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Landec Corp (NASDAQ:LNDC)
Q4 2020 Earnings Call
Aug 11, 2020, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon and thank you for joining Landec's Fiscal 2020 Fourth Quarter Earnings Call. With me on the call today is Dr. Albert Bolles, Landec's Chief Executive Officer and Brian McLaughlin, Landec's Chief Financial Officer and Jim Hall, President of Lifecore who is available to answer questions.

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 10-K for fiscal year 2019.

Let me turn the call over to Al Bolles.

Albert Bolles -- Chief Executive Officer

Thank you and good afternoon everyone. As a leading innovator in diversified health and wellness solutions, Landec is comprised of two operating businesses, Lifecore Biomedical and Curation Foods. Landec designs, develops, manufactures and sells products for the food and pharmaceutical industry. Lifecore Biomedical is a fully integrated contract development and manufacturing organization, or CDMO, that offers highly differentiated capabilities in the development, fill and finish of difficult to manufacture pharmaceutical products distributed in syringes and vials. As a leading manufacturer of premium injectable grade Hyaluronic Acid, or HA, Lifecore brings over 35 years of expertise as a partner for global and emerging pharmaceutical and medical device companies across multiple therapeutic categories to bring their innovations to market.

Curation Foods, our natural foods business, is focused on innovating plant-based foods with 100% clean ingredients to retail, club and foodservice channels throughout North America. Curation Foods is able to maximize product freshness through its geographically dispersed network of growers, refrigerated supply chain and patented BreatheWay packaging technology, which naturally extends the shelf life of fruit and vegetables. Curation Food brands include Eat Smart fresh packaged vegetables and salads, O premium artisan oil and vinegar products, and Yucatan and Cabo Fresh avocado products.

We are focused on creating shareholder value by delivering against our financial targets, strengthening our balance sheet, investing in growth, implementing our strategic priorities to improve adjusted EBITDA margins at Curation Foods and driving top line momentum at Lifecore.

We have set clear priorities and defined return on the investment metrics to support the future growth at both Lifecore and Curation Foods. We are committed to maximizing the value of our portfolio through sound and thoughtful execution in each of our segments while protecting the planet for future generations with the sustainable business practices.

Lifecore continued to deliver on its track record of high margin revenue growth and we realized immense benefits from the stability of our Lifecore business in fiscal 2020. However, fiscal 2020 proved to be a transformational year for our Curation Foods organization which faced several significant challenges to turn around its business. This presented several opportunities for us to pull together as a team to identify solutions. It is these solutions that provide the foundation by which we will grow from in fiscal '21.

With the announcement of becoming Landec's President and CEO on May 28, 2019, I shared my commitment to drive profitability by transforming Curation Foods to deliver shareholder value. We are executing against this commitment by maintaining our focus on innovation, simplifying our business, improving our quality, while driving productivity and operational excellence across the organization.

Since the launch of Project SWIFT in January of 2020, this program has guided our organization toward improved operational and financial performance and provided us a framework to achieve our strategic priorities and turn around Curation Foods. In one year we have made tremendous progress and the results are beginning to show in our financial performance.

We studied our network of national manufacturing assets to understand how to best optimize our business and institute lean manufacturing principles. With this activity we solved the manufacturing issues at our guacamole products plant and now have that acquisition fully integrated. Additionally, we completed the implementation of our cost out initiative which delivered savings that were ahead of plan and a significant proportion will carry into fiscal 2021.

We redesigned the organization putting the right people in the right jobs focused and working together. We also performed a thorough analysis of our core assets and product lines, which included the strategic review of our legacy vegetable bag and tray business. Today we are announcing that we are keeping a smaller and more profitable bag and tray business as well as announcing the sale of our Ontario, California dressing facility. The proceeds of this sale will be used to reduce the balance sheet leverage. And as previously announced, we are working toward the pending closure and sale of our Hanover, Pennsylvania facility and the consolidation of our external business offices into our Curation Foods headquarters in Santa Maria, California.

The total annualized cost savings from these actions will be approximately $11 million. This was an extremely heavy lift for any organization in a single year which was further tested by the added complexity from the COVID-19 pandemic during the fiscal fourth quarter. Despite these challenges, we were able to generate a significant improvement in Curation Foods' gross margin and adjusted EBITDA in the second half of fiscal 2020 which is the springboard that we will be growing from in fiscal '21. I'm proud of the resolve that our Curation Foods team demonstrated.

Today, we are introducing our full year fiscal 2021 outlook. We expect consolidated revenue from continuing operations in the range of $530 million to $550 million which implies a decrease of 10% to 7% versus fiscal 2020. This revenue reduction reflects our continued strategy of simplifying and strengthening the Curation Foods business by making it smaller and more profitable, which is more than offsetting the 8% to 13% growth we are expecting at Lifecore this year.

