Good afternoon and thank you for joining Landec's Fiscal 2022 First 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'd like to turn the call over to Jeff Sonnek, Investor Relations at ICR.

Good afternoon. And thank you for joining us today to discuss Landec Corporation's first quarter fiscal 2022 earnings results. On the call today from the company are Dr. Albert Bolles, President and Chief Executive Officer; John Morberg, Chief Financial Officer and Jim Hall, President of Lifecore. By now everyone should have access to the press release, which went out today just after 1 p.m. Pacific or 4 Eastern. If you've not received the release, it's available on the Investor Relations portion of Landec's website at ir.landec.com. Before we begin today, I'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 2021. Copies of those filings may be obtained from the company's website. With that, I'd like to turn the call over to Al.

Thanks, Jeff. Good afternoon, everyone, and thank you for joining us today. On today's call, I will provide highlights from our fiscal 2022 first quarter results. Jim Hall will then review recent developments at Lifecore. I'll cover our operational progress at Curation Foods and John Morberg will discuss our financial results and fiscal 2022 outlook. We will then open the call for your questions. We had a strong start to fiscal 2022 with our first quarter performance where we generated consolidated revenues of 129 million and consolidated adjusted EBITDA of 4.4 million, as we anticipated, the drivers were margin related, with a 7% increase in consolidated gross profit and a 42% increase in adjusted EBITDA both of which were achieved despite a 5% decrease in our revenue, which is explained by the planned contraction within our Curation Foods segment. Moreover, I'm pleased with our ability to drive adjusted EBITDA growth at both of our operating segments in our fiscal first quarter. Lifecore grew revenue by a modest 1% but drove adjusted EBITDA growth of 57% based on some mixed related benefits. And at Curation Foods, we were pleased to generate segment gross profit margin of 11% and grow adjusted EBITDA by 25% despite the ongoing strategic contraction of revenue, as we continue to rationalize SKUs and simplify that business. We are on plan to the first quarter and continue to feel good about our fiscal 2022 outlook. As a result, we are reiterating those objectives here today, which are called for a full year consolidated revenues of 545 million to 554 million and consolidated adjusted EBITDA of 33.3 million to 35.5 million. We have the benefit of a nimbler organization, which as I hope you can see is translating to improving margins. We have more work to do but we are on the right track. We have a solid foundation and both our businesses expect to drive more consistent results going forward as we work towards delivering enhanced shareholder value. With that, I'll turn the call over to Jim.

Thank you, Al. Building on our fiscal fourth quarter update, we continue to make headway with our operating initiatives, including the $1.6 million investment in sales and marketing that are planned for fiscal 22 that we discussed last quarter. I'm pleased to report that we're on track with a build out of our development pipeline as we prepare for the future. In the fiscal first quarter, we signed development agreements with two additional companies and started work on one new project. This brings our development pipeline to 23 projects, which are spread across early phase clinical development with five customers, phase one and two clinical development with eight customers and phase three clinical development and scale up commercial validation activity with 10 customers. We have also completed one development project, which received FDA regulatory approval and have transitioned that product into commercial production. In addition, as we continue to build and prepare the organization to advance and expand our development pipeline, activity remains strong and we remain in active discussions with many potential new project candidates to continue to build on our pipeline moving forward. We operate in the amazing CDMO industry with strong fundamentals and Lifecore is perfectly positioned to take advantage of the growing CDMO opportunities to deliver attractive financial returns to all of our stakeholders. We are a beneficiary of the significant trends towards outsourcing of new drug development and our syringe and vial filling capabilities align perfectly with the powerful trends and new injectable drug applications that are utilizing those modalities. Limited injectable drug manufacturing capacity creates an opportunity for Lifecore to grow and also extend our reach through investments and new capabilities to meet the industry's ever growing needs. Our expertise in viscous materials and our world-class quality system that supports drugs, biologics, medical devices,…

