Landec Corporation
Q2 2015 Earnings Call Transcript

Published: 9 Jan 2015

[Operator:]

Good day, ladies and gentlemen. Welcome to the Landec Second Quarter Fiscal 2015 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. I would now like to introduce your host for today's program, Mr. Gary Steele, Chairman and CEO of Landec Corporation. Please go ahead, sir.

[Gary Steele:]

Good morning, and thank you for joining Landec's second quarter fiscal 2015 earnings call. With me today is Greg Skinner, Landec's Chief Financial Officer; and Molly Hemmeter, Landec's Chief Operating 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 year 2014. Our second quarter results met our revenue and operating income expectations because of strong results at our Apio food business, driven by sales increases in our higher-margin vegetable salad kits and stir fried kits, which we collectively refer to as our Eat Smart superfood products. Consolidated revenues increased 11% to $132.7 million during the quarter compared to the second quarter of last year, and operating income increased 23% to $3.9 million, primarily due to a 14% increase in gross profit. Revenues for Apio's value-added packaged vegetable business increased 16%, due to a 13% increase in unit volume sales. The growth in revenues combined with favorable product mix changes resulted in 36% increase in gross profit in our value-added vegetable business. We are on track for building a substantial leadership position for providing healthy superfood products to North American consumers. Let me turn it over to Greg for some financial highlights, and then Molly, for additional highlights regarding our progress and plans at Apio.

[Greg Skinner:]

Thank you, Gary, and good morning everyone. We reported yesterday that revenues for the second quarter of fiscal 2015 increased 11% or $132.7 million from $120 million in the year ago quarter. The improvement was primarily due to a 16%, or $14 million increase in revenues in Apio's value-added business, which includes its fresh-cut specialty packaged vegetable business, Apio Cooling and Apio Packaging. This increase in revenue was partially offset by decreases in revenue in Apio's export business and at Lifecore's. Net income in the second quarter of fiscal 2015 was $3.2 million or $0.12 per share compared to $3.5 million or $0.13 per share in the year ago quarter. The decrease was primarily due to a $1.1 million decrease in the change in the fair market value of the Company's Windset investment and a $712,000 decrease in net income at Lifecore. These decreases in net income in the second quarter were partially offset by a 45% or $1.7 million increase in operating income at Apio, due primarily to increased revenues and a favorable product mix change to higher margin superfood products. For the first six months of fiscal 2015, revenues increased 16% to $266.3 million from $229.5 million in the same period last year. The improvement was primarily due to a 21% or $34.7 million increase in revenues from Apio's value-added businesses and a 10% or $4.3 million increase in revenues at Apio's export business. These increases were partially offset by a 13% or $2.2 million decrease in Lifecore's revenues. Net income in the first six months of fiscal 2015 was $5.6 million or $0.20 per share compared to $8.2 million or $0.30 per share in the first six months of last year. The decrease was primarily due to a $6.3 million decrease in the change in the fair market value of the Company's Windset investment and a $2 million decrease in operating income at Lifecore. These decreases in net income in the first six months of fiscal 2015 were partially offset by a 35% or $5.9 million increase in gross profit in Apio's value-added vegetable business and a $1.3 million decrease in income tax expense. Landec ended the second quarter with $5 million of cash, which was a decrease of $9.2 million from fiscal year end 2014. During the first six months of fiscal 2015, Landec generated $3.4 million in cash flow from operations and increased net borrowings by $12.9 million. These increases in cash were offset by the Company's - increasing value of the increasing its investment in Windset by $18 million and spending $7.1 million primarily for capacity expansion. As of November 30, 2014, the Company had $38.9 million available under its lines of credit. Let me now turn the call over Molly.

[Molly Hemmeter:]

Thank you, Greg. We continue to experience growth in Apio's value-added packaged food business as consumers seek out easy and delicious ways to eat health and add more vegetables to their diet. The growth in Apio's value added business is being fueled by Apio's Eat Smart superfood products. This new product platform is now generating revenues of approximately $2 million per week on average; with gross margins more than double that of our historical core vegetable products. We continue to meet our commitment of launching on average at least one new product each quarter. During the second quarter, we added our sixth and seventh products to our superfood line up. Early in the quarter, we launched the Roasted Yam Salad Kit. This product features eight superfoods with a medley of fresh cut vegetables, seeds, fruit and cooked yam. This salad is both gluten-free and preservative-free. More recently, we launched The Beets & Greens salad kit. Beet lovers beware; this salad kit is gluten-free and contains a unique blend of healthy greens with cooked beets that are vacuum packed for freshness. With the launch of this product, Eat Smart now offers five salad kits and two stir fried kits as a part of its innovative line of superfood products. The Beet & Greens salad will be offered in Costco, Canada on a rotational program starting this month as well as in retailers throughout North America. Historically, we have provided market size statistics that included U.S. retail only. However, by combining data from multiple sources, we have estimated that the North American kit category, including both, retail and club stores in the U.S. and Canada can be approximately $1.1 billion. This is measured in consumer retail dollars for the 52-week period ending October 2014. Although the Canadian salad kit market is much smaller than that of the U.S. Eat Smart salad kits have experienced incredible growth in this market and are driving growth of the overall salad kit category in Canada. During the same 52-week period ending in October, Eat Smart has an estimated 12% share of the North American salad kit market, including both retail and club stores, up from just zero two-and-a-half years ago. Consumer awareness of our superfood products continues to grow as our online marketing efforts begin to demonstrate early, but positive results. Last quarter, we launched the new eatsmart.net, consumer website. In November, we launched a three-month online advertising and social media trial and 11 states throughout Northeastern and mid-Atlantic regions of the U.S. to raise awareness of Eat Smart among consumers and to incent consumers to purchase our products in-store. Although this trial is not yet complete, initial results are showing a very positive consumer response. As the word continues to spread about Eat Smart, the distribution of our products is also expanding. Eat Smart superfood products are now being sold through over 100 food service club and retail customers throughout North America. In parallel, with the focus and growth of our superfood products, we also plan to phase out specific lower margin core vegetable products and selectively seek price increases for other core vegetable products. We expect to begin seeing results of these efforts take place in fiscal year 2015, which commences in June. Revenues in our core product lines may decline slightly as a result, but Apio's gross margin should be enhanced longer-term. We believe margin enhancements in our core Apio business is essential for the long-term growth and profitability of Landec. Apio is the innovation leader in packaged fresh vegetable categories. We invest and gaining a deep understanding of consumer trends and strive to offer consumers easy and delicious ways to make vegetables an important part of their daily diet. The results of these investments are showing. Through the first six months of this fiscal year, approximately one-third of Apio's value-added sales are being generated by new products that Apio has launched within the last three years. We are committed to continuing to invest in new product development, so that we can offer fresh, easy and delicious ways for consumers to eat healthy every day. Let me turn it back to Gary.

