Lifecore Biomedical, Inc. (LFCR) Q4 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Landec Corporation Fourth Quarter and Fiscal Year-End 2017 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. And now, I'd like to introduce your host for today's program, Molly Hemmeter, President and CEO of Landec Corporation. Please go ahead.

Thank you, Jonathan. Good morning, and thank you for joining Landec's fourth quarter and fiscal year-end 2017 earnings call. With me on the call today is Greg Skinner, Landec's 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 2016. We had a very productive fourth quarter. We began the quarter by acquiring O Olive Inc., a branded all natural and organic supplier of premium olive oils and wine vinegars, and we started the process of integrating O Olive within Landec to support O Olive's long-term growth potential. At Apio, we entered the single-serve salads kit segment by launching three new Eat Smart salads under the Salad Shake-Ups trademark. And also during the fourth quarter, we significantly expanded the distribution of our Eat Smart multi-served salad kits. For the 52-weeks ended May 27, 2017 ACV in US retail for Eat Smart multi-serve salad kits was 24%, up from 14% a year-ago, an increase of 10 percentage points. We expect the US retail ACV to further increase over the next three to six months and Eat Smart salads begin to fill the shelves of new customers. Our results in the fourth quarter and for all of fiscal 2017 demonstrate the benefits of our ongoing strategic commitment to innovation and to shifting our product mix to higher margin products, resulting in a record year for Lifecore and improved operating results for Apio. During the fourth quarter, gross margin at Apio's packaged fresh vegetable business increased a 130 basis points to 13.5% compared to 12.2% in the fourth quarter of fiscal 2016. For all of 2017, Landec consolidated gross margin increased 250 basis points to 15.6% from 13.1% last year. Lifecore had a remarkable year, exceeding performance expectations with annual revenues of $59.4 million, an 18% increase compared to fiscal 2016, and operating income of $15.6 million, an increase of 13% compared to last year. The transition from a supplier of premium hyaluronic acid, or HA, to a fully integrated Contract Development and Manufacturing Organization, or CDMO, is well underway. Differentiated from other CDMOs, Lifecore provide specialized outsourcing services for FDA-approved medical materials that are difficult to formulate, sterilize or fill in a delivery device. These services address the entire product lifecycle from early-stage development to commercial production. In fiscal 2017, Lifecore commercialized its first non-HA product and further increased its product development pipeline of HA and non-HA initiative to fuel its future growth. As a reminder, in October of 2016, we announced an initial $3 million to $4 million capital investment at Lifecore to broaden its capabilities in filling and packaging configuration, including syringes and vials to accommodate a development project that had met specified milestones in anticipation of future commercialization. Landec has now approved the remaining $12 million of capital to complete the purchase and installation of new equipment, as additional project hurdles have been satisfied and Lifecore must prepare for future anticipated demands in fiscal 2019 and beyond. At Apio, we have been focused on transforming the business from a commodity to a branded packaged fresh vegetable business differentiated in the market through innovation. Over the last several years, we have expanded our product segments from the traditional core vegetable bags and trays, to the adjacent high-growth, more profitable salad segments. In Apio's packaged fresh vegetable business, even with revenues down 4% in fiscal 2017, gross margin was up 290 basis points and gross profit was up 26%, a considerable improvement during fiscal 2017 compared to last year, reflecting the continuing shift in product mix to innovative higher margin products, increasing operating efficiencies and more normal raw material sourcing conditions. For well over a year we have been emphasizing our strategy to grow Eat Smart salad business through continued product innovation and expanded distribution in major US retailers. During the fourth quarter of fiscal 2017, Apio entered the single-serve salad kit segment with the launch of its innovative Eat Smart Salad Shake-Ups, increasing the total addressable market for our Eat Smart products in the North American value-added vegetable space by approximately $500 million to $3.8 billion. This product line is designed to attract new consumers to the single-serve category that currently only has an 11% household penetration. These new single-serve salads feature unique flavors, 100% clean label, nutrient-rich vegetables and plant proteins in a patented bowl design that makes it easy to enjoy with less mess. We also continued to pursue our strategy to expand distribution of our Eat Smart salads in US retail accounts and we made significant gains during the fourth quarter. As you may recall, in May of 2016, Walmart began testing our Sweet Kale Salad in 400 stores, which was subsequently expanded in October of 2016 to 1,400 stores following the product's strong performance. During the fourth quarter of fiscal 2017, Walmart further expanded the distribution of the Sweet Kale Salad, which today can be found in approximately 3,800 Walmart stores. In addition, Apio added Fresh Market as a new customer and began shipping eight Eat Smart salads to approximately 177 stores during the quarter, We are also pleased to announce that Kroger has become Eat Smart's newest salad customer, with four Eat Smart salads being distributed to approximately 2,000 stores starting this month. The Sweet Kale Salad and the Strawberry Harvest multi-serve salad kits and two of the new Eat Smart Salad Shake-Ups in the single-serve salad kits began shipping at the start of July and we expect all 2,000 stores to have the salads by August. In our ongoing efforts to make Eat Smart products available to all consumers, we are aligning ourselves with strong partners in all channels, including the growing online marketplace. We are currently selling packaged fresh vegetables to several Direct-to-Consumer Meal Kit companies, such as Hello Fresh, and began shipping to Amazon Fresh in February of this year. It is important that we partner strategically with these customers to service changing consumer purchasing behaviors with Eat Smart innovative products. Our distribution gains during fiscal 2017 and our focus on US retail have resulted in considerable growth in our salad kit sales, well above the category growth. For the 12 months ended May 27, 2017, the US salad kit category growth in consumer dollars excluding Costco was 18%, while the comparable growth for Eat Smart salad kits during the same period was 51%. As previously mentioned, the Eat Smart ACV in the US retail multi-serve salad kit segment is now 24%. Even with this expanded distribution, Eat Smart salad kits maintain only a 4.5% market share in US retail. This is increased 100 basis points from last quarter but demonstrates that there is still much upside potential remaining. In Canada, Eat Smart maintained a strong and leading position in multi-serve salad kits with an 81% ACV and a 41% market share. Before I go into more detail about our plans for fiscal 2018 and our strategic objectives over the next three to five years, let me turn the call over to Greg for some financial highlights.