However, due to the improvements in our cost structure, we expect consolidated adjusted EBITDA in the range of $33 million to $37 million, which implies growth of 50% to 68% and our consolidated adjusted EBITDA guidance implies an approximate 250 basis points lift in adjusted EBITDA margin versus fiscal 2020. This plan has several key elements that we expect to contribute to our success this year. Continued steady double-digit growth at Lifecore and an acceleration of adjusted EBITDA growth.

We expect Lifecore will continue to leverage its robust business development pipeline, favorable industry trends supporting growth, projected customer demand and expected FDA approval and commercialization of new therapies. At Curation Foods, fiscal 2021 is all about realizing the benefits of our decisive actions associated with Project SWIFT which includes; number one, delivery of Yucatan profit from all four quarters of fiscal '21; number two, cost out improvements carrying forward into fiscal year '21; number three, rightsizing our legacy vegetable bag and tray business. We made significant progress with our key strategic customers and have strengthened and simplified this business with a refined product assortment with significantly improved contribution margin. Our plan implies a revenue reduction from this business of approximately $50 million to $60 million to a new run rate of approximately $100 million to $110 million in revenue. The outcome of this action provides strategic customers with a full product assortment and improves gross margin by realizing logistic efficiencies, overhead cost absorption for our complete product line and capitalization of full impact of our cost out initiatives that were implemented in fiscal '20; four, finally we believe we have more adequately reflected risk associated with key uncontrollable variables of the business such as raw material volatility and potential for ongoing COVID-19 impacts.

Before I share more details on our fiscal 2021 priorities and business updates for Lifecore and Curation Foods, I'll turn the call over to Brian for the financial highlights and a deeper discussion around our fiscal '21 outlook, complete with some modeling considerations as you think about the sequencing for the year.

Brian F. McLaughlin -- Interim Chief Financial Officer

Thank you, Al. First a quick review of our fourth quarter and year-end results. As a reminder, we previously provided preliminary results for revenue, net income and adjusted EBITDA during our June 29th release. Consolidated revenues increased by 2.2% to $156.1 million, which was primarily due to a 5.8% increase in Lifecore revenues and a 1.5% increase in our Curation Foods segment. Lifecore's performance was primarily driven by a 13% increase in its CDMO business, partially offset by a 23% decrease in its fermentation business. Curation Foods performance was primarily driven by a 19% increase in its avocado products business and a 13% increase in its technology business. This was partially offset by a planned 1% decrease in its fresh packaged salads and vegetables business.

Gross profit decreased 8.1% year-over-year due to the combination of a 10.2% gross profit decrease at Curation Foods and a 5.4% decrease at Lifecore. As discussed previously, Curation Foods was negatively impacted by significant shifts in customer demand toward some of its lower margin product categories as well as a regular customer order volatility brought about by the COVID-19 pandemic. This resulted in a cascading effect of order cancellations which caused supply chain inefficiencies and other operational impacts on our business that temporarily eroded our segment [Phonetic] gross margin.

Lifecore was negatively impacted due to previously announced temporary manufacturing inefficiencies associated with the new safety protocols that were implemented as a result of global pandemic. These issues have since been resolved. Lifecore expects to sell through its higher cost inventory by the end of Q1 of fiscal '21. Thereafter Lifecore is expected to return to its normal gross margin rates.

Landec's net loss was $15.1 million in Q4 of fiscal '20 or a loss of $0.52 per share which includes $6.8 million of restructuring and other non-recurring charges net of taxes and $9.7 million of impairment of goodwill and intangible charges also net of tax. Excluding the $0.57 of non-recurring charges in goodwill impairment, adjusted diluted net income per share was $0.05. Adjusted EBITDA increased 45% to $14.1 million compared to $9.6 million in the prior-year period.

Turning to our financial position. As previously announced on July 15, 2020 the Company entered into the Eighth Amendment to the Credit Agreement. While we are incurring a 50 basis point increase in the applicable interest rate, this is a transaction that accomplished our goal of minimizing cost and we are pleased with the flexibility that our lenders provided. We have remained in close communication with them and we appreciate the positive short-term [Phonetic] impact that Project SWIFT is having on the business and the resulting financial improvement that are reflected in our fiscal '21 outlook.

Deleveraging the balance sheet continues to be a top strategic priority for the Company. We are taking a disciplined approach for every investments we make ensuring that the investment delivers a strong return on investment. Further, we are focused on divesting non-strategic assets. To that end, today we announced the sale of our salad dressing facility in Ontario, California for $4.8 million. Those proceeds will be used to pay down debt.

Shifting to our outlook, as Al mentioned in his remarks, we are setting annual guidance for fiscal '21 and in doing so, we are managing the business from an annual perspective with two main indicators, revenue and adjusted EBITDA. Our fiscal '21 outlook is as follows. Consolidated revenues in the range of $530 million to $550 million, representing a decrease of approximately 9%, Lifecore revenues in the range of $93 million to $97 million, representing growth of 11% and Curation Foods revenues in the range of $437 million to $453 million, representing a decrease of approximately 12%.