[Gary Steele:]

Thanks, Molly. Looking forward, Landec has five priorities it will be focusing on over the next two years. First, we are conducting an extensive search for a new CEO to replace me when I retire at the end of fiscal year 2015. The search is underway and we are evaluating candidates. I will remain on the board after my retirement and will remain active to ensure a smooth transition to the new CEO. Second, we will continue to invest in innovation. This is our lifeblood. In our food business, the growth is driven by innovation and packaging and new product formulations which have higher margins and greater growth potential. Our Eat Smart food brand is a strong national brand which is growing in recognition. We are investing in innovation in order to build our fresh-cut, specially packaged produce business to take advantage of healthy eating trends. Third priority is to invest in capacity expansion. We intend to invest in expanding and/or upgrading our processing facilities in Ohio and Pennsylvania and expanding our aseptic filling capabilities at Lifecore, and you already know that we have doubled our salad capacity in California. We also plan to invest in new equipment that will expand capacity, plus drive production efficiencies and help improve margins. Fourth, we plan to continue to expand our partner relationships and Lifecore Biomedical with emphasis on serving partners in the field of ophthalmology and orthopedics. Fifth, continuing to grow our investment in Windset Farms. Our goal is to work closely with Windset to grow Windset's hydroponic greenhouse business while developing new growing methods and evaluating new crop targets. Windset's approach leads to products of the highest quality and taste that can be supplied to retailers and club stores year round. Windset state-of-the-art hydroponic greenhouse technology is, we believe, the future of agriculture especially as abnormal and unpredictable weather patterns becomes the norm. Looking to the second half of our current fiscal year, we will have better visibility regarding three important issues that could affect our outlook for the second half of this fiscal year. One is the longer term impact of recent December heavy rains and flooding in California, which affects planning schedules for our produce to be harvested in the spring, an issue our field personnel are closely monitoring. We also will be looking at any changes to our assumptions about Windset Farms for the third and fourth quarters, based on an updated five-year set of projections, which we anticipate receiving before the end of this month. Third, we need to evaluate the impact of the West Coast Longshoremen port slow down which is affecting our export business. Again, we will know a lot more about these items and these issues by the end of the third quarter and we will report our thoughts. Beyond fiscal year 2015, when we look to our fiscal year 2016, which begins June 1st, we should be well positioned for a good year as the investments in our food and medical business come to fruition. We are now open for questions.

[Operator:]

Certainly [Operator Instructions] Our first question comes from the line of Tony Brenner from ROTH Capital Partners. Your question please?

[Gary Steele:]

Yes. Good morning, Tony.

[Tony Brenner:]

Good morning. Thank you. Molly, you said, I think, that in the first six months, a third of Apio's value-added sales were from new products. What portion of sales were from the Eat Smart salad and vegetable kits?

[Molly Hemmeter:]

I would say about over two-thirds of that Tony, were from that. We obviously are always launching new products that are requested by our customers. Our seasonal items maybe holiday trade, new SKUs, new products and new sizes, but I would say over two-third maybe even four, fifth of that is due to superfood.

[Tony Brenner:]

That is about 25% roughly of Apio's sales?

[Molly Hemmeter:]

Yes. We are at about 26% of sales right now in our superfood.

[Tony Brenner:]

Okay A new line just came on-stream and you are suggesting that sales are running at about $2 million a week, which would imply in the second half roughly 25% of Apio's value-added. Why wouldn't it be higher than that?

[Molly Hemmeter:]

Well, we do have our peak over the holidays, so some of that $2 million will come from that, but I am not sure - does that answer your question?

[Tony Brenner:]

No

[Gary Steele:]

You are asking why is not a higher percentage, Ton?

[Tony Brenner:]

Yes.

[Molly Hemmeter:]

I think, our total volume is also up very high.

[Greg Skinner:]

You got to remember the core has a much, much higher base to begin with, so it takes a long time for something that was zero two-and-a-half years ago to go from that to 25% is actually pretty remarkable.

[Molly Hemmeter:]

Right. Last year, at the end of the year, our superfoods were about 19% of our overall VA [ph] sales. Now we are seeing them around 26% of our overall.

[Tony Brenner:]

I guess, what I am trying to get at is, in your release, you project 150 basis point to 170 point basis point sequential decline in Apio value-added margins in the second half, and presumably the mix is changing, sequentially, in a way that would favorably impact margins. I am wondering why they would be given that assumption, such a significant sequential decline in margins?

[Greg Skinner:]

All right, well, I will answer that, Tony. It is Greg. You are right. It was just purely mix than our overall gross margin for VA would be up in the second half. That is not the case. The second half it cost us more for produce, because…

[Tony Brenner:]

Sure. You are sourcing. I understand the sourcing is greater, but wouldn't that mix to offset that?

[Greg Skinner:]

No. As you also have our labor rate is now 25% higher than it was a year ago. Obviously, it has increased throughout the years, so it is going to be higher than it was in the first half. The list is pretty long. It is not just one thing I can nail and say this is the reason, but I can tell you the cost to source our product, which is a huge input 60% of cost of sales is raw material, is much higher in the second half of the year than it is in the first. If you look back historically, look at our margins in the first six months or second six months, you will see pretty much year-in, year-out they are low, so it would be even worse than the 150, 170 that wasn't for the superfood.

[Tony Brenner:]

Okay. One other question, Molly. Again, Molly, indicated that mix change is a result of your pricing strategy or would it be effective in fiscal 2016. When I go to Costco, a year ago I saw typically one bagged product and one salad kit, usually the Sweet Kale Salad. Now when I go to Costco, I see zero bagged products and three kits. Is this a result of that pricing strategy that you talked about?

[Molly Hemmeter:]

No. I think that is unrelated. I think both, club and retailers are starting to see the success of these next-generation salad kits, which are serving a need that old salad kits were not. Instead they are actually providing more shelf space for these products, so I think that is what you are seeing in Costco and even other retailers.

[Greg Skinner:]

Our bagged products are still in almost all Costco, Tony, so I don't know what you are finding in your store, but we are still there.

[Tony Brenner:]

Okay. Fine. Thank you.