Thank you, Molly, and good morning, everyone. Revenues in the fourth quarter of fiscal 2017 decreased 6% to $127.4 million from $135.3 million in the year-ago quarter. The decrease was due to a $7.1 million or 54% decrease in revenues in Apio's export business due to the Company's decision to discontinue selling certain low-margin fruit products, and a $4.1 million or 26% decrease in revenues at Lifecore compared to the above average revenues at Lifecore in the fourth quarter of last year due to a customer's request to ship their product in the fourth quarter of last year, which historically ships during the third quarter. These decreases in revenues were partially offset by a $3 million or 3% increase in revenues in Apio's packaged fresh vegetables business. Net income in the fourth quarter of fiscal 2017 was $2.5 million or $0.09 per share compared to net income of $4.7 million or $0.17 per share in the year-ago quarter. The decrease in net income was due to, first, a $4.3 million decrease in gross profit at Lifecore, resulting from lower revenues and an unfavorable product mix change, compared to the fourth quarter of last year. Second, a $1.7 million increase in R&D expenses for new product development. And third, a $438,000 decrease in gross profit in Apio's export business due to lower revenues. These decreases in net income were partially offset by $1.7 million or 13% increase in gross profit in Apio's packaged fresh vegetables business due to a 130 basis point increase in gross margin and due to a $2.1 million decrease in income taxes. Revenues for all of fiscal year 2017 decreased 2% to $532.3 million compared to $541 million last year. The decrease in revenues was partially due to a $15.8 million or 4% decrease in revenues in Apio's packaged fresh vegetables business and a $1.7 million or 3% decrease in Apio's export business, partially offset by an $8.9 million or 18% increase in revenues at Lifecore. Net income for all fiscal 2017 was $10.6 million, or $0.38 per share, compared to a net loss of $11.6 million, or $0.43 per share, in fiscal 2016. The increase in net income was due to, first, a $34 million, $21.5 million net of tax, write-down of the GreenLine trademark in the third quarter of last year. Second, a $10.7 million or 26% increase in gross profit in Apio's packaged fresh vegetable business as a result of a 290 basis point increase in gross margin. And third, a $2.7 million or 11% increase in gross profit at Lifecore. These increases in net income were partially offset by, first, a $10.9 million or 19% increase in operating expenses, which included $4.7 million of expenses from legal fees and a legal settlement charge resulting from a labor-related class action lawsuit at Apio. Second, a $911,000 decrease in gross profit at corporate due to the completion of two licensing agreements early in fiscal 2017. And third, from a non-recurring charge of $1.2 million related to the refinancing of Apio's debt during fiscal 2017. Turning to our financial position. At the end of fiscal 2017, cash totaled $5.4 million. Debt at the end of the year was about $54 million with a debt to equity ratio of 24% compared to debt of $61.1 million and a debt to equity ratio of 29% at fiscal year-end 2016. Cash flow from operations for fiscal 2017 was $29.3 million, up from $21.9 million last year. Capital expenditures for fiscal 2017 were $22.6 million, down from $40.9 million for fiscal 2016. Free cash flow was $6.7 million for fiscal 2017 compared to a negative free cash flow of $19 million for last year, an improvement of $25.7 million. At May 28, 2017, we had $97 million available to borrow under our line of credit. Let me turn the call back to Molly.