From an adjusted EBITDA perspective, we are anticipating consolidated adjusted EBITDA in the range of $33 million to $37 million, representing growth of approximately 59%, Lifecore range to from $22.5 million to $24.5 million, representing growth of approximately 17% and Curation Foods to range from $12 million to $14 million, representing growth of 193%.

With respect to expected seasonality for fiscal '21 outlook, we have a few considerations to assist in your modeling. From a revenue perspective, we anticipate minimal quarterly seasonality at the segment level for both Lifecore and Curation Foods. This is the result of a coordinated effort at Lifecore to work with customers on shipment timing and we expect it to be much more balanced compared to prior year. From an adjusted EBITDA perspective we anticipate that a similar balance will occur during fiscal second, third and fourth quarter where both segments will be achieving normalized gross and adjusted EBITDA margin. However, as it pertains to Q1 of fiscal '21 it is important to note that we expect to realize lower relative adjusted EBITDA margin in both segments related to headwinds which will resolve as we move into Q2 of fiscal '21. Curation Foods manufactures avocado products from September to May to take advantage of lower cost fruit. Our normal cadence is to have a seasonal plant closure during the summer months. This results in seasonally lower rates of profitability due to lower fixed cost absorption of Curation Foods.

For Lifecore in Q1 fiscal '21 the business is experiencing temporary margin compression associated with the sell-through of its higher cost inventory resulting from Q4 fiscal '20 manufacturing efficiencies associated with COVID-19 pandemic. These manufacturing inefficiencies were resolved in Q4 and we expect the Lifecore's gross margins to revert to normal levels beginning in Q2 of fiscal '21.

With that, I'll turn the call back to Al.

Albert Bolles -- Chief Executive Officer

Thank you, Brian. Let me go into more detail about the progress we are making in our Lifecore and Curation Foods businesses to maximize shareholder value across the portfolio. Lifecore continues to see momentum benefiting from the three industry trends; number one, a growing number of products seeking FDA approval; number two, the increasing trend toward sterile injectable drugs; and number three, a growing trend among pharmaceutical and medical device companies to outsource the formulation and manufacture of products. As a highly differentiated and fully integrated CDMO, Lifecore has positioned to capitalize on these tailwinds and continues to establish high barriers to competition. Lifecore's speed and efficiencies benefits its partners by decreasing their time to market, which has immense value in their ability to improve patient lives through commercialization of their innovative therapies.

Looking forward Lifecore will fuel its long-term growth by executing against its three strategic priorities. Number one, managing and expanding its product development pipeline. Lifecore added one new business development project increasing its development pipeline to 16 projects in various stages of the product lifecycle from clinical development to commercialization, which aligns with the business' overall strategy. Number two, meeting customer demand by managing capacity and operational expansion to meet future commercial production needs. Demand stands at approximately 6.5 million units with fiscal 2020. Through implementation of lean manufacturing principles and continuous improvement, Lifecore increased its manufacturing capacity from 17 million units to 22 million in annual production, providing immediate incremental opportunities to meet customer demand. And number three, continuing to deliver on a strong track record of commercialization from the product development pipeline. Lifecore currently is planning for one to two products in development to be approved by the FDA for commercialization annually, supporting that long-term double-digit growth.

On July 24th, 2020 Heron Therapeutics announced that it received a positive opinion from the European Medicines Agency Committee for Medical Products for Human Use and recommended the granting of a marketing authorization on its treatment of post-operative pain in Europe. Heron's therapy ZYNRELEF which was formerly known as the HTX-011 candidate is a non-opioid, fixed dose local anesthetic for the treatment of post-operative pain. Lifecore has been a proud partner of Heron for many years, providing process development and support of the regulatory approval process for this therapy, among others, and will continue to support Heron in its FDA approval process. We look forward to the future positive outcomes and congratulate the entire Heron and Lifecore team on achieving this major regulatory milestone.

Our Curation Foods, the exceptional outcomes of Project SWIFT have created a foundation for future profitable growth. We are now strongly positioned to deliver on-trend, plant-based food solutions to customers with a combination of unique capabilities that make Curation Foods truly differentiated in the market. We offer proven internal innovation capabilities, creating food products that meet consumer demand for 100% clean ingredient products. We serve our customers in North America with a direct sales force across the fresh food supply chain and a nationwide refrigerated supply chain that deliver our products in the freshest state possible.

Curation Foods' priorities moving in fiscal 2021. Number one, Project SWIFT. We will continue to focus our efforts on network optimization, lean manufacturing principles and an ongoing strategic review of all aspects of our business. Specifically, we will carry the principle of ZEST, our lean manufacturing program across our network to support and engage with our employees who are critical in our ability to deliver sustainable, continuous improvement. Number two, plant-based food innovation launches. We have several new product launches in the pipeline for fiscal '21 that deliver on the consumer trend toward fresh plant-based products under our Eat Smart brand. We are focusing on consumer insights to drive high margin growth of our salad innovation and other adjacent product categories. And we will support these product launches with strategic spending to drive trial and brand awareness. Number three, focus on culture. The health and safety of our people and products has always been a priority and is foundational to all our actions. It sits alongside our sustainability mandate to reduce our impact on the plan. That has not and will not change. We are working on building a winning culture as we transform and simplify the way we do business. The team is focused on accountability and teamwork with a mindset of successfully moving forward together.