Thanks, Jim. Curation Foods started fiscal 22 strong and perhaps most importantly, we are hitting the gross margin targets that we've been working towards as a result of project Swift. We delivered on our steady state target of 11% to 14% in fiscal 21 fourth quarter, which was a significant milestone for the business. And in fiscal 22 first quarter, we achieved 11%. We are standing by our commitment, deliver that same range of 11% to 14% for the full fiscal year, which speaks to the massive operational enhancements that we made over the past two years to put this business on firm footing as we prepare and shift our energies toward growth. Our focus this year has evolved to drive efficiencies and our operational performance through maturing our operational excellence program, which we refer to as ZEST, Zero Waste, Employee Engagement, Standardization and Training. This is an approach based on the Lean principles that are well recognized for improving operational performance. ZEST is only possible now that we have done the work to simplify the business through strategic moves to reduce organizational complexity, divest non-core assets, broaden leadership accountabilities, and flatten our management structure. Of course, inflation is having a significant impact across a variety of industries in here at Curation Foods as well. While we'll continue to believe that we are in a relatively better position, given all the operational enhancements we've made over the past two years of project Swift categories, such as packaging, freight and supplier related costs are things that we are dealing with daily. We have a focused program to drive continuous productivity through the supply chain with a concerted effort to offset cost increase, where we are unable to offset cost increases, we are also working with our sales teams to implement price…

Thank you, Al. I'm pleased to share with you our financial results for the first quarter of fiscal 22. I will begin with a summary review of each segment before concluding with a consolidated financial review. Starting with our Lifecore segment, first quarter revenues ended at 22 million, a 0.7% increase over the same period of the prior year. CDMO revenues posted an increase of 8% to 17.8 million from the prior year primarily due to the timing of aseptic commercial shipments. Fermentation revenues decreased 22% to 4.2 million primarily due to the channel inventory rebalancing that Jim discussed as well as difficult growth comparison on the prior year where this revenue category was up 620%. Gross profit margin improved by approximately 330 basis points versus the prior year to 26.3%, largely due to improve product mix. Segment adjusted EBITDA totaled 2.3 million for the quarter, a 57.2% increase over the prior year and adjusted EBITDA margin was 10.4% marking 375 basis points of improvement versus the prior year. Let's turn to our Curation Foods segment results for the fiscal first quarter. Revenues totaled 106.8 million a 6.2% decline from the prior year first quarter. Fresh packaged salads and vegetables declined 7% which was primarily due to the planned reduction in the lower margin legacy vegetable and trade business. Avocado products revenues were approximately flat versus the prior year. Gross profit margin improved by 100 basis points versus the prior year to 11%, which is consistent with our expectations to achieve steady state segment gross margins in the range of 11% to 14% for a full year of fiscal 2022. Adjusted EBITDA for the quarter totaled 3 million, with a corresponding margin of 2.8%. Briefly turning to our consolidated financial performance, fiscal first quarter revenues declined 5.1% to 128.8 million.…

Thank you. We will now be conducting a question-and-answer session. Thank you. Our first question is from Mark Smith with Lake Street Capital Markets. Please proceed with your question.

Hi guys. First couple questions on Curation, just wanted to check you guys talked last quarter a little bit about grocery store, shelf reset, what are you seeing here, what are you seeing being pushed out and kind of your expectations as we move through the next couple of months?

Yes. The resets are starting to happen I think you noticed that we -- our Guacamole Now test the reset was pushed out a couple months which delayed our testing but that's now happening and we're getting our new products now into many customers. We're excited about our buffalo cauliflower product that's off to a great start Ready to (ph) is off a good start. And our spicy sweet kale resets happened in Canada, we're now national in Canada with that product and have begun to ship to other customers here in the U.S. So it's really good Mark to see that the resets are happening. We're kind of getting back to normal here on the timing of those things.

Okay. Then similar question, just as we look at food service, we're hearing a little bit more negative kind of chatter coming out of food service here over the last maybe two months. Any update on kind of, as you've got good fingers on the pulse of that business on what you're seeing within food service.

Yes. We're actually doing well in food service. We picked up some new distribution with our green beans, some of the salads, so we're not seeing a slowdown or food service. It's nicely ramping for us. We also see the away from home and like the Hello Fresh products, demand is very strong on that. And we're also off to a very good start in our ecommerce business with Amazon.