Thanks Greg. We are pleased to have the O Olive team as the US members of the Landec family. In early March, Landec announced the acquisition of O Olive Oil Inc. for $2.5 million in cash, plus an opportunity for the seller to earn an additional $7.5 million over the next three years based on O Olive achieving mutually agreed-upon EBITDA target. O Olive is based in Petaluma, California, is a premium producer of California's specialty Olive oils and wine vinegars. Its O-branded products are sold in natural food, conventional grocery and mass retail stores primarily in the United States and Canada. Retailers across North America are making clean label and organic products a priority. O Olive sells a variety of products, including certified organic options that are all-natural, high-quality, great tasting and with easily traceable ingredients for retailers to offer their consumers. Our initial efforts to support O Olive until developing a go-to market product and selling strategy for fiscal 2018 and beyond, as well as providing capital to enable growth and expand distribution of O Olive premium products. With capital, O Olive will be able to secure long-term organic olive oil supply, build inventories to maintain service for large customers, complete several new product development opportunities and bring vinegar production in-house for increased profitability. During fiscal year 2017, Landec extended its investment in Windset Farms for another five years. This extension will give Windset the financial flexibility to accelerate the expansion of its operations, thereby increasing Windset's market value, as well as the value of our investment in them. Windset has completed construction on its new 10-acre strawberry greenhouse and began harvesting strawberries in April. They plan to complete construction on their new 30-acre pepper greenhouse in August and begin harvesting this fall. As a result of the increased income from these two projects, coupled with organic growth from Windset's existing businesses, we are estimating that the fair market value of our Windset investment will increase by approximately $4 million in fiscal 2018, plus it will contribute $1.6 million in dividends to Apio in fiscal 2018 or a total contribution to pre-tax income of $5.65 million. Since beginning of our investment with Windset in 2011 through fiscal year-end 2017, Apio has recognized a return of $39.1 million, consisting of $30.6 million of increase in fair market value of our investment and $8.5 million of cumulative dividends for return on invested capital of approximately 20%. We estimate based on Windset's growth plans of its greenhouse capacity in Santa Maria that the ROIC over the next five years on our investment in Windset will continue to approximate the strong returns we realized during the first six years of our investment. We entered fiscal year 2018 in a very strong position and are excited to begin leveraging many of the investments we made over the past two years in both capital and personnel. We have increased our capacity of both Apio and Lifecore to meet future demand and we have added senior management personnel in areas of sales, marketing, product development and business development to implement and drive our future growth strategies. I would like to take a moment to emphasize the importance of the three-year rightsizing efforts that have been ongoing at Apio as part of a larger transformation of Apio from commodity player to a leader in innovation. We began implementing this innovation strategy in fiscal 2015 and we plan to complete this strategy, including the rightsizing efforts, in fiscal 2018. As we evaluated our core product offerings, we found that many of those historical products generated very low margins, especially when you factored in our high cost of service. We've realized that too much time and effort was being dedicated to selling low to no margin products. We became acutely aware that our future dependent on developing higher margin innovative products to maximize the return on the capital we have invested over the last two years. Since fiscal 2015, our core product revenues at Apio, not including salads, have been reduced by approximately $40 million, net of some profitable increases. In a disciplined manner, we have been discontinuing these unprofitable products and implementing cost savings initiative to maximize the return on our current assets. This has also allowed us to delay major new warehousing and equipment purchases until new higher margin volume - volumes exceed those volumes prior to the initiation of our rightsizing plans. This reduction of lower margin business has resulted in a higher overall gross margin at Apio and a more efficient