In summary, we have made tremendous progress under challenging circumstance. The Landec team is focused on creating value by delivering against our financial targets, strengthening our balance sheet, implementing our strategic priorities to improve operating margins and making strategic investments in growth. We intend to fully realize the potential of each business through sound and thoughtful execution, creating sustainable value for our shareholders, customers, employees and communities.

Operator, please open the call for questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question is from Brian Holland with DA Davidson. Please proceed.

Brian Holland -- DA Davidson -- Analyst

Yeah, thanks. Good afternoon, everyone.

Albert Bolles -- Chief Executive Officer

Hi, Brian.

Brian Holland -- DA Davidson -- Analyst

Hey, Al. A quick question to start. Do I have this right from your prepared remarks that the -- you would expect the bag and tray business down to $100 million to $110 million which would be down I think you said $50 million to $60 million. Do I have that right?

Albert Bolles -- Chief Executive Officer

Yes, you do, Brian.

Brian Holland -- DA Davidson -- Analyst

Okay. So that would be -- that would take us from kind of where your guidance is to flat, right, exiting that out. There's been a fair amount of optimization both with -- from the plants and the SKUs over the past 12 months. Can you just help quantify the other puts and takes there that might be flowing through the revenue on Curation? Are there any other meaningful flow-throughs there?

Albert Bolles -- Chief Executive Officer

No, we are expecting to have double-digit growth in our avocado products business and we are expecting growth in our salad business as well. As I said, we have a number of new innovations that are in the pipeline that will be coming out. And that growth you will see throughout the year as we head into Q2 and Q3.

But just back to the decrease, we've -- one of the most important projects of Project SWIFT was for us to evaluate. We took two paths on the core veg and tray business. And at the end of the day, we looked at selling it or making it a smaller, much more profitable business. And through the cost out program that we over delivered last year and the changes I made in the sales force we're able to form much stronger partnerships with fewer customers that have enabled us to improve our gross profit on that product line to the point where it just made sense for us to keep it as a much smaller business. And the benefits for us would be that we have a full plant based food product line to our strategic customers. We gained logistics efficiencies, overhead absorption and the cost out as I mentioned, from the core veg we achieved last year and carried a fair amount of it in FY '21. So at the end of the day, it just made sense for us to keep a smaller, but far more profitable core veg and tray business, Brian.

Brian Holland -- DA Davidson -- Analyst

And to be clear, there was interest in that asset?

Albert Bolles -- Chief Executive Officer

There was. We had several people that were interested. But with the changes that we made that I outlined it just didn't make sense for us from a shareholder's standpoint to sell.

Brian Holland -- DA Davidson -- Analyst

Understood. That's helpful. When you last spoke about a month ago, talked about the mix shift, I'm focused on Curation here, understand the moving parts on Lifecore, but it sounded like that it's stabilized through May when we last heard from you. Just curious, a couple of months later has that held -- has that trend held consistent through July? And then when you refer to mix stabilizing, I just want to clarify is that in comparison to pre-COVID or maybe a new normal for the backdrop?

Albert Bolles -- Chief Executive Officer

Right. I think what you're talking about is, in Q4, we had a fall off in some customers.

Brian Holland -- DA Davidson -- Analyst

That's right.

Albert Bolles -- Chief Executive Officer

Mainly our Mass Club. That has come back and it's back now to a runway of where we were with pre-COVID issues. So we are feeling good about our weekly, monthly sales now that we're achieving and as the mix adjusted. Now that being said, the bean business is still down because of food service and trays have not recovered to the point where they were pre-COVID. But some of our higher margin businesses have indeed recovered.

Brian Holland -- DA Davidson -- Analyst

And then if we just roll that forward, thinking about your guidance, do we assume that things continue to get better from here or did you take kind of where we were at year-end and held that through in your outlook? How do we shape that?

Albert Bolles -- Chief Executive Officer

Well, we have built in some conservatism based on COVID-19 and the possibility of another impact in the fall. So we've built that into our guidance along with the fact that with the improvement in profitability of the core veg business we now feel like that we have in place the ability to manage the volatility quarter-to-quarter that we could see in that business based on weather. So I would say that we feel very confident about the plan that we have in terms of our revenues and our adjusted EBITDA with the built-in effects of any headwinds that may hit us last year or this year.

Brian Holland -- DA Davidson -- Analyst

Okay. And you answered my other question with that. So I'll leave it there. Thanks. Best of luck gentlemen.

Albert Bolles -- Chief Executive Officer

Thank you.

Operator

Our next question is from Gerry Sweeney with ROTH Capital Partners. Please proceed.

Albert Bolles -- Chief Executive Officer

How is it going?

Gerry Sweeney -- ROTH Capital Partners -- Analyst

Hey. Good afternoon, Al. Hey, Al. Hey, Brian.

