Good afternoon and thank you for joining Landec's Fiscal 2022 Fourth 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 instructions on how to ask the question. Now, I would like to turn the call over to Jeff Sonnek, Investor Relations at ICR. Thank you sir. You may begin.

Good afternoon and thank you for joining us to discuss Landec Corporation's fourth quarter fiscal 2022 earnings results. In connection with today's announcement, I'd also like to draw your attention to the investor presentation on Landec's Investor Relations website as well as a separate press release concerning the corporate transition to Lifecore that is now underway. In connection with that announcement, Jim Hall has been named CEO of Landec and elected to the Board of Directors. Jim will lead today's call alongside John Morberg Landec's Chief Financial Officer. Before we begin, we'd like to remind everyone of the Safe Harbor statement. Certain statements made in the course of this call may contain forward-looking statements. It is 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 2022. Copies of these filings may be obtained from the company's website. And with that I'd like to turn the call over to Jim.

Thank you, Jeff. Good afternoon everyone and thank you for joining us today. I'd like to start by recognizing today's press release announcement that was posted in parallel with our earnings results that signaled our formal intent to transition the focus of the company to the Lifecore business going forward. This is an exciting milestone for the company and has been years in the making following the efforts by Dr. Al Bolles to simplify and turn around the Curation Foods business via our Project SWIFT framework. Al and his team have made significant progress in that regard, which to-date, has resulted in proceeds of $112 million that we've used to pay down debt and establish a healthier capital structure for the go-forward organization. I'd like to extend a personal thank you to Al for his individual contributions having stepped into the CEO role from his Board seat in 2019, he quickly established a value creation plan and then executed on that plan, so we could get to this position today announcing the corporate transition to Lifecore Biomedical. In connection with this announcement, we announced our intent to change our corporate name from Landec Corporation to Lifecore Biomedical and change our ticker symbol to LFCR in the coming months. In addition effective today, the Board has also made several leadership changes to align our company and Board to the new go-forward strategy. These include Dr. Bolles stepping down as CEO and Board member of parent Landec Corporation and into the role of President of Curation Foods to oversee the remaining disposition of the Curation Foods assets. In addition I have transitioned from my role as President of Lifecore Biomedical to serve as the CEO and on the Board of Landec going forward. I am humbled by this opportunity to serve the…

Thank you, Jim. I'll start with a review of Lifecore's financial performance in the fiscal 2023 outlook before shifting to some comments around the financial aspects of the transition plan that we've laid out today. As a reminder, Lifecore's fiscal year experienced a slower first half of fiscal 2022 due to the inventory rationalization by our customers as a result of the lower elected procedure volume during COVID. Then in Q3, we experienced a pull forward of revenues due to the greater than anticipated normalization of this customer inventory rationalization. Therefore, we think it is useful to look at the second half of the fiscal year to normalize for this impact, which I will share in addition to Q4 results. For the fiscal fourth quarter of 2022, Lifecore total revenues increased 6.9% to $27.6 million, driven by a 2% increase in our CDMO business and a 34.1% increase in our fermentation business which was above our expectations and drove upside to our guidance. For the second half of fiscal 2022, total revenues increased 17.6%, which is more representative of the sort of growth that we expect from this business. Lifecore gross profit increased 19% to $13.4 million for the fourth quarter of $22 million representing a gross margin of 48.4%, which compares to 58.9% in the prior year period. The margin variance versus prior year is again due to the revenue mix and timing of customer shipments. For the second half of fiscal year 2022, gross profit grew 15.2% to $26.3 million with a gross margin of 42.1%, as compared to 43% in the prior year second half. Lifecore adjusted EBITDA increased 15.9% to $8.9 million for the fourth quarter of 2022, with an adjusted EBITDA margin of 32.3% and as compared to 29.8% in the prior year fourth quarter.…

Thank you. At this we will be conducting a question-and-answer session. Our first question comes from the line of Jacob Johnson with Stephens. Please proceed with your question.

Hi, good afternoon. Congrats on the quarter. Congrats on Lifecore announcement. And Jim, congrats on the CEO title. I guess, first question just on the Curation Foods sale, as we think about that transaction, it sounds like you have two processes going on right now. So should we think about this as probably a couple of different transactions, if you're looking to completely exit the Curation Foods segment?