operation upon which we can build future. As part of the transformation of Apio from a commodity player to an innovation leader, we need to bring a new leadership into the company as well. In the beginning of fiscal 2017, Parker Javid, Apio's Chief Customer and Sales Officer joined the company. Since joining, Mr. Javid has also build a new retail sales organization and retail broker network, so we are now engaging with customers at a more strategic level. The team has developed improved forecasting and demand planning capabilities, optimized trade spending and product promotional programs and acquired new business with top new customers such as Walmart, Kroger and Market Fresh, quite a list of accomplishments for one year. With a reduction of volume from unprofitable products, we have created a more profitable product base and the Apio sales force is building a strong sales pipeline to fill Apio's existing capacity, leveraging fixed costs to accelerate gross margin growth and driving a higher return on our invested capital. As our food business continues to benefit from tailwinds of positive healthy eating trends and sales momentum, Lifecore is also benefiting from a growing trend among both mature and startup pharmaceutical and other medical material companies to outsource specialty services and manufacturing. With a growing number of products in the industry seeking FDA approval, Lifecore is well-positioned as a fully integrated CDMO to augment its pipeline with new projects to fuel its long-term growth. Specifically for fiscal 2018, we expect consolidated revenues to grow 2% to 4%, with Lifecore growing 6% to 8% but still delivering double-digit growth on average over the next five years. In our food businesses, we expect Eat Smart salad products to grow by double-digits, and O Olive to grow by $5 million to $6 million. We expect these increases in revenue to be offset by a decrease in revenues in Apio's lower margin core and export businesses of $20 million to $25 million, with a net effect of shipping product mix to deliver higher gross margins. Again we expect 2018 to be the final significant phase in this rightsizing plan at Apio. We are projecting consolidated net income to increase 35% to 55% in fiscal 2018, compared to fiscal 2017, resulting in an estimated EPS range of $0.52 to $0.58. These expectations provide the basis for expected cash flow from operations in the range of $32 million to $36 million. We also expect capital expenditures of $44 million to $48 million in fiscal 2018. Approximately $12 million to $15 million of this spend is our typical annual maintenance CapEx, with the remaining capital spend needed to support our future growth plans for new product introductions at Apio, Lifecore and O Olive. Moving forward, we are focused on three primary growth platforms. First, in our Lifecore biomaterials business, we expect revenues to grow on average at double-digit rates over the next five years. As part of the transition to a CDMO business, Lifecore is adding new syringe filling capacity over the next several months and new vial filling capabilities within the next 12 months, both of which will be needed in the future to meet the demand we expect from our deep pipeline of development programs along with continuing growth from existing customers. Second, our Eat Smart salad products are on trend and within the fast growing healthy eating space. With continued innovation and our new sales force in place, we expect revenues in a salad business to also generate double-digit growth on average over the next five years. Third, we will continue to explore expansion into higher margin healthy food products adjacent to produce in order to leverage Apio's national fresh food supply chain to bring additional all natural food products to the market. As the first of these endeavors, we are committed to investing and growing O Olive by leveraging sales, customer service, purchasing and procurement capabilities of Apio to ensure that we realize a high return on our investment. With a focus on these three growth platforms, we have established long-term financial goals for Landec over the next five years. We plan to increase Landec gross margins by 400 basis points to 500 basis points from 15.5% in fiscal 2017 or to approximately 20%. We plan to triple our fiscal year 2017 operating income of $15.5 million and we also plan to more than double our fiscal 2017 ROIC of 6.4%. In summary, we will continue to focus on developing innovative products to deliver value to our customers, consumers and our shareholders. Our balance sheet remains strong and provides the resources for executing on our strategic objectives and reaching our financial goals. We are now open for questions.