Okay, great. And then just turn into Lifecore a little bit. Can you just walk through a little bit the gross margin there and some of that delta. Was this product mix, was this driven primarily by the inventory stocking, walk us through any additional insight you can give us on the gross margin there?

Yes. Sure, we can do that. John, do you want to take Mark through that?

Yes, sure. I mean, it's primarily just product mix, right? So the combination of the products within the CDMO side with aseptic filling, the manufacturing, principally that’s driving the gross margin story there.

Okay. So not as much an impact from the inventory stocking or is that have maybe some of the impact just as that then impacts of the product mix?

Yes. No, really just on the sales side, or the aseptic filling side, just really strong demand there. Really driving and assisting with the margins for the quarter itself. So really pleased to see that, that strong performance of the gross margin for the quarter.

Thank you. Our next question comes from Anthony Vendetti with Maxim Group. Please proceed with your question.

Thanks. Yes, I just wanted to check on the logistics contract with Castellini, I think it is, where is that - because I know you're outsourcing that but where is that in terms of being completely rolled out? Is it partially rolled out and then when it is completely rolled out what type of savings either on a dollar amount or gross margin improvement or what can you tell us about that and the opportunity there, because that seems like a good opportunity to take out some costs?

Yes, Anthony. We just started to roll it out in Q1. So we are fully rolled out and beginning to ramp it up. We are seeing already with a couple customers, one of the big reasons we wanted to do this was to get that out to be more efficient and more effective. We're shipping to several customers, five, six days a week now or before we were only doing three. So that's having a positive impact for us. And I am really pleased that we got that partnership done, because I think, the impact of freight costs these days. And I can't imagine where we would be if we would not have done that project having a really strong partner with Castellini. I've been to Cincinnati twice met with their CEO. We're getting our teams integrated. So we're rolling it out. And we're really happy to see that and we're expecting somewhere in the neighborhood of around a million dollars of improvement this year. And that's where we are.

Okay, great. So overall, it should save you a million dollars. But it's not just the savings, it's the efficiency, the benefits to the customer, the on-time delivery, all that is critical right going forward?

Yes. Anthony, you are absolutely right. That's the real reason why we did it. I mean, obviously, we want to save costs. Obviously, they're professionals at this, we were not, they're able to hedge their fuel. We weren't, we never had to scale to do that. But the real opportunity is to get more fresh product on the shelf, it’s to decrease our shrinkage on the shelf, which we're starting to see that happen. A couple customers where we are getting the five, six day delivery per week program in and we are now just talking about whitespace. Because I think as I've mentioned before, Anthony, if you drew a circle from Minnesota to Texas, there's a lot of whitespace that we were not able to get to before. And now with Castellini, we're able to start talking about with our sales force how can we get after that whitespace, particularly on the Eat Smart side, and really begin to get growth and it's growth that I call news without SKUs, we don't have to invent anything new. It's just to get to customers that we couldn't get to before.

Okay. Lastly, on the on the cost side, are there any other costs that you're looking at or that you've identified that you can take out of the system in general, not just logistics, to offset some of the inflationary prices that you're seeing?

We're taking a look at on procurement side opportunities that we're looking at to partner stronger with our key growers to work closer with them on our grow contracts, that's an opportunity. We spend $150 million a year there. And we are beginning to work a whole lot closer with them. And I know John is doing some work in the space of our inventories. So John, anything you want to add there?

Yes. I mean, I think the other big thing is that, we've spent so much of the year in integrating other facilities as well. And it just takes a lot of time and effort and now that we've finished that we can really concentrate on the four walls of our current facilities and our teams are really focused on trying to sweat the assets that we have and trying to get more efficiencies and with Project ZEST and the continuous improvement. We think there's just still great opportunities for us. And we've got several business initiatives that we're tracking that are in place that are a big part of really trying to offset these inflationary pressures going forward. So we're really excited about those.

Anthony, our Tanok facility in Mexico is operating extremely well. We got ZEST, really up and going in the second half of last year, you saw the impact in Q4. We have a really highly engaged workforce in Guadalupe. And we just in the first quarter of this year, got it institutionalized in Bowling Green facility, which is starting to pay dividends for us as well. It's exciting to see the engagement in the workforce. Inside our four walls, we're not having labor issues, like you may hear from other companies. So it's exciting to see as being able to roll that out, get it moving and get it institutionalized and really begin to sweat the assets.

