I think a meaningful part of that I would assume to be sort of the lead up to Cinco de Mayo. I mean obviously that to me, that would seem like that holiday could be meaningfully impacted. Could you just talk about your current assumptions around revenue in guacamole for Q4?

Yeah Brian, if you want to...?

Sure, yeah. In our current model, which ladders into the guidance that we've provided, we’ve paired back, but I think just to be conservative, just a bit, a couple of million bucks or so, the guacamole fourth quarter revenue number. We're feeling good about hitting the number. We're keeping an eye on the issues that Al mentioned earlier, but again we've already built some -- we've already paired that back a bit here from the earlier guidance or discussions that we may have had. So I think we feel pretty confident at this point that we’ll come in probably a couple of million bucks or so lower than the number you just threw out.

Okay. So, how much does that impact what you were planning on doing on gross margin in that business in Q4, because that was a huge part of the assumption of the Q4 guidance as well.

Yeah, we are still tracking toward the same gross profit margin figure that Al indicated and there may be a little bit of pairing back on the gross profit, but again there’s ladders into the guidance that we provided for the full year.

And then on the legal expense, the $3.2 million, eye-popping, jarring, can you guys speak to that? I know you don't want to speak to it or you can't speak to it in great detail, but going from $800,000 to $3.2 million I mean and essentially saying we have no idea where this ends, can you speak to that at all?

We really can't speak to it. I mean, you know right now there's – we have Printback [ph] and we have Pacific Harvest and we're working with the lawyers on how to best handle the situation and really can't talk much more about it.

Was that – Brian, with that $3.2 million, was that excluded from adjusted EPS and adjusted EBITDA or…?

Yeah, it was. You'll also note and I believe it's in the press release that we do believe that a fair amount if not all of those dollars will be ultimately recoverable.

Okay, that's all I've got. Thank you.

Thank you.

Our next question comes from the line of Mike Morales with Walthausen & Company. Proceed with your question.

Hi Mike.

Good afternoon Al, Brian and Jim. Hope you're all staying healthy and safe with everything that's going on, thanks for taking my questions.Hey, some of the color that you gave around the CapEx guidance and Brian too, and the automation initiatives was helpful. Can you just help give us a sense of maybe from the – as it relates to the $18 million of cost out and $18 million to $20 million, how much of that is tied to automation equipment that has yet to go in? And is there some risk of that getting pushed out with all the disruption happening out there or is that equipment essentially already in and now just using it?

Yeah, that equipment is essentially in. We had one final piece to go in that’s affected by a couple of weeks, but it's not meaningful. Okay. So we feel like we're pretty well on track with the equipment going in.

Okay, that's helpful. And then I guess as it relates to the balance of CapEx, even on the reduced number, I mean the commentary is the least helpful as it relates to capacity utilization of Lifecore. Help us understand what that money is going toward?

The majority of it in the second half of the year is going to Lifecore. I'll let Jim sort of speak to the uses of that cash and the platforms that are being supported.

Yeah, hi Mike. I think we've had this conversation before, but what we're using that money for is filling out the capacity for some of the commercialization of the products in our pipeline. You know we're currently – the $17 million is really a theoretical number based on the infrastructure we have set up and the number of fillers we have. There are still some things for some of these products as they continue to grow for formulation work or packaging type operations.The other thing that we think based on or we project based on the commercialization rates of the late base products in our pipeline, that we will fill that capacity over the next three to four years, and are also starting to spend money on facility and infrastructure to go beyond that $17 million. If you remember, I talked about – you know it takes three to four, sometimes even longer years to put additional capacity by the time you get equipment ordered, installed and then go through the regulatory approval process. So that's kind of a combination, but all focused on managing the capacity to meet future demand.

Great! That's helpful. Jim, in your experience with the FDA in the past, given all the uncertainty that's out there, I mean I'm not exactly sure how in Lifecore whether the FDA could reallocate resources. Is there anything that you're seeing right now that would impact the timing of some of the products in the pipeline – programs in the pipeline as it relates to the outlook for Lifecore?

We are not seeing anything right now, and you know the primary product that we're expecting approval on during this calendar year is already complete and in the final stages of FDA review. We have several opportunities that are enrolling clinically in Phase 3 and in Phase 2 and obviously several in early phase clinical, but we haven't – we talk to our customers almost on a daily basis and haven't seen any slowdown.If resources are reallocated, potentially in the future, could cause delays with clinical trial approval. Things are slowing down big time there, but the trials that are ongoing are at a place where that hasn't impacted them, so we haven't seen anything.The other comment I'll make is some of the opportunities in our pipeline are tech transfer related, so increasing volume of product that we already manufactured, transitioning it from another supplier that doesn't take any or very minimal FDA input. So that's the other reason we're still pretty confident in where the pipeline is heading and how that will impact capacity needs in our operation moving forward.

Sure. So it sounds like maybe a potential longer-term opportunity depending on I guess a lot of uncertainties. But as it relates to the near-term opportunities that may be have you guys most excited, nothing on the horizon that's changing your expectation?

No, we haven't seen anything to-date, no.

Alright, gentlemen thank you very much for taking my questions, and be well.

Thank you.

You too.

Ladies and gentlemen, we have reached the end of our question-and-answer session and I would like to turn the call back over to Dr. Bolles for any closing remarks.

Thank you for your interest in Landec, and have a great day and everybody stay safe out there. Thank you very much.

This concludes today's conference call. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day!