[Operator Instructions]. Our first question comes from the line of Morris Ajzenman from Griffin Securities. Your question please.

Good morning, Molly, and good morning, Greg. Question on the guidance. We have a 2% to 4% top line growth for fiscal '18. Help us bridge and understand Q1? Again so Greg, you said $120 million to $125 million, which is down about 7% to 8% in EPS to $0.05 to $0.07. What is it in the first quarter that's going to cause a decline on top line, and I guess, first of all, to the earnings [ph] that changes throughout the year?

Good morning, Morris, like you said earlier. Well it's mainly driven by what we said that is happening in our core export business in that they are going to decrease $20 million to $25 million next year. Our export business is very much front-loaded. Two-thirds of those revenues occur in the first half of the year. So a majority of that decrease, the 10 to 13 that we've put in our press release is going to happen, in fact all of it actually will happen in the first half and a big chunk of that's going to happen in the first quarter and the same is true for the core. We're expecting the rightsizing to be done probably half way through fiscal '18. And so a lot of that's also going to happen in the first quarter. So those are the main drivers for the year-over-year change.

Okay. And a question for Molly. Costco, you lost some business when they went multi-sourced in the past fiscal year, couple of DCs shut down on that. You talked about getting additional SKUs for Costco. How is that playing out?

Well, it has played out actually. So Costco's returned the favor, I guess, we could say and again in line with their corporate multi-sourcing strategy, one of the top-selling salad after Sweet Kale Salad is the Taylor Asian salad. You've probably seen them in the Costco. So we were awarded a couple of DCs of the Taylor Asian salad and we began shipping those last month.

Okay. Thank you.

Okay.

Thank you. Our next question comes from the line of Anthony Vendetti from Maxim Group. Your question please.

Thanks. Just a couple of questions. On the Eat Smart salad kits, that and the Salad Shake-Ups or the higher margin business that's growing faster. What percent of that of your Apio revenue is from those categories? And I know it's right now mostly the Eat Smart salad kits.

Well, I think we stated in previous press releases that our salad kits business is approximately $150 million in revenue and we ended around that this year. So you can - I don't have a calculator in front of me.

40%.

There you go.

Okay. And Kroger, Molly you said you are going to be in 2,000 stores. You sign them up for both salad kits and the Salad Shake-Ups. They have like a little over 2,700 stores. Is that initial rollout and then they may roll into others or some of those stores aren't appropriate for the salad kits. Is that the reason?

Well, actually we are already in. We've been in some of the Kroger stores all along. Harris Teeter is a part of the Kroger, one of the Kroger banners, and they've been a big fan of Apio Eat Smart salads for a quite a long time. And so we've already been in those stores. So we are in a couple other smaller banners and have been, and so really this is the remaining stores, that at least makes sense for our salads, right, because you want to make sure you're going to start stores that have this similar consumer that are going to buy salad kits and buy the Eat Smart salad kits. So this is the incremental doors for getting in Kroger and I consider this full distribution at Kroger.

Okay. And then on the vegetable shortages, is that pretty much played out now or will that drip into the first half of fiscal '18?

That's pretty much played out. So we are experiencing saying normal sourcing conditions right now and don't see anything in the immediate future that would rather that should hamper us knock on wood.

And during the Lifecore tour, we saw some of the plant expansion and the area for that. Can you talk about the capital investment, a little bit about the timeline of how long that's going to take to build out and how much money it's going to take to build that out?

So this year in the project, we specifically mentioned, we have about $12 million and that's again to install equipment. We built last years, which you saw when you went on the tour, the infrastructure in the walls. So now it's about bringing in equipment for additional capacity. And we only want to do that when we feel that we've met milestones in the FDA approval process that we feel our risks are sufficiently mitigated. And so we will be spending that $12 million. It will be sparsed out by quarter over the next four quarters, so it is distributed throughout the year. We are also increasing aseptic filling capabilities, which is some more capital at Lifecore this year.

Okay, great. Thanks.

Did I give you enough?

Yes, that's perfect. Thanks Molly.

You're welcome. Thanks.

Thank you. Our next question comes from the line of Colin Radke from Wedbush Securities. Your question please.

Hi, good morning. Could you talk a little bit about the gross margins you're expecting on the Salad Shake-Ups. I think the expectation is that they would be a little lower than the salad kits but higher than the legacy packaged vegetables. But that still leaves a pretty big range. I mean, should we think about these as sort of low-teens, high-teens or are there may be more in the 20%-plus type of range?

We don't like to give gross margins by specific product segments. So we are going to stay away from that. I'll give you - relatively speaking though because directionally they are going to be a little bit lower margins than the multi-serve salad kits, mostly because of packaging. You have a lot more packaging on these kind of products, and that's kind of an industry-wide. So they're not going to be as high but there is still nice margins and we are still expecting the overall margins of our salad business to remain high and be much more - and be much higher than our core product. We also can see the gross margins of our single-serve salads increase over time with volume. So we put in new lines for these single-serve salads, and as we make those lines more efficient, our volume increases, the profitability of those products is going to also increase, which is one of the great wins with Kroger that we had. We're bringing a lot of volume to help that profitability.