Okay, excellent guys. Thanks, I appreciate it. I'll hop back in the queue.

Thank you. Our next question is from Mitch Pinheiro with Sturdivant & Company. Please proceed with your question.

Hi. Good evening. So a couple things here first, just to housekeeping for a second in the press release the restructuring charges and non-recurring, is part of the adjusted EBITDA was 3.3 million. And I realized there's some tax benefits but in the footnote it says 4.9 million. What's the difference between those 2, 4.9 of restructuring charges and the 3.357 that I'm seeing in the table.

Yes, John, you want to take that?

Hey, Mitch. I probably need to look at that and get back to you on an answer to that.

Okay. That's fine. And then, as far as, I'm bouncing around here. So the debt ended at 155 million, you're spending obviously some capital, is it fair to assume that debt will be at 155 million or maybe slightly higher at fiscal year end 22?

No. With CapEx and everything we still see debt, as we discussed last quarter end somewhere around 180 million of net debt by the end of the year.

180 million of net debt. Okay.

Yes. And that was part of just under, I would put us just under five times leverage that's considering we're doing around 32 million of CapEx for Lifecore up to 7 million for Curation. Now it assumes some operating cash flow on the GAP statement of probably 6 million to 8 million; 15 million or so of free cash flow after the Windset investment. Obviously the Windset investment helps us by doing and allowing us to do that type of investment.

Okay. And then, you may have mentioned this, I might have missed. In the Yucatan business, whole Guacamole Now business where, what were margins in that business like year-over-year?

Yes. Well, we don't actually give margins out individually for those the gross margins itself but they substantially improved for sure. I think what we have said in previous conversations and Al took that over -- that business over, we were essentially didn't hardly have margins and that was a big part of the project Swift was really operating and fixing that facility. And now we're having -- that's been a big part of fixing the whole Curation story.

Is that still a high 20%, 30% kind of gross margin business?

Well, we don't give guidance out. It’s not that high, to that level, but we haven't given guidance out on gross profit at the segment level. It's not that high though but it's a good margin.

Okay. I thought that's what the target margin was. My memory may be a little off. Okay. And then one for Jim. Any color on ZYNRELEF roll out, it has gone smoothly. Any feedback from Heron on, feedback they're getting any color would be helpful?

Yes. From our perspective things are going to according to plan, productions, right in line with what we projected. I'll refer you to Heron's recent releases and various comments, I think they're happy with the way things are going and getting good feedback. But I really can't provide much more than that. But from our perspective, it's right on track and nothing out of the ordinary for us.

And then, I guess the next question going back to Curation. Also you may have talked about this, but as you look at pricing and your cost savings combined that will help offset the inflationary pressures. What's like the mix there, is it 50:50, do you need more pricing than cost savings and is it going to be more cost savings and pricing?

Well, for the fiscal year, I would say it's double on our productivity to our ZEST program, and then over one we are going to take for pricing during this fiscal year.

I'm sorry. I didn't understand that.

So you asked for the mix. So our productivity would be 2x of saving versus what we are beginning –

I didn’t hear that. I got it, okay. I didn't hear the x. And then I guess last question is -- is it I guess we should finally see. And it's been a long time revenue growth in the third quarter, is that when things -- is that when -- as a company, is it going on a consolidated basis? The third quarter is, we're back in the black on growth. Is that a good assumption?

Yes. I mean, we have confidence that our guidance for the year, by the time we get our productivity plans start to come to fruition, pricing taking hold. And then, as I said, we are very excited and we're off to a good start with our innovation. We're picking up new customers that we haven't had before, in the Midwest, as well as some other channels. And we have a big focus on food service this year. And we expect those things to start to really pay off for us to see better profits and better top-line growth in the second half of the year.

Mitch, from an overall perspective, we are definitely -- there's definitely a meaningful growth with the Lifecore side, too, from the top-line to hit the overall 7% to 10%. So, we'll definitely start seeing overall consolidated revenue growth in the third quarter.