Albert Bolles -- Chief Executive Officer

Hi, Gerry.

Gerry Sweeney -- ROTH Capital Partners -- Analyst

How are you guys doing?

Albert Bolles -- Chief Executive Officer

Good.

Gerry Sweeney -- ROTH Capital Partners -- Analyst

Appreciate I get the time here. Listen, Curation, the bag and the core business, how challenging of a decision was it at the end of the day to keep it versus other options? And that's sort of delays point, were there other options in terms of buyers for the business?

Albert Bolles -- Chief Executive Officer

Yes. I mean, as you know, Gerry, we talked about we're going to run two pathways on this.

Gerry Sweeney -- ROTH Capital Partners -- Analyst

Yeah.

Albert Bolles -- Chief Executive Officer

Which we did and we were excited about selling, and I was certainly, but in all honesty as we went through our process of improving our margins, simplifying the business, the cost out that was overachieved last year, it made it a pretty easy discussion with my Board that it was best for the shareholders that we keep a smaller, more profitable business. And it would really help us in terms of, as I said before, our logistic efficiencies, overhead absorptions things of that nature.

So ran both processes. And at the end of the day, Gerry, it really wasn't that difficult of a decision.

Gerry Sweeney -- ROTH Capital Partners -- Analyst

Okay. That's fair. Of that $50 million to $60 million that's going to go away in the core business. Couple of questions on that. Are we going to see that right away in this fall season coming up? And two, maybe green beans aside that $50 million to $60 million of revenue is that -- of that core business? That has traditionally been very volatile, especially with weather which is again hard to gauge.

Albert Bolles -- Chief Executive Officer

Predict.

Gerry Sweeney -- ROTH Capital Partners -- Analyst

Yeah, I mean how much of that is -- how much visibility do you have or how much have you taken into account volatility on a go-forward basis?

Albert Bolles -- Chief Executive Officer

Yeah. Brian, do you want to take that one?

Brian F. McLaughlin -- Interim Chief Financial Officer

Yeah, yeah. So one of the things that we've done this year in our guidance and it's embedded in the numbers is we've actually gone back and looked historically and there is actually a pretty tried true pattern across the quarters in terms of what you can expect in the way of weather volatility hitting core and trays. And we keep talking about core, but it's both -- it's both core and trays. And so we have pushed those numbers into our guidance.

And so what was previously a set of numbers that I don't think or historically had not been reflected in historical guidance is embedded in our guidance this year. And so what in the past might have been viewed as volatility, I'm hoping that going forward will be viewed as seasonality because we see it, we understand it and we're building it into our numbers. But those -- but the improved margin numbers that Al has referred to, the benefit of cost out as well as some of the price increases with our strategic customers who are working with us, those benefits are actually net of pushing that risk reserve into our overall guidance. So our hope and thought is that you won't see the volatility, but you will see the seasonality.

Gerry Sweeney -- ROTH Capital Partners -- Analyst

Got it. That's fair. I know we spoke a lot about it. That's just helpful. Shifting gears, maybe a little bit to Lifecore, you mentioned Heron specifically and the granting of the, I guess, the license to sell ZYNRELEF, I guess, in Europe. Any idea of how large a product that can be, could be, and any type of substance around that perspective?

Albert Bolles -- Chief Executive Officer

Yeah. Jim, do you want to tackle that one?

James G. Hall -- President Lifecore Biomedical

Yeah, sure. Hi, Gerry. Unfortunately I'm not going to be able to provide any guidance on demand projections for either the US or rest of the world. That's something that is going to have to come out of Heron. They do project that there is a significant market over there, just like in the US, that's why they're going after it. So it's positive news. Just wanted to recognize all the hard work that our team has done to do that and we're looking forward to continue to support them moving forward.

Gerry Sweeney -- ROTH Capital Partners -- Analyst

Got it. Okay. I'll -- [Indecipherable] appreciate. That's all for me. I appreciate it. Thank you.

Albert Bolles -- Chief Executive Officer

[Indecipherable]

Operator

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

Michael Petusky -- Barrington Research -- Analyst

Hey, guys. Good evening.

Albert Bolles -- Chief Executive Officer

Hey. Good evening.

Michael Petusky -- Barrington Research -- Analyst

Hey. I may have -- I may have missed this, but did you guys give cash flow from ops and capex for the quarter?

Albert Bolles -- Chief Executive Officer

Brian?

Brian F. McLaughlin -- Interim Chief Financial Officer

No, we didn't. I mean what we generally -- the information that we've generally provided to folks has been sort of the EBITDA number for the quarter. So it was $14.1 million on an adjusted basis. In terms of capex for the year --

Michael Petusky -- Barrington Research -- Analyst

Yeah. Can you provide cash flow from ops and capex?

Brian F. McLaughlin -- Interim Chief Financial Officer

Yeah. Let me see. I just have the year-end numbers right in front of me here. I can follow-up on that. But it was -- it was positive overall.