[Operator:]

Thank you. Our next question comes from the line of Morris Ajzenman from Griffin Securities. Your question please?

[Gary Steele:]

Good morning, Morris.

[Morris Ajzenman:]

Hi, guys. Your healthy salad line, your production capability, you are running at about $100 million per annum approximately based on Molly's statement $2 million per week. What is your total production capability right now? Based on the new launches, the tweaks you are going to be doing increase the production over the next 12 months, what can be your total capacity 12 months out from now?

[Molly Hemmeter:]

Right. We recently, just in the first quarter, we doubled our salad line capacity. Right now, we have plenty of room for growth and we do not see any problems with capacity in the foreseeable future.

[Morris Ajzenman:]

I guess my question is that can you put a number on that? Are you running at 50% capacity now? 70%? What is now?

[Greg Skinner:]

We don’t want to get in too much detail from a competitive point of view, but you we are probably around 60% capacity utilization and we are making plans to expand and reconfigure our sites in Bowling Green and Hanover Pennsylvania. We are going to have plenty of capacity for salad growth. We are not going to get bottleneck like we did earlier in the year. We will have plenty capacity.

[Molly Hemmeter:]

Just add to that you know there is peak seasons through the year, so sometimes it is hard to give a specific capacity number, because of the holidays and the peak seasons. That can vary considerably throughout the year.

[Morris Ajzenman:]

All right, so looking out 12 months from now when you reconfigure and move things around, capacity could be north of $200 million. Is that fair or is that being too aggressive?

[Greg Skinner:]

It could be. Yes.

[Morris Ajzenman:]

Okay

[Greg Skinner:]

Capacity, you are saying capacity?

[Morris Ajzenman:]

Capacity. Yes.

[Molly Hemmeter:]

We will be able to manage $200 millions of business with our current equipment. Yes, we could.

[Morris Ajzenman:]

Okay. Just jumping over to Windset Farms, based on your projection, I think you said $8.5 million to $9.5 million increase in fair market value?

[Greg Skinner:]

That includes dividends.

[Morris Ajzenman:]

That includes dividends?

[Greg Skinner:]

Yes.

[Morris Ajzenman:]

Okay, so it would be about $7.5 million to $8.5 million without the dividends. Basically, you have a meaningful step up in the second half versus the first half increase in fair market value and that is all based on this five-year projection that is being done by outside appraises over the next month or two. Is that what it is all based on?

[Greg Skinner:]

Yes. Well, it is based on Windset's projections which we haven't received yet. We are giving our best guestiment in these numbers and I hope that came out clear in the press release that we are very familiar with their business, but we are estimating at this point what we think we are going to see here in a month. I mean, we had to put some number to it or purpose of this quarter. When we get it, we will obviously be updating it, but we anticipate that we will start seeing much higher increase in the change in the second half than what we saw in the first half as a result of these new projections.

[Morris Ajzenman:]

When would you be able to…

[Gary Steele:]

Outside independent appraiser, Morris.

[Morris Ajzenman:]

Yes. Right. Last question on that, when would you be able to discuss new planned expansion of acreage with Windset?

[Greg Skinner:]

Okay. I guess, maybe you need to ask that in a different way. I didn’t quite understand. What does that mean?

[Morris Ajzenman:]

In other words, I presume including a roadmap is to open up new greenhouse with Windset.

[Greg Skinner:]

Okay. Hopefully by year end, we will have good idea of what they intend to do with the land that they currently own.

[Morris Ajzenman:]

Okay, so by year-end hopefully you will be able to give some sort of roadmap for the…

[Gary Steele:]

Yes.

[Morris Ajzenman:]

Okay. Thank you.

[Greg Skinner:]

Thanks, Morris.

[Operator:]

Thank you. Our next question comes from the line Brent Rystrom from Feltl.

[Greg Skinner:]

Hi, Brent.

[Greg Skinner:]

Hi, Brent.

[Brent Rystrom:]

Good morning. I have got a few follow ups to the things that have just been asked. From a simplistic perspective, Molly, the $1.1 billion you cite for the salad kit category, do you know what rate of growth that has experienced over that corresponding 12 months?

[Molly Hemmeter:]

I can break it down with some specifics. We estimated that $1.1 billion to include U.S., Canada, retail and club. We have no growth statistics for club. Okay? What I can do is, I can give you growth statistics for the retail portion. In the U.S., we are seeing growth in the salad kit category of 34% in retail. In Canada, it is pretty phenomenal. We are seeing growth about 77%.

[Greg Skinner:]

We are the ones driving that.

[Molly Hemmeter:]

We are driving that growth. Now, remember that is a much smaller market than the U.S., but it is growing rapidly, so I don't have an overall growth number for total $1.1 billion, but the majority of it is retail. If you combine those two numbers it is about a 38% growth in North American retail.

[Brent Rystrom:]

Kind of triangulating the data you gave, by implication, you guys are growing that category closer to 80%. Is that reasonable?

[Greg Skinner:]

You were cut now a little bit, Brent. Could you…

[Brent Rystrom:]

Yes. Just kind of using the numbers that you guys have furnished, to me, it appears like the Eat Smart, the line grew about 80%. If I take the data you gave on what percentage of the growth was coming from the higher-end products and then I apply that to a quarterly run rate of that $2 million per week, it implies that your sales grew high 70s to close to 80% year-over-year. Is that reasonable?

[Molly Hemmeter:]

Yes. Actually, our sales have grown over the last 12 months if you look at our sales 12 months ago, it has grown about a 180%.

[Brent Rystrom:]

Okay.

[Molly Hemmeter:]

We have grown a pretty dramatically compared to the market and we are driving the growth in the market. These new products are.

[Gary Steele:]

The kits growth is driven by the whole healthy eating trend and the fact that we are delivering something that people want. Secondly it is the convenience. It is a kits. It is ready to go. You don't have to do any hard work.

[Brent Rystrom:]

Yes. From a simplistic perspective, I want to make sure I heard it right also. Did you say the Eat Smart margins were double those of essentially the rest of Apio value-add?

[Greg Skinner:]

Yes.

[Molly Hemmeter:]

Yes.

[Brent Rystrom:]

All right. Then on the outlook issues, two would be negative for the second half. Based on what you were just responding to the previous questions, I would assume the implication for Windset would be to a upward revision. There wouldn't be a reasonable expectation for a downward revision. Is that reasonable?

[Greg Skinner:]

From the $8.5 million to $9 million that we put out there?

[Brent Rystrom:]

Yes.

[Greg Skinner:]

Yes. I think it will be in that range.