Yes, that'll be nice. When you need to get the revenue growing again and it's been quite a year, year, and a half, but it's sort of closer than it's ever been, I suppose. So, thank you for your time.

Thank you. Our next question is from Mike Petusky with Barrington Research. Please proceed with your question.

First one is for Jim, did you all say that second quarter Lifecore revenue should be roughly flat year-over-year? Did I hear that or no?

Yes. This is John. Yes. It should be so much flattish. Really the year-over-year in the first half is somewhat flattish, basically.

Okay. So if you then sort of proceed with the math, to get to the lower end of the yearly guide, and top line growth at Lifecore; Lifecore has to be clicking off sort of mid-teens growth in the second half. And I guess my question is why should that occur?

Yes. We're very comfortable with what's in the pipeline, and what our customers are forecasting, to have a very strong second half. As well as remember, we're also investing in the P&L. And we're already starting to see with our investment in the sales marketing side including starting to add to the pipeline, that we're seeing the opportunity there, that will then translate into the top-line sales.

Yes, Mike, this is Jim. Basically things are back to full speed ahead in the second half of the year. We're seeing inventories work through like we projected and project that can be done in the second half, that includes uptick and production in the second half, which is an uptick in AHA. And we have a lot of activity in our pipeline, on the development revenue front in the second half of the year. So you are right, the second half of the year growth is high, but as we projected the first half of the year is playing out exactly like we had expected Q1 or happy with that finished looking at what we see from our customers, barring any COVID surprises things are back on track. So the second half of the year is going to be a big growth half. For us, that brings us into our guidance.

So Al, the price increases that you're going to put through, I guess, on the food side, has any of that been done or is that to be done?

The majority of it is being done now. It takes a little time at the retail sector to get the prices in. So most of the dollars will be realized in the second half of the year. But we are taking some surcharges freight to where we can for instance in the food service side. We are taking these -- those as we speak now. But the majority will be -- well, here in the January timeframe.

Okay. And when you guys sort of model out, hey, we've got to offset these inflationary pressures. And you talk about cost savings and you talk about price increases. I heard the 2x on the cost savings versus pricing. But can you give us a sort of -- and I may have missed it if you gave us, forgive me, but what is the dollar figure we're talking about in terms of your estimated inflationary pressures for fiscal 22?

Well, yes, John.

What we're saying Mike is, we think it's a couple 100 basis points in the second quarter, is really what we're saying. And that we are basically trying to cover that. And we will cover it really through the, you know, the balance of the year with pricing and with some cost savings. And we really feel like the pricing itself on an annualized basis would cover all of the inflation.

So 200 basis points is what I should hear or what I should take away?

Yes, in the second quarter. Yeah.

All right. And then on avocado what's your current outlook for top line growth in that business in this fiscal year?

Yes. Right now we think it's on the low single-digit growth is still growing.

Okay. So like 2% or 3% for the year.

Yes. We were seeing is probably mid-single digits, it's just a little bit of delay with the test here.

But we did mention, I don’t if you caught it, we've invested in the high pressure line and that enables our sales force now to go after private label, which is the fastest growing part of our avocado products. So we are actively bidding private label business as well, most of which were not probably hit till later in the year just by how they do their bidding. But we're excited about the opportunity now that we can go after private label where we were blocked before because we did not have high pressure.

Just one other question and forgive if I missed this, you guys gave a lot of information. Expectation for gross margin in Q2, do you expect that to be better than gross margin in Q2 a year ago or do you expect that to be flattish or worse?

We still think it's going to have some impact this year, but we still believe it's going to be better than last year in the Curation side.

I'm talking about consolidated gross margin.

Yes, I think it's going to be still a little bit better than last year, but we're a little bit because of -- on the Curation side, it will be a little bit better than last year and not quite as strong on the Lifecore side. So in summary, here in total, it should still be a little bit better than last year.

Thank you. There are no further questions at this time. I would like to turn the floor back over to Dr. Bolles for any closing comments.

Thank you again for your interest in Landec Corporation and your participation on the call today. We look forward to talking to you once again when we release our fiscal second quarter results. Thank you very much.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful evening.