Got it. Okay. Just in terms of the Eat Smart ACV. I know in the press release, you say it's up to 24% now. I assume that doesn't include the Walmart rollout. So given that as well less Kroger and some of these other opportunities, where do you expect that number to be maybe a year or so from now?

So that probably does - that number probably does include some of the Walmart rollout because that was a couple of months ago. What it probably doesn't include is all the Walmart rollout or Kroger so we just started shipping. As you know, Nielsen is also delayed a bit. It takes a couple - two or three months until they kind of catch-up with the shipping and the data roles in. I can give you back of the envelope estimate. If I look at the new customers that we have brought on over the last quarter, I would expect our ACV over the next six months let's say, to get to be between 35% and 40% in US retail for our salad specifically.

Got it. Okay. That's helpful. Maybe just lastly, could you perhaps quantify what sort of revenue contribution you're expecting either from the Salad Shake-Ups specifically or maybe more broadly just from adding Kroger? And I think previously you talked about a $5 million opportunity from the Sweet Kale SKU across Walmart, and given that you have a few months now, is that still the expectation or has anything changed there?

So this is the way I would think about it. So we said double-digit growth in our overall salad segment for fiscal year '18 and we just stated that the $150 million business. Keep in mind, we expect our - if you look at - it's mostly coming from retail, so we don't expect the growth from Costco. And so we are going to be looking at a flat type of business at Costco but in over 25% growth in our at least US retail business. So with the double-digit growth on a $150 million, you're talking $15 million to $17 million. I did previously say that the Sweet Kale Salad in Walmart would be about $5 million opportunity. That was total, keep in mind. So we are already distributing the little in last year. So the year-over-year increase is smaller. So if you look at that, call it a few million, at Walmart and we are trying to get to $15 million to $17 million. That's a lot of other new customers coming online.

Got it. Okay. Thanks. I will leave it there.

You're welcome. Thank you.

Thank you. [Operator Instructions]. Our next question comes from the line of Chris Cooper from Lake Street Capital. Your question please.

Hi, good morning.

Good morning, Chris.

Good morning, Chris.

Hi. You talked about HelloFresh and Amazon Fresh becoming partners. Can you talk about - is there a pipeline of other potential online partners and what do you see as the opportunity for that segment?

Right. Thanks for the question. Yes, we are reaching out. We want to be our products to be used ubiquitous, right. That's our goal. So we are reaching out to all the retailers and we are working with several of the direct-to-consumer meal kit companies and we are going to reach out to every single one of them to try to get our product in. Keep in mind that some of these are still small and in their opportunity, and so - but we do - so we don't see huge increases from those as these partners. At the same time, we really believe that there has been a lot of change in consumer purchasing behavior. We want to be in the ground floor of these - with these partners reaching consumers in new ways of their purchasing. And so we are trying to be, as I said, ubiquitous in available to consumers to buy everywhere. So we are going to continue to reach out to every meal kit company and continue to try to build our business with Amazon Fresh.

Okay, got it. Then my other question is little bit different but now that you guys have been exiting some of these low-margin SKUs, my understanding is that your products with your breed way patch, stay fresher much longer than your competitors and since you're leaving those markets, is there any opportunity to partner with any competitors and sell the patch to them?

We're not leaving the markets in anyway. So we are just making sure that we are partnering with the right customers and we're making the partners who value the service that we provide to them and the high quality. Eat Smart products have - if you look at our core business and when I'm talking core, I'm talking our trays or I'm talking our bagged broccoli, have the highest velocity of any other brand in the market. And so we truly believe that our brand in this product still has value but we just want to partner with those customers that value our service and our brand and we are able to get a price for them, makes sense to do business. So we are not leaving those markets. And so I guess the short answer is no, we are not looking at licensing our technology to any competitors because we believe that is a true differentiation for us.

Got it. Thank you.

You're welcome. Thanks for the question.

[Operator Instructions]. And this does conclude the question-and-answer session of today's program. I'd like to hand the program back to Molly Hemmeter for any further remarks.

Thanks Jonathan. Thanks to everyone for joining the call this morning. We believe that we have an extremely strong foundation for growth going forward. We have one year left in our transition of Apio to a truly innovative company. And Lifecore3 is poised with the work they are doing this year. We're trying to double-digit growth next year and we are continuing to look at other products in the natural products space to bring to market. So we are excited about what this year will bring. And thanks for joining us today.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good-day.