Hi, Jacob. This is Jim and thanks for your comments. And before I have John dive into that, I just want to thank everybody. This is obviously very humbling for me to take over the leadership role here. And through Al's leadership over the past several years, we've made excellent progress that's gotten us to this point. I also want to comment how seriously, we're taking the monetization of the remaining Curation assets and I'll let John go over that, here in a little bit. And then just from Lifecore standpoint, we've been getting ready for this for a long time. We're all very excited. The organization is prepared and ready to go to continue to deliver our strategy and growth plan. So it's a big day here, at Lifecore as well. So I'll have John, go over a little bit more detail on your question. So John, take it.

Hi, Jacob. How are you? Yes. Yes, absolutely. We started Project SWIFT when we had five assets, really that we needed to divest and they're all very different kinds of assets with really different kinds of buyers. So as you know we sold the Windset investment about 16 months early then Eat Smart and finally BreatheWay, just right after our year-end. So the remaining two, the avocado products business and O Olive, again are kind of two different kinds of assets with two different kinds of buyers. And so our process is to sell them. We'll take care -- or take place really at the same time. And we hope to complete those as soon as practicable. But really on terms, and under the circumstances, we believe to maximize shareholder value particularly in light of the current economic environment and the state of the debt market. So, that's what we'll be doing.

Okay. and thanks for that, Jim and John. And then Jim kind of going back to the Lifecore strategy now that Landec is becoming Lifecore, how does the new name, the ticker change, you being CEO, does that change the strategy at Lifecore, change kind of the direction that it's going at all, or it seems like maybe you've been kind of going -- moving in this direction so perhaps no change at all?

Yes. Really Jacob, there's no change at all. We've laid out the strategy over the last several years. We've been working hard to get Lifecore ready for this day, building out the organization. We're at a point now where we've added the investments in sales and marketing. We've been spending a lot of time getting Lifecore's name out there across all fronts, implemented our targeted sales approach. I think you can see by the activity and some of the things that we've introduced, if you haven't had time, we've updated the corporate deck with more transparency into the pipeline and prospect pipeline. And all that is attributed to the work we've been doing there. It's just accelerating the strategy we've had all along and what we've been working towards for the last several years. So, no change. The focus is just on continued acceleration of that pipeline and getting as many of our prospects on board as soon as we can.

Thanks. Next question. And then just last question for me. Just Jim you mentioned the continued investments on the sales and marketing side. Can you just talk about the evolution of the business development effort at Lifecore maybe over the last year or two? Kind of where are you now? And then as we look out the next couple of years maybe what does it look like?

Yes, sure. And as you know, we've talked in the past historically Lifecore's pipeline and new projects really relied on our reputation and not really going out after new opportunities and really targeting what Lifecore's skill set is and finding what's out there to bring in. How that's changed and advanced over the last year or two? I think the last time we reported our prospect pipeline was around 30. There's 51 things in it now. Several of those are in very late stages of discussion that we hope to onboard. And we've added -- we have two sales directors out in the field now actively going after new prospects. We've got and implemented our new internal marketing person that's done a lot of work getting our message out there. And what we've really done is spent a lot of time getting the organization ready for the increase in activity from a development standpoint, from an employee standpoint. We spent a lot of time on our employee development through our Lifecore University Avenue. And it's really all just getting the organization ready, and it's bearing fruit. There's a lot of new activity and a lot of new projects heading our way.

Got it. Thanks for taking question, Jim and John and congrats on all the announcements.

Thank you.

Thanks Jacob.

And our next question comes from the line of Mike Petusky with Barrington Research. Please proceed with your question.

Hey, guys. Exciting night, exciting news.

Good morning.

So I may have missed this but the change of name and ticker does that have to wait until the assets in Curation are sold, or will that happen regardless over the next few months?

Hey, Mike. We've already started the process. It's process is probably 30 to 90 days with like the state of Delaware and getting the right consents. So it should happen pretty quickly here. It doesn't have to wait on any remaining asset sales.

Okay. Very good. I guess then in terms of the project pipeline, Jim, I mean, is there -- how do you guys think about like goals there? I mean, is there like a goal to add 20% to the pipeline every year, or is there some metric to think about as to what's a successful year in terms of ads, or how do you think about that?