[Greg Skinner:]

What - doesn’t expect a downward revision. If anything, it can be what we thought it was or slightly better.

[Brent Rystrom:]

Okay.

[Greg Skinner:]

I would say it's going to be in the $8.5 million and $9.5 million range for the year.

[Gary Steele:]

We don't have any reason to believe it is different, Brent, so…

[Brent Rystrom:]

All right.

[Gary Steele:]

I would be surprised if it were downward.

[Brent Rystrom:]

How often does Windset update their plans like this? Is it a once a year thing?

[Greg Skinner:]

Yes pretty much. They are on a calendar basis, so you do budget cycle over year. That is what most companies do.

[Greg Skinner:]

That is what they do.

[Brent Rystrom:]

All right. Then from a simplistic perspective, when I am visually thinking of Windset, when I think of the parking lot turnaround, drop-off area, where we were when the buses came in. Is it the land to the south of that that you would be expanding on to?

[Greg Skinner:]

Yes.

[Brent Rystrom:]

All right.

[Greg Skinner:]

Good memory.

[Greg Skinner:]

Yes. That is very good.

[Brent Rystrom:]

If recall, was that 100 and some acres?

[Greg Skinner:]

120.

[Brent Rystrom:]

All right. Thank you very much guys.

[Greg Skinner:]

Thanks, Brent

[Molly Hemmeter:]

Thanks, Brent.

[Operator:]

Thank you. Our next question comes from the line Mitch Pinheiro from Imperial Capital.

[Gary Steele:]

Hi, Mitch.

[Mitch Pinheiro:]

Good morning. A couple of questions here on things, regarding guidance for third and fourth quarter, why is - Again, if you have asked this or answered this, I am sorry, but why would net income be substantially higher in the fourth quarter versus the second quarter as your base. Even though the revenue won't be up as much as the third quarter?

[Greg Skinner:]

Primarily Wednesday.

[Mitch Pinheiro:]

Okay. When I am modeling here, the revenue model, should we be assuming that the export business remain at the sort of at the - I know it goes down in the second half, but are we going to see declines because you had mentioned this Longshoreman issue. That is probably one of the least predictable parts of your business versus export business?

[Greg Skinner:]

I would say it is fair to say that people know about this so Longshoreman deal. It is a slowdown and all the West Coast ports. We are big exporters out of Long Beach for example, so we are expecting that export is going to be slightly down. Now, the other thing we have to keep in mind, Mitch, a little bit longer term is currency. The U.S. dollar is getting awfully strong here and that will affect exporters. We are not factoring that in for this fiscal year, but some to think about for next year. Anyway, make a long story short, I don't see a dramatic decrease in export this second half, but we will be down slightly and I don't see a pathway for them resolving this issue very quickly.

[Mitch Pinheiro:]

Okay.

[Greg Skinner:]

By down, I mean, we are talking six months this year versus six months last year. Our second half of the year is always way last than our first half.

[Mitch Pinheiro:]

Right. Then this should have, I mean, I don't want to put words in your mouth, but does this have a minimal impact on profitability, because of the sort of the gross margins in that business or?

[Gary Steele:]

Yes. Minimal.

[Mitch Pinheiro:]

Okay. Moving on, do you have an update on CapEx for the full year?

[Greg Skinner:]

I think, it would be in line with our original projections, about 17 million to 20 million.

[Mitch Pinheiro:]

Okay. Is any of that focused on Bowling Green or the Pennsylvania expansion?

[Greg Skinner:]

Yes. We are going to look at it as expansion in the salad lines in California. We have done that, a reconfiguration of the Bowling Green operations to accommodate a wider product mix besides green beans and then more growth and expansion of capacity starting in late this year in Pennsylvania and that is not only going to accommodate growth, but also to better match some of the product needs of our East Coast customers who would like a shorter shipping times. It all makes sense, so we are investing in all three sites.

[Mitch Pinheiro:]

Got you. I know it is early, but for fiscal 2016, would CapEx be higher, lower or the same as fiscal 2015?

[Greg Skinner:]

Very good question and answer that I would love to have in detail for you. Right now, we are going through that type of thought process, but expect it to be higher because of the growth that we are going to invest in on the East Coast in the Pennsylvania, so probably higher.

[Mitch Pinheiro:]

Okay. A couple other things, Eat Smart, what's the current ACV of Eat Smart?

[Molly Hemmeter:]

I don’t have that number. I am sorry.

[Greg Skinner:]

That’s a good question. Yes. We should have that.

[Mitch Pinheiro:]

You can include that in the Q&A.

[Gary Steele:]

We will put that in the next Q&A.

[Molly Hemmeter:]

Q&A.

[Gary Steele:]

Q&A. No. You are right. We should have that.

[Mitch Pinheiro:]

What part of your distribution story for Eat Smart, it is part of the story and it would be nice to be able to quantify it a little bit so?

[Greg Skinner:]

Fair enough. Yes. The issue is, you know, the switch of private label. I mean, we have a pretty good idea of the site that we are in. It is just how much is still Eat Smart versus Private Labeling…

[Molly Hemmeter:]

This may help. We do and it is a different answer, but in the United States, we have penetration about 70% of doors, club and retail. In Canada, we have a penetration of about 75% of doors.

[Mitch Pinheiro:]

Okay.

[Molly Hemmeter:]

It is at the same, but hopefully that gives you some information.

[Mitch Pinheiro:]

Yes. I was also trying to find sort of the delta this year versus last year, had that increased, stayed the same and maybe where you expected to go in a year or two?

[Molly Hemmeter:]

Yes. I will tell you, this year where we have grown considerably is in Canada. We did not have 75% of doors in Canada last year. Our superfood are now in almost every major retailers in Canada. In some cases, they are only caring our superfoods, not our core products which is a new dynamic, so I think that's a lot of the growth and new distribution we have experienced this year.

[Mitch Pinheiro:]

Okay. And then the last question is, you talked about some phase-out of some vegetable products. Could you quantify or give us a range of what that might be in terms of dollars or percentage?

[Molly Hemmeter:]

Okay. Then the last question is you talked about some phase out of some vegetable products. Could you quantify or give us a range of what that might be in terms of dollars or percentage?

[Molly Hemmeter:]

That is hard to quantify and here is why. We are obviously not going to just walk away from business. What we are going to be doing is going through a process of defining where strategically we want to raise our prices. We were off over those price increases to customers and it will be their decision or not on whether they will accept those, so it is hard to quantify what is going to be the result of those actions.