Michael Petusky -- Barrington Research -- Analyst

I'll take year-end cash flow from ops and capex.

Brian F. McLaughlin -- Interim Chief Financial Officer

So year-end cash flow from operations was actually a negative $17 million. What I'm doing is I'm just looking at the cash flow that's in the press release. It was negative $17 million. The overall capex numbers was $26 million or $27 million. And so when you add those up, you're looking at a number of about $43 million to $44 million and that was in essence funded over this past year with an increase in debt of just over $40 million between the term facility and the line of credit.

Michael Petusky -- Barrington Research -- Analyst

Can you guys speak to capex expectations for '21 and also if you see a positive free cash quarter in fiscal '21? Thanks.

Brian F. McLaughlin -- Interim Chief Financial Officer

Yeah. It's -- so the number that we're guiding right now for fiscal year '21 is about -- it's about $34 million. Of that, it's about -- about $15 million -- $14 million or $15 million in Curation and about $20 million in Lifecore. And at this point with our -- with the asset sales that we -- it's close to being a positive cash flow for the year, absent asset sales. But with asset sales we're looking at that number being breakeven or a positive number.

And as we move forward into the future years, we're looking at those numbers being fairly positive or even. So we're trying to get away from the past where we've been on a negative. We've had huge capex funding. A lot of that has been in Curation Foods for assets that today we're in some regards regarding as non-strategic and liquidating and then taking, I think, a pretty disciplined approach to what we are spending money on in Curation and making sure that we're funding the proper growth initiatives on Lifecore going forward. So we're looking at managing that capex number to a tighter number than I think we've seen in the past.

Michael Petusky -- Barrington Research -- Analyst

Okay. I may have got slightly lost at the beginning of that. Did you say positive cash flow from ops or positive -- or close to breakeven cash flow from ops or --?

Brian F. McLaughlin -- Interim Chief Financial Officer

No, it's actually not. It's actually negative from ops this year but with our asset sales down below. We're actually --

Michael Petusky -- Barrington Research -- Analyst

Yeah. Okay.

Brian F. McLaughlin -- Interim Chief Financial Officer

It's actually going to be -- we will be generating positive -- a positive.

Michael Petusky -- Barrington Research -- Analyst

Got you. Got you.

Brian F. McLaughlin -- Interim Chief Financial Officer

So sorry if that was confusing.

Michael Petusky -- Barrington Research -- Analyst

No, no, no, it's perfect. Can I also ask in terms of, you said you expect growth in salads and double-digit growth in guac for this year. The growth in sales, how much of that growth, it sounds like it's probably somewhat modest -- how much of that growth is sort of tied to new product launches? I mean, is that the majority of the growth that's projected there? And then on the guac, how much of that is associated with the squeeze or any other new products there? Thanks.

Albert Bolles -- Chief Executive Officer

Yeah, so I can give you more details later. But in general on the salad business we have a huge push to gain incrementality. So we have several new product lines that we are going to be testing and launching that are going to be incremental to our current business.

So what I mean by incremental would be something that's just beyond a regular salad, the plant based protein salads, you've heard me talk about. And we also have some other salads that we believe as we are working much more closer with our customers through a new sales force, there is still a lot of white space for us to gain in the US in terms of ACV. And we're developing new lines of salads that meet the customers' needs as well as that are still in the sweet spot of what consumers want. So that's on the sales side.

And on the avocado products side, we continue to gain distribution on squeeze. We also have gaining distribution on our Cabo Fresh tubs which is turning out to be a very strong brand name for us with millennials. And those areas we're going to see continued growth in as we move forward through the fiscal year.

Michael Petusky -- Barrington Research -- Analyst

Just real quick last one. The guide for EBITDA this year, does that include any expectation of leverage on the SG&A line?

Albert Bolles -- Chief Executive Officer

Yeah. Brian?

Brian F. McLaughlin -- Interim Chief Financial Officer

So, yeah, so in other words, are we scaling or improving the SG&A line as a percent of revenues?

Michael Petusky -- Barrington Research -- Analyst

Yes.

Brian F. McLaughlin -- Interim Chief Financial Officer

It's coming down and we are realizing actual dollar savings if you sort of net out some of the COVID dollars that we have at this point sort of reserved in there as a percent of revenue. So it is not coming down because we're decreasing revenue -- because we are decreasing revenues by a significant amount. So we do believe that we have the right level of SG&A. We've carved it back quite a bit in this past year, rightsized the business, we closed offices. We're taking a much tighter look at making sure that the spend that we have in marketing and R&D is very effective. And it is down -- it will be down year-over-year as part of the $11 million that Al referenced. It's roughly half of that. But again, given the decrease in core veg revenues as well as some of the mild impact that we're having as well, unfavorable impact actually on beans because of the food service component, the overall revenue line is sort of compressing that number. So you're not seeing an actual benefit from an overall opex ratio standpoint. But the actual spend is down.

Michael Petusky -- Barrington Research -- Analyst

So maybe flattish, slightly up?

