SEC Form 10-Q Summary
Registrant: Landec Corporation, not Lifecore Biomedical, Inc. The filing covers the fiscal quarter and six months ended November 27, 2011, compared with November 28, 2010; balance-sheet comparisons are with May 29, 2011. Landec operates Food Products Technology, Food Export, HA-based Biomaterials through Lifecore, and Technology Licensing businesses.
Financial Performance and Position
| Metric | Three Months Ended Nov. 27, 2011 | Three Months Ended Nov. 28, 2010 | Six Months Ended Nov. 27, 2011 | Six Months Ended Nov. 28, 2010 |
|---|---|---|---|---|
| Revenue | $81.6 million | $70.2 million | $154.9 million | $135.1 million |
| Gross profit | $13.0 million | $11.9 million | $24.3 million | $23.7 million |
| Operating income | $4.2 million | $3.5 million | $7.1 million | $7.5 million |
| Net income attributable to common stockholders | $3.3 million | $2.1 million | $5.2 million | $4.4 million |
| Diluted EPS | $0.13 | $0.08 | $0.20 | $0.16 |
- Quarterly revenue increased 16%; six-month revenue increased 15%. Quarterly gross profit increased 10%, while six-month gross profit increased 2%.
- Approximate gross margin was 16.0% for the quarter and 15.7% year to date, versus 16.9% and 17.5%, respectively, in the prior comparable periods.
- Approximate operating margin was 5.2% for the quarter and 4.6% year to date, compared with 5.0% and 5.5% previously. Approximate net margin attributable to common stockholders was 4.1% for the quarter and 3.3% year to date.
- Cash and cash equivalents were $4.2 million at November 27, 2011, down from $8.1 million at May 29, 2011. Marketable securities were $24.2 million, producing approximately $28.5 million of cash and marketable securities.
- Operating cash flow was negative $0.7 million for the first six months, compared with $2.1 million of operating cash flow in the prior year. Investing activities provided $0.8 million, while financing activities used $4.0 million.
- Capital expenditures were $3.0 million. The company repurchased 880,060 shares for $4.8 million, leaving approximately $4.0 million authorized under the repurchase program.
- Total debt was $17.5 million, including $4.3 million current debt and $13.2 million long-term debt. The debt is secured, subject to financial covenants, and guaranteed by Landec. A related interest-rate swap effectively fixes the applicable Credit Agreement rate at 4.24%.
Material Changes Versus the Prior Comparable Period
- Apio revenue increased 18% for the quarter and 16% year to date, led by higher value-added produce volumes and stronger export volumes. Food Export revenue increased 23% for the quarter and 26% year to date.
- HA-based Biomaterials revenue increased 10% for both the quarter and six months, but gross profit declined 3% and 5%, respectively, due primarily to production timing and lower overhead absorption. HA gross margin fell to 57% quarterly and 49% year to date, from 64% and 57%.
- Technology Licensing revenue declined 3% for the quarter and 4% year to date. The Monsanto agreement expired December 1, 2011, reducing expected quarterly licensing revenue and gross profit by $1.35 million beginning in the third fiscal quarter.
- Net income benefited from $281,000 of quarterly and $563,000 of year-to-date dividend income from the Windset preferred investment, as well as approximately $1.1 million of quarterly and year-to-date fair-value gains on that investment.
- Operating expenses increased 6% quarterly and 6% year to date, including higher compensation accruals associated with exceeding revenue and operating-income plans.
Outlook, Risks, Contingencies, and Unusual Items
- No specific numerical earnings or revenue guidance is provided. Management stated that existing cash, marketable securities, and expected operating cash flow should fund operations and capital requirements for at least the next twelve months.
- Based on Lifecore revenue for the twelve months ended December 31, 2011, the Lifecore acquisition earn-out was fully earned. Landec is obligated to pay the former owner $10 million before June 1, 2012. The recorded contingent-consideration liability was approximately $9.9 million at November 27, 2011.
- Landec received the $4.0 million Monsanto termination fee on November 30, 2011, after the reporting date.
- Liquidity is exposed to working-capital movements, including increased receivables from higher export sales and Lifecore shipments. The company also faces produce supply and weather risks, customer concentration, order-timing volatility at Lifecore, regulatory and intellectual-property risks, and dependence on collaborative and licensing arrangements.
- The five largest customers represented 42% of year-to-date revenue, and the largest Food Products Technology customer represented 16%.
- Windset investment valuations rely on significant unobservable assumptions, including projected cash flows, growth rates, and discount rates. The company also has a $235,000 net unrealized loss in accumulated other comprehensive loss related to its interest-rate swap.
- Management reported effective disclosure controls, no material changes in internal control, no material changes to previously disclosed risk factors, and no pending legal proceedings.
Investor Verification Items
- Confirm the registrant and issuer identity: this is a Landec Corporation filing, although the request metadata identifies Lifecore Biomedical, Inc.
- Verify the timing and funding source for the $10 million Lifecore earn-out payment due before June 1, 2012.
- Assess the post-Monsanto impact of the $1.35 million quarterly licensing-revenue and gross-profit reduction.
- Monitor cash generation, receivables, marketable-securities balances, debt covenants, and the remaining stock-repurchase authorization.
- Evaluate the sustainability of the Windset dividend and fair-value gains, which contributed materially to non-operating income.
- Review Lifecore production timing, customer concentration, and margin recovery in subsequent quarters.