[Mitch Pinheiro:]

All right, well, thank you very much.

[Gary Steele:]

Thanks Mitch.

[Operator:]

Thank you. Our next question comes from the line of Chris Krueger from Blake Street Capital Partners, your question please?

[Chris Krueger:]

Most of my questions have been answered, but just a couple more. When you look at your superfood efforts in product development, is there any way to kind of incorporate Windset's tomatoes and peppers and cucumbers, things like that. Is there is any collaboration with them on the kits.

[Molly Hemmeter:]

Hi, Chris. This is Molly. We do collaborate them to some degree. For example, we use their tomatoes in our trays, but that is the biggest place we use them right now. We are always looking for opportunities. If we find those, we will definitely pursue them in product that makes sense, but right now it is pretty much more the tomatoes. I might add, we also use their peppers in our trays, so those two items we currently using.

[Gary Steele:]

That is our short-term perspective. Longer-term perspective and we are not going to go into details at this call, but we have told you that we have made some recent investments in Windset and they are highly motivated to not only look at improved and different unique growing methodologies using hydroponic greenhouses, but we are also going to look at new targets. Over the long-term, I would guess that some of those new targets will directly affect the superfood line of input products that go into our run superfood products, but in the short-term it is more what Molly said.

[Chris Krueger:]

Okay. That is helpful. My other question is, any update on your efforts to get more next-day delivery in the Eastern region for your products?

[Gary Steele:]

Yes. Hanover, Pennsylvania.

[Chris Krueger:]

That's going well?

[Gary Steele:]

Well, we are just starting that process, but that's a big part of getting a bigger presence and quicker delivery times on East Coast is of Bowling Green, obviously, we have already done some reconfiguration and then Hanover is really where we have the acreage and the ability to expand for our East Coast customers.

[Chris Krueger:]

Okay. That's all I got. Thanks.

[Gary Steele:]

Thanks, Chris.

[Molly Hemmeter:]

Thanks, Chris.

[Operator:]

Thank you. Our next question comes from the line of Nelson Obus from Wynnefield Capital. Your question please?

[Nelson Obus:]

Yes. Hi there, guys. I had a series of questions related to some of your businesses. Why don't we start with your caveat about the weather and there being too much rain? I just want to put this in the context of this situation versus what might have happened a couple of years ago just to make sure I have got this right. If I understand it, you have contracted for more than what you think your needs are, so a shortfall in production should not have the same effect that it had, say, a couple of years ago before you went into this mode, so that is a very general statement. Could you comment on whether that is correct or not?

[Gary Steele:]

We are hopeful that you are correct. You know it was pretty broad range here in California, and as you know we sourced not only in the Salinas Valley the Santa Maria Valley, but we go down into the southern part of California, the deserts. A lot of rain in all areas, and you have to worry about two things. You have to worry about what is called Penn [ph], where you so waterlogged, it just goes bad on you. You can't even harvest. Secondly you have got to worry about when you can plant, when you get in the field of plant, so we are assessing that right now Nelson, but because of some of these modifications in contracting strategy, we are hopeful at this point that the impact will be modest as opposed to significant which it was a couple of years ago, so we are hopeful that you are right.

[Nelson Obus:]

If you look at, when you decided to increase the volume on so-called the take-or-pay aspect of your growing subcontractors, did you increase your geographical footprint or did you just go deeper within the same geographical footprint? In other words, are you going to get some protection from the fact that you have reached areas that are beyond the areas that got a lot of rain?

[Gary Steele:]

Some geographical extension such as Texas and Mexico Nelson, you got to be careful that when you go too far from California, you are losing yield and you are adding to transportation costs, so we did do some geographic expansion just to hedge our bets. At the end of the day, the vast majority is still coming from California, which we really had tons and tons of rain. We are monitoring closely. We will have a better sense of this in about a month and I don't think it is going to be as severe as a couple of years ago.

[Nelson Obus:]

Well, if the weather were as severe as it were a couple of years ago it is correct to say the effects might not be, because it may better not be, because that was the whole point of the strategy, right? Unless something really quirky happened within that mix, does that…

[Gary Steele:]

Strategy as you know was to broaden geography and to do some contracting changes to protectors.

[Nelson Obus:]

So you got to be conservative, but generally we are set up to have less of an effect. I just want to clarify that.

[Gary Steele:]

Hopefully.

[Nelson Obus:]

Getting to Lifecore, now with Lifecore, there is always two parts. One is the legacy business, which I think we all understand. Although, they are going come back, there was something in the press release about them maybe not coming back quite as early as you thought, so I guess that's part of it, in terms of the legacy products.

[Gary Steele:]

Nelson that is not correct.

[Nelson Obus:]

Okay. They are going to come back at the beginning of '16. Okay, so we got that straight, right? That hasn't changed. Can we talk about the other part of Lifecore, which has to do with using the product in a new and innovative manner and getting approvals from a customer who is working through all this? Is that still on track and just a quick update on that?

[Gary Steele:]

Yes. There is two pieces. One is to use their capabilities and fermenting, separating, purifying, filing and sterile filling, hyaluronic acid which is their main product line. They are terrific at it. There is a cream of the crop in terms of the industry in terms of molecular weights in terms of purity etcetera, etcetera. How do we find new applications for that and new customers? Remember, their strength is in ophthalmology, less so in orthopedic. Obviously, they are look to do business there. The second is, how do we use those capabilities that I just described for working with partners who need those capabilities? They need formulation capabilities, they need fermentation capabilities, they need sterile filling into syringe capability, so we have brought on a couple of partners and they are typically going to be as you know in the pharmaceutical space, so our business model there is that everything we do is funded as we go by the partners and then when they get approval then, we are the manufacturer and supplier. Those are the two legs to the stool, so that is what we are working on. We want more of those partners, we are in the process of adding one right now that will be new to us and that starts to have an impact in late fiscal year 2016. Those are the growth drivers for Lifecore and the way you ought to think about Lifecore, it is not only a growth engine for us in the future, it is a cash generator and our goal is to grow that business without sacrificing the margins that we have enjoyed since we have purchased the company in 2010.

[Nelson Obus:]

Okay. You just said something pretty interesting, which is really what I wanted to ear in [ph] on, I think, what you said was that the new partnership arrangements should have an impact by the end of fiscal 2016. Now, when you talk about an impact, you put a number out there, you know, at the high end of dollar, I assume, we are talking about that particular initiative will be part of that dollar as small as it is. I guess, what I am really asking for is, an update on whether that seems to be on track if my assumptions are right for in terms of what I just said?