Brian F. McLaughlin -- Interim Chief Financial Officer

Yeah. No, it's pretty close to flat, but it's rounding up a bit.

Michael Petusky -- Barrington Research -- Analyst

Yeah. Great. Thank you.

Brian F. McLaughlin -- Interim Chief Financial Officer

And this is -- yeah. And I was referring more to Curation.

Michael Petusky -- Barrington Research -- Analyst

Okay. Yeah.

Brian F. McLaughlin -- Interim Chief Financial Officer

Yeah.

Michael Petusky -- Barrington Research -- Analyst

Okay. Thank you so much. Lots of good information. Thank you.

Albert Bolles -- Chief Executive Officer

Thanks.

Operator

Our next question is from Mark Smith with Lake Street Markets. Please proceed.

Mark Smith -- Lake Street Partners -- Analyst

Hi, guys. Most of might have been answered, but just wanted to look at kind of big picture as you're looking at COVID impact that's built into your guidance. Have you just seen enough kind of sequential improvement late last year and really so far this year in 2021 to give you the confidence that it's really more so just Q1 impact and you don't have as much impact through the rest of the year?

Albert Bolles -- Chief Executive Officer

Yeah, let me answer that. And then, Brian, you may want to add some more color. But we have seen a recovery, we've talked that. There is an ongoing cost that we still get in our facilities right for the increase in sanitation, the social distancing, the extra cleaning we have to do, things in the offices. What we're planning for though is in, once again I am being conservative, is if we have "a second wave" in the flu season, we have some conservatism built in for COVID impact in both business.

Brian, anything you wanted to add to that?

Brian F. McLaughlin -- Interim Chief Financial Officer

Yeah. So, one, we've got something that's roughly in the 150 basis points to 200 basis points of revenue sort of built into our numbers. And we have them actually built in across the year at this point rather than just looking at Q1 and thinking that everything magically gets better as soon as we get to September. I think we all can see that that's not the case.

So we have sort of built in across the entire year at this point sort of the patterns. And what is a more stable set of numbers coming out of May that we saw back in April, which is -- which really caused most the disruptions we had in Q4. And we've sort of taken those patterns and bolted them forward across the entire year.

So given the uncertainty that may be more than enough, I mean maybe just what we need or maybe less. I think we're all trying to figure out where we're going with that. Does that help you? Does that answer your question?

Mark Smith -- Lake Street Partners -- Analyst

Yeah. No, that's helpful that you've built it in for kind of the full year and are looking at the full impact.

Albert Bolles -- Chief Executive Officer

Yeah.

Brian F. McLaughlin -- Interim Chief Financial Officer

And I guess -- and also, just back to one of the questions earlier on our opex number. Some of that burden as well across the year is built into that number now. So that also helps explain along with the lower revenues why that number is being held up a little bit more than it might otherwise.

Mark Smith -- Lake Street Partners -- Analyst

Okay. That makes sense. And then just as we look at Curation, we've talked a lot about it on another call here, but any other headwinds that you see kind of excluding COVID as you look at kind of crops, labor, anything else that you're kind of keeping your eyes on right now that may pop up and cause some headwinds here?

Albert Bolles -- Chief Executive Officer

Yeah. We're keeping our eye on labor. Our facility in Santa Maria has been a hotspot. We've had -- a very low amount of our employees have had diagnosed with COVID. They have not contracted in the plant. So it's something that we are keeping an eye on because it's hard to get people from on weekends to maybe social gather. But in general, that's an area that we are managing very actively.

We have a COVID task force that's so run by our head of quality of food safety. And -- so even though we've had some people who have had it, we have absolutely no hotspots in our facilities and it's something we continually keep an eye on.

Mark Smith -- Lake Street Partners -- Analyst

Okay. If you had any labor issues on bringing on new people as you've looked at expanding capacity in certain facilities?

Albert Bolles -- Chief Executive Officer

No, we have not. We are taking our -- as you know, we're making our footprint much smaller and we're being able to really improve our efficiencies not through the amount of people we have. In fact, Mark, we have done a lot of work over the last year in our last year in our Guad facility to automate.

How we're really getting there is through a focus on new manufacturing principles centered around OE, really getting to get our lines run more efficiently, engage our employees, train them to help us be able to go and sweat the assets more and improve our overall OEE [Phonetic]. It's how we transformed the facility in Mexico last year and we're applying those principles to both Guad and our Bowling Green facilities.

Mark Smith -- Lake Street Partners -- Analyst

Okay. And then last one for me, just kind of going back to kind of the growth within the guac business and if we look at kind of emerging brands and competitively it may be hard to speak to, but within this built into this double-digit growth, is there any new products that are coming later in the year that's kind of built into that. or is that kind of core business that you have products today?

Albert Bolles -- Chief Executive Officer

It's a core -- we have a lot of stuff built into core business. We have some items that we're looking at that are not built into our plan that we may or may not get into this fiscal year.

Mark Smith -- Lake Street Partners -- Analyst

All right. That's helpful. Thank you, guys.