Yes. There's a couple of things we look at Mike, and it's not solely based on the number of projects, but the quality of the projects and what we're doing to drive that. Every year -- every fiscal year, we don't break this out, but we have an internal goal of new development revenue associated with that pipeline. That's typically in the upper double digits of growth criteria. But really what we focus on is identifying the right projects and making sure that we're onboarding the right ones. We have an internal saying at Lifecore. It's called right fit can we win? Do we want to win? And we spend a lot of time evaluating the criteria of potential opportunities that include what markets it in, does it utilize our existing assets, the experience of the management team on the other side there's a whole list of things that we use. So there's no set number. I can tell you it's going to expand. We see it directionally increasing both the projects that we're actively working on and also ones that we're trying to onboard. So hopefully that helps in some of the direction we're looking at.

Just in terms of the effort it takes to onboard I mean if a half a dozen of these 51 projects said, yes, tomorrow I mean would you be able to start the process with all six, or does it sort of have to be staged just based on the people resources you have?

You know, naturally stages simply -- and you've heard me discuss our pipeline opportunities going through the funnel of evaluation and they naturally gate themselves, right? And I can tell you with the things that we have in active discussion and we have pretty late-stage proposals out to several of those opportunities the organization is ready to handle them. And through Lifecore University we spent a lot of time making sure that we can onboard the people we need and stay in front of that curve. We have a pretty good line of sight on how these things will onboard and can usually add the resources as we need to.

And then John in terms of cash flow from ops, any comment there any guide as to what you're expecting if the assets don't sell any time soon?

Yes, it's a great question to ask, but it's very difficult for us to respond to that today because it really all depends on what occurs with the assets at this point. So we're really not in a position to share any guidance on that at this point in time.

What about interest expense?

That kind of goes to the same thing, right? So if you look at -- obviously we ended the year at $136 million of debt. Trying to figure out what that debt would be at the end of the year you'd have to model out either proceeds that we might get from the divestments or you'd have to consider if they were to stay at the full year what the overall debt would be considering the CapEx and performance of the Curation business. And as you can tell we're trying to focus in on Lifecore. So it would be very difficult for us to share with you today those thoughts because we just don't know.

John, forgive me I'm at the end of a very long day and a long earnings season. What -- the $135 million is that floating, or is that mostly floating? I can't recall. And forgive me for that.

Yes. So it's a combination of both term debt and revolver debt.

Yeah.

I mean I can share with you that our interest rate at the end of the year was in the 8%. It's probably 8% to 9% with its LIBOR floating and LIBOR is going up a bit. So I mean if you wanted to model out you could use somewhere probably in the mid-8s for Q1 call it probably 9.5% for Q2.

All right. Very good. I think that's all I have for now. Jim congrats. So well-deserved. Thanks.

Thanks, Mike. Appreciate it.

Thank you. And our final question comes from the line of Connor Jensen with Lake Street Capital Markets. Please proceed with your question.

Hi. This is Connor Jensen for Mark Smith with Lake Street. First, I just wanted to say congrats Jim on the new title, new role. Very exciting stuff.

Thank you, Connor.

Next just kind of wanted to talk about excess capacity there at Lifecore. What do you have today? Were you looking to add capacity? And what are you doing right now?

Yes. I think, we've covered this in the past, but we have a theoretical filling capacity at 22 million units now with the filling lines that we have set up. We're not set up operationally to do that much. We're currently at approximately 10 million units of operational capacity. So that's as staffed and as we're set up with ancillary support equipment. We have the capability to add two new filling lines, which you heard me talk about in the opening that are on order and part of our capital spend this year to bring the capacity north of 45 million when we need it. And right now based on the line of sight with our pipeline, we see that 22 million units being filled up over the next three or four years and therefore, needing to invest in the capacity beyond that now, simply because of the lead times to get the equipment in installed validated approved by FDA, et cetera.

Very helpful. And then second question here. I was just wondering, so for that other segment that's just corporate expenses through the 2023 outlook? That doesn't have any of the kind of legacy expenses in there from the old business?

Yes, that's correct. Just like we have essentially have been reporting the Landec other segment, it would be very similar. And at some point in the future, when all the Curation assets are sold, it would all just be consolidated and collapsed into a singular segment called Lifecore.

Thank you. That's all I have for right now. Congrats on the great quarter.

Thanks Connor.

Thank you.

Thank you. At this time, we have reached the end of the question-and-answer session. And I would now like to turn the call back over to management for any closing remarks.

Okay. I just want to thank everybody again for your interest. Obviously, an exciting time for Lifecore, and we look forward to talking to all of you again when we release our fiscal first quarter results here in a couple of months. So, thanks for your interest and we'll talk again soon.

Thank you everyone. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation and have a great day.