[Gary Steele:]

Yes. On track as of right now.

[Nelson Obus:]

Okay. There is a specific customer going through us or a joint partner going through a series of qualification tests that you are confident will begin to participate begin to help top-line and bottom-line by the end of fiscal 2016, and that is what I am trying to monitor and you say that is on track.

[Gary Steele:]

That's correct.

[Nelson Obus:]

That’s on track right?

[Gary Steele:]

That is on track.

[Nelson Obus:]

Okay. Last thing is GreenLine. I just want to try and - by the way, have you broken ground in Hanover?

[Gary Steele:]

No.

[Nelson Obus:]

Okay. There is two parts to GreenLine, too. Obviously, there is the utilization of the footprint for the Apio business. Then there is the GreenLine business. We haven't mentioned too much about the GreenLine business, but I sort of had a feeling that the GreenLine business was pretty much at capacity even before you - certainly at capacity in Hanover and would require some reconfiguration and I assume there was some excess capacity in Bowling Green but, I mean, how are they two going to work together? Are you going to actually build in more capacity for GreenLine too or? I mean, how are the two product categories going to share that space and just a little color on that?

[Molly Hemmeter:]

Hi, Nelson. Molly.

[Nelson Obus:]

Hi.

[Molly Hemmeter:]

On the GreenLine front, we really do not think of it as two separate businesses anymore.

[Nelson Obus:]

I was wondering about that. Okay. Good.

[Molly Hemmeter:]

We do not even report them separately. We have truly integrated the Apio business with the GreenLine business.

[Nelson Obus:]

Interesting.

[Molly Hemmeter:]

We brought some of that green beans production to California and we were actually processing green beans in California. We were also starting to process the rest of our vegetable products and salads in Bowling Green, and then Gary has already talked about our future plans of expanding Hanover, which is now producing green beans, but will at that time be producing all of our products. When we bought GreenLine, actually they were not at capacity. We had some room to grow. Then with these reconfigurations, the plan is to be able to continue to have room from them to grow and it is a lot of our efforts have been about balancing our East and West Coast production, so that we can best services our customers.

[Nelson Obus:]

All right, so let me ear-in [ph] on one more thing. That is my last question, which is when you say we do not even look at these two as being distinct, I think what you are talking about now is how you report it, how to budget it or I mean, correct? I mean, is it that you basically put GreenLine?

[Molly Hemmeter:]

Correct.

[Gary Steele:]

We do keep both brands.

[Nelson Obus:]

Right. Okay.

[Gary Steele:]

Well known as

[Nelson Obus:]

Okay. Good.

[Molly Hemmeter:]

Any smaller basis, right, we looked at every product line on a daily basis. We manage every products line, every product, every customer, but on a reporting basis. He said, we have integrated them…

[Nelson Obus:]

I understand.

[Molly Hemmeter:]

…and we have integrated our menu.

[Nelson Obus:]

All right. Let me turn to another issue cross-selling. When we bought GreenLine, we thought there would be an opportunity for cross-selling. Now that we have merged the two from an operational perspective, have we fully mined all the cross-selling opportunities there? Kind of what inning are we in terms of that effort?

[Gary Steele:]

No. We have not fully mined it, but as opposed to a year ago, when we were sourcing-constrained and we did not want to start aggressively cross-selling when we couldn't deliver the product because of shortages. We can now, so the cross-selling is paying off, we are doing it, it is not fully mined. It is an opportunity for us to continue to do it. Molly is leading a two-day sales meeting here to capitalize on the number of doors that we are in and do more cross-selling and to really push out the superfood products, so we have that in front of us, Nelson.

[Nelson Obus:]

You may have gone over this, but are GreenLine products now being integrated within the high price point Apio salad products. Are you using part of them or are they kept separate?

[Molly Hemmeter:]

No. We consider them and were going through the products development. We do you know see if their formulations do include the green beans. Thus far we have not.

[Nelson Obus:]

That is what I thought.

[Molly Hemmeter:]

…included them in any of the salad products.

[Nelson Obus:]

No. I could not see them on the website, but that is a possibility, right? I mean, going forward.

[Molly Hemmeter:]

That is. Sure. We are always looking at that, but today we have not.

[Nelson Obus:]

Do you think, in the long run, that the green bean business, if it doesn't find its way into the upper price point products, would carry with it margins that were equal to or greater than the old Apio salad margins?

[Molly Hemmeter:]

Apio.

[Gary Steele:]

What are the old Apio?

[Nelson Obus:]

You mean before we went to branded - before we have created this new value-added brand with it.

[Gary Steele:]

We see green beans as more in our core business, which are not as high margins as the superfood salads. We just want to keep - they are good, they are not great, but we want to keep them good and make sure. Molly has already mentioned to you that we are doing some real hard looking here at SKU pruning, we are looking at some selective price increases, we are looking at some migration of some of our customers that we feel something has got to change. That is all part of our valuation right now, but I see green beans as just being kind of rock-solid core, business and I do not see it being in the superfood margin.

[Nelson Obus:]

Okay. I wasn't clear. You have set it up, so I could ask it more clear. Within the core universe, is it in the middle of the pack, is it a little more favorable or it just fits right in there with everybody else?

[Molly Hemmeter:]

If you compare them among all, what we call our core, which is our broccoli and our trays and beans, they are in the higher range.

[Nelson Obus:]

That is what I thought. Okay.

[Molly Hemmeter:]

Yes. They are a nice solid margin product.

[Nelson Obus:]

Okay. Well, we will see how you work it out. I just wanted to get some color on some of these ancillary businesses. Okay. a lot of ancillary. I cover a lot of property. Okay. Thanks.

[Gary Steele:]

Thanks, Nelson.

[Operator:]

Thank you. Our next question comes from the line of Gregg Hillman from First Wilshire Securities Management. Your question please?

[Gary Steele:]

Yes. Hi, Gregg.

[Greg Skinner:]

Hi, Gregg.

[Molly Hemmeter:]

Hi Gregg.

[Gregg Hillman:]

Good morning. First of all, for the Apio salad kit products are you just competing on innovation and marketing? Are you also competing on packaging some sort of - oxygen, something or other packaging?

[Molly Hemmeter:]

Well, when it is appropriate, we do use breathway on our packaging. Right? In that way, we are competing, because we believe that breathway improves the quality and self life of our products.

[Gary Steele:]

Good choices.