Albert Bolles -- Chief Executive Officer

Thanks, Mark.

Operator

[Operator Instructions] Our next question is from Mitch Pinheiro with Sturdivant & Company. Please proceed.

Mitch Pinheiro -- Sturdivant & Co. -- Analyst

Yeah. Hi. Good afternoon.

Albert Bolles -- Chief Executive Officer

Hi, Mitch.

Mitch Pinheiro -- Sturdivant & Co. -- Analyst

Couple of questions for me. The first quarter of '21, are we going to be positive EBITDA on an adjusted basis?

Brian F. McLaughlin -- Interim Chief Financial Officer

Yes.

Mitch Pinheiro -- Sturdivant & Co. -- Analyst

Okay. And though -- though, should we expect earnings per share to be -- just doing the math, it looks like it might be negative, but better than Q1 of the prior year?

Brian F. McLaughlin -- Interim Chief Financial Officer

Our EBITDA is going to be positive.

Mitch Pinheiro -- Sturdivant & Co. -- Analyst

Okay. Second question is balance sheet. Over the years I've noticed your working capital keeps climbing and not just climb because -- I guess some business went up, but as a percentage of sales, it keeps moving. The highest rate I've seen it since covering you guys. Why is it going up and what is your expectation for working capital? Is it going to be a source of cash or use of cash in '21?

Brian F. McLaughlin -- Interim Chief Financial Officer

Yeah, I see it as being a source of cash, but what we have happening here, and this is something that it's a great question for us to just introduce this to folks who may not have already locked into it. With the Yucatan business, the way that that business model works is from really October through April, maybe sometimes into May, we are not only building inventory to service and fulfill current orders, but we are building up a safety stock of inventory to carry us through the summer months. And so, as we're coming through those months, we're actually building up somewhere between an additional $15 million to $20 million in inventory onto our balance sheet.

So you're seeing that as a pretty huge use of funds as we go through those months. As we then go through the months from May sort of through to September, you're seeing us deplete that inventory when we begin to sort of start building it up at a slow rate, but then at an accelerated rate as we move back into the next cycle.

So that is a -- I would say that the other parts of -- apart from capex and this sort of comes in a different period. Eat Smart has a pretty stable, I think seasonality in terms of revenues and trading assets and liabilities that go with it. We do have the seasonality that is centered more in Q2 and Q3 because with the raw product risk reserve that I referred to earlier. But then probably the biggest thing that will give the balance sheet a degree of seasonality that it has not seen in the past has been and will this Yucatan cycle that I just described.

Mitch Pinheiro -- Sturdivant & Co. -- Analyst

Was there additional inventory as of May 31 being built at Yucatan?

Brian F. McLaughlin -- Interim Chief Financial Officer

It was being built all the way from October across the year -- so -- into May. So as we were sort of navigating a lot of the issues of, one, nailing down our cost out, much of that was delivered in the fourth quarter, reworking the business model and stabilizing the business model in Yucatan from the beginning of last year, which we finally worked our way through some of that high-price inventory in the early February time frame, but all along that cycle from October on we were building up the asset base and the inventory base that we knew we would need in May to carry us through the summer to avoid what happened last summer, which is that we had to produce during the summer during the very, very high season of fruit [Phonetic] costs season.

Albert Bolles -- Chief Executive Officer

Yeah. So yes, we did not run through May 31st. So we took the plant down in May, so that we would not repeat what happened to us. Last year we had a run into the high fruit costs. So we're very confident about the fruit that we have put away, if that was your question in terms of understanding the cost.

Mitch Pinheiro -- Sturdivant & Co. -- Analyst

Yeah, no, I got. Yeah that's good. And then I didn't really understand one other thing. Did you answer the question what your capex spending is going to be in '21?

Brian F. McLaughlin -- Interim Chief Financial Officer

Yes. So we're guiding -- and we've also committed to the bank as well on this, a total number of $34 million for the year. And in doing so we've committed to limiting that which is right in line with our operations. The bank worked with us on that to $12 million for the first half of the year, $12 million or less for the first half of the year, $34 million or less for the full year.

Mitch Pinheiro -- Sturdivant & Co. -- Analyst

Thank you very much. Appreciate it.

Operator

We have reached the end of our question-and-answer session. I would like to turn the conference back over to management for closing remarks.

Albert Bolles -- Chief Executive Officer

Yeah, thank you today for your time and your continued interest in Landec. This ends the conference call.

Operator

[Operator Closing Remarks]

Duration: 56 minutes

Call participants:

Albert Bolles -- Chief Executive Officer

Brian F. McLaughlin -- Interim Chief Financial Officer

James G. Hall -- President Lifecore Biomedical

Brian Holland -- DA Davidson -- Analyst

Gerry Sweeney -- ROTH Capital Partners -- Analyst

Michael Petusky -- Barrington Research -- Analyst

Mark Smith -- Lake Street Partners -- Analyst

Mitch Pinheiro -- Sturdivant & Co. -- Analyst

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