[Molly Hemmeter:]

I would say at the core of it, it is really about competing on innovation, understanding consumer trends and delivering products that are convenient to eat and taste good and what is really special about these products are that they are complex and that means these are products that you can easily make in your home. If you see a Caesar Salad Kit , those people can make a salad in their home. These are products with you know eight different ingredients that you would not go buy in bulk and have in your pantry and it just makes them a some special treat to have at home.

[Gary Steele:]

Last but not least, we are competing on speed. We are fast. One product a quarter, it is very difficult for others to do that.

[Gregg Hillman:]

Have you been able to incorporate sprouts into your superfood salad products in a way they could…

[Gary Steele:]

Sprouts are a concern of ours. They have a kind of a blemished history in terms of safety, so we kind of stay away from sprouts. Sprouts, if you go back and look at some of the food safety issues over the years, green onions and sprouts are kind bad culprits, so we stay away from them.

[Gregg Hillman:]

Okay. Just kind of a general question about the greenhouse business in general, is there like a tendency towards overcapacity in the industry? Like, for example, are any new greenhouses being built in British, Columbia that would affect your operations up there?

[Gary Steele:]

I have not heard of any major new capacity. You will hear from time-to-time in the New York Times and stuff like that, somebody is going to build a hydroponic greenhouse on the top of the building in Manhattan and that kind of stuff. In terms of major expansion, we are not aware of it. The Windset team has not made us aware of any major expansion, so we don't know of any.

[Gregg Hillman:]

How is Windset differentiated from other greenhouse companies?

[Gary Steele:]

Okay. Well, let me give you the short answer. First of all, they have put together the know-how of how to grow things hydroponically in greenhouses that is unmatched. By the way, let me start by saying they are California facility, which has 6 million square feet, is the highest yielding tomato facility in the world. If they were they were measuring the cucumber yields, I would bet you they would probably be the highest in the world. Anyway, they figured out how to combine the right construction of the facility, the right use of water, the right mix of temperate and carbon dioxide and pure water and minerals and stuff like that, so they just have phenomenal yields. Number one is, they know how to have high yields and it is through know-how. None of it is patented. It is know-how. The second is, they have found the right location in California that is superb for getting these types of yields. The central coast of California, Santa Maria, where they are located and why they bought up all this acreage is known for warm, but not hot days cool, but not cool nights and that weather is critically important to getting these types of yields. Last but not least, they really have the scale. Greenhouses that are several acres or 50 acres or whatever, you are limited, its scale really does come into play here, because these investments, they are not small on a per acre basis, so they have got - how many acres is it down there now?

[Greg Skinner:]

Well, they have 128 acres in California, and then they have got another 60. They have 208 acres in total that they own. Then they are the grower markers, so they a market for other growers on another 550 acres.

[Gary Steele:]

It's scale, it is location and it is know-how. Those are the three things that drive their distinctive capabilities. I mean, they are clearly the market leader and they intend to sustain that and we have made investments in the company in the last 12 months that tell you that we believe that they are the future really.

[Gregg Hillman:]

Okay. Thanks for your comments.

[Gary Steele:]

Yes. Thank you.

[Operator:]

Thank you. Our next question comes from the line of Rick Fetterman from Fetterman Investments.

[Rick Fetterman:]

Good morning, everyone. I have got, Greg, a couple of just hopefully pretty simple balance sheet questions. Do you want to take a stab at where you see the debt, say, 12 months from now at the end of this calendar year?

[Greg Skinner:]

Well, at this point, we still have the equipment line in place. We had spent about 12 of the 25, dependent on what the rate is at the time that we potentially draw that we may go ahead and utilize that line, because it is very cheap debt. After that, we will be out of the line here by - the working capital line and then the rest of it is terms, so we would just be paying it down, so I would guess from now to a year now, we would be about $8 million less than where we are now.

[Rick Fetterman:]

Okay.

[Greg Skinner:]

I think, we will [ph] draw on the equipment line.

[Gary Steele:]

Are you taking into account the Hanover expenses?

[Greg Skinner:]

No. I am not taking into account any potential use for expansion.

[Rick Fetterman:]

Okay. My other question is, if for some reason the company decided to exercise the put with Windset a couple years down the road, do they have the wherewithal financial ability to pay for that?

[Gary Steele:]

Their projections are the last ones we saw, which will stay [ph] said the answers yes.

[Rick Fetterman:]

I am just wondering why they continue to pay you 7.5% for new money.

[Greg Skinner:]

Well, that was the rate that we agreed to four years ago, so we maintain that.

[Gary Steele:]

That is a fair question. The likelihood of them exercising their right, or us exercising is very, very, I mean, so low, I can hardly think of it, but if they were on the call, I think they would say this is that they see a lot of benefit from this investment in this partnership. Examples of this are that, the parents for example, there's four owners, the new family, the parents wanted some liquidity and we became liquidity source for them when they sold some shares. What was the month? Was that?

[Greg Skinner:]

July.

[Gary Steele:]

July, so we want them to know that we are not a liquidity source. We are the liquidity source for them, so there is an advantage there. Secondly, we just made a $7 million investment to help them in some new investigative areas and we can do it quickly and smartly. We know each other, so I just think - by the way we do collaborative things in terms of the purchasing, we do collaborative things in terms of new product development. It is just mutually beneficial. Why would they want to take us out, and while they could take us out from the balance sheet point of view, we would still be stretching them.

[Rick Fetterman:]

I did not ask the question clearly apparently. I am more curious as to the new money, the recent money that has gone in today's world 7.5% is a homerun for the lender. Just wondering why they would not be able to go somewhere else for probably half that?

[Gary Steele:]

Well, because they, one, they wanted to raise equity, not debt. They were in the process of doing a new syndication of their debt. We are basically refinancing all their debt at a much more favorable term by the way and that hopefully will close in the next couple weeks for them. They didn't want to complicate the whole discussion with five banks that are part of this syndication and they needed these monies in order to invest in Nevada. They needed to make their decision and have the monies by the end of October. They wanted to also look at expanding into new areas of which they needed to secure the ground for that, so that was the need for the cash. By the way 7.5% rate on equity investment in a private company is market. I will just tell you that right now.

[Rick Fetterman:]

Okay.

[Gary Steele:]

That is market, so we are not [ph]. They are not overpaying.

[Rick Fetterman:]

Fair enough. Thank you very much.

[Gary Steele:]

Thank you.

[Operator:]

Thank you. Our next question comes from the line of Will Lauber from Sterling Capital Management.

[Molly Hemmeter:]

Hi, Will.

[Gary Steele:]

Hi, Will.

[Will Lauber:]

The union voted Apio they voted it down. Is that correct?

[Gary Steele:]

Yes.

[Greg Skinner:]

Yes. The union movement, which a lot of - going on in California with lots of people, it was voted down.

[Will Lauber:]

Then the next question, Molly, I think back in October you had mentioned that kind of lead time that you have for new products is about, I think you had said, six or nine months. Can you walk us through that process quickly just a little more in-depth?

[Molly Hemmeter:]

Sure. I would say, the process can range anywhere from nine months to a year-and-a-half, Will. First of all the difference in that range depends on if we need to create new molds for packaging or install new equipment, so I think the fastest we could get to market from beginning to end it nine months. Just a quick overview of that process, we start every year, even more frequently than that, we start looking at consumer trends and restaurant trends, and future trends in the U.S. and Canada and globally and we initiate. We have third-parties that help us with this and we initiate that type of market research. That helps us look for opportunities spaces and new breakthrough ingredients we could add to our salad kits or flavor profiles or just needs that the consumer may have. From that, we developed a white spaces or what we would call opportunity spaces and we start craft product concepts and that goes on for several months and we have a dedicated culinary team now that works through different product ideas and we began, it is kind of a funnel system. We have different stage gates and we get concepts and then we go through tasting and once they pass the tasting, you have got to engineer the back end, so the trick comes in when you start to create a product concept. There is a lot of variables you have to balance. We never want to give up on taste, but there is also cost. The cost price equation, making sure both Apio will benefit from it, as well as the consumer. There is enough value there for the consumer and the retailer. There is also nutritional values that we are always considering, so we have to balance the amount of maybe sodium in it or the amount of fat that we want to have in it and all the those variables take time to create the right value proposition for the end product. Then we go through several rounds of pasting. Then we start reselling them and taking out to key customers and the winner survive. I think, what I like to pride ourselves on, is we do the thinking upfront, so that we have a high success rate of products that we take to market and we go through these stage gates very rapidly. We are very good at kind of killing ideas that don't look like they are going to work our early in taking the winners through quickly.

[Will Lauber:]

Okay. I guess, what I was more getting to is how fast can your competitors respond if you come out with a new salad today that starts flying off the shelves. How long to like tailors farms or another competitor can get a new product there in the market?

[Molly Hemmeter:]

The answer to that really varies. There are some products that are very easy to copy and other products that we are putting in very light barriers for them to copy and it is going to take them longer. For example, in some of our products, we are now using new suppliers and have formed exclusive agreements with those suppliers that they cannot sell to our competitors. There are maybe the only supplier that provides those ingredients. Wherever we can, we are trying to raise barriers to entry, but I will tell you what, in the end, we are forming extremely strong strategic relationship with key retailers. We have a list of very high volume customers that depend on us for innovation and loyal to us and even if a competitor does compete, I do not believe they are going to turn over the business to them for a slightly cheaper price. I am not saying all accounts are like that, but we have a list of very strategic accounts that have verbally articulated that to us.

[Will Lauber:]

Then my final question is, say, six months ago when your capacity was going up against the capacity on the salads, there was probably a lot of retailers or potential customers that were coming to you and wanted the product and you just didn't have the product to ship to them and they might have gone to someone else. What is the contract length for salads, as opposed to broccoli packages or green beans or something like that? Are they years in length, or what's the typical length of those?

[Molly Hemmeter:]

I would not characterize. We don't really have contracts on our salads or any time. Again, it goes to their placing your - you need to get those products in store and you need to start promoting and you are going to wait for them to turn. They are not going to turn on, so there is not really a contract issue here, Will, but I will say we didn't really have a big issue of retailers turning to competitors. When we are out of capacity, most of the retailers waited. We gave them the timeframe in which they needed to wait. It was four to six months and they were fine with waiting. You have your innovative customers that are strategic that one at the second it comes out. Then you have your fast followers. Just a couple of months, they are willing to wait for it.

[Will Lauber:]

All right. Thank you very much.

[Gary Steele:]

Thanks, Will.

[Molly Hemmeter:]

Thanks, Will.

[Operator:]

Thank you. Our next question comes from the line of Craig Pieringer from Wells Capital Management.

[Craig Pieringer:]

Good morning.

[Gary Steele:]

Hey, Craig.

[Craig Pieringer:]

How are you? Gary, we would spend a little bit on the status the CEO search. You say you are evaluating candidates. Does that mean you had some face-to-face meetings already?

[Gary Steele:]

Yes. We have a search firm that we are using, very professional people, professional senior person C-level [ph] searches only, we were meeting with our candidates face-to-face. It is a normal process and it is still on the early side, Craig, but it's a good process and search committee is deeply engaged for our board members are run leading the search effort and I participate.

[Craig Pieringer:]

Forgive me if you have already put this out, but in very broad terms, what kind of person are you looking for? Is it a food person or consumer packaged goods guy or girl is the polymer chemist - I mean, what kind of person are you looking for?

[Gary Steele:]

We could care less if they took organic chemistry in college. It would be nice if they did, but it is not critical, but we think that experience in consumer of packaged products is helpful. We think, since our main business is food, experience in the food area is helpful. PML experience is extremely helpful and note we are looking outside inside there is a practical issue I don't need to tell you since you live on the West Coast, but the trying to relocate somebody from the Midwest and East Coast to the San Francisco or the California area is not a small task. Housing out here has gone from the insane to the absurd, so those are things we just have to take into account, but it's a very thorough search. It is going to be a smooth transition.

[Craig Pieringer:]

Timing of the end of fiscal '15 is not that far away. Do you think that's.

[Gary Steele:]

Right.

[Craig Pieringer:]

…will come sooner or closer to May?

[Gary Steele:]

Look, you know how this works. I have told people that, when I plan to retire when I want to retire, I will stay on the board etcetera, etcetera. If it takes a little bit longer, I have got a lot invested in Landec, so know I will stay until we have this process completed in a satisfactory way.

[Craig Pieringer:]

Great. Of course, we will sorry to see you go, but…

[Gary Steele:]

Thank you.

[Craig Pieringer:]

We will look forward to the outcome of the search. Thanks.

[Gary Steele:]

Thanks, Craig.

[Operator:]

Thank you. This does conclude the question and answer session of today's program. I would like to hand the program back for any further remarks.

[Gary Steele:]

We appreciate you being with us today and we look forward to updating you as we go to our third quarter on our progress in our plans and very much appreciate the time you give us today. All the best.

[Operator:]

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