Landec Corporation (LNDC) Q2 2021 Earnings Call Transcript

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Landec Corporation (LFCR -3.29%)
Q2 2021 Earnings Call
Jul 28, 2021, 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 2021 Fourth Quarter Earnings Call. [Operator Instructions] Afterwards, we will conduct a question-and-answer session. At that time, I will provide instructions on how to ask a question.

Now, I'd like to turn the call over to Jeff Sonnek, Investor Relations at ICR.

Jeff Sonnek -- Investor Relations

Good afternoon, and thank you for joining us today to discuss Landec Corporation's fourth quarter fiscal year 2021 earnings results. On the call today from the company are Dr. Albert Bolles, President and Chief Executive Officer; John Morberg, Chief Financial Officer; and Jim Hall, President of Lifecore.

By now, everyone should have access to the press release, which went out today just after 1 PM Pacific or 4 PM Eastern Time. If you've not received the release, it's vailable on the Investor Relations portion of Landec's website at ir.landec.com.

Before we begin today, we'd like to remind everyone of the Safe Harbor statement. Certain statements made in the course of this conference call contain forward-looking statements. It's important to note that the company's actual results could differ materially from those projected in such forward-looking statements. Additional information concerning risk factors that could cause actual results to differ materially from those in the forward-looking statements is contained from time-to-time in the company's filings with the SEC, including but not limited to the company's Form 10-K for fiscal year 2020. Copies of those filings may be obtained from the company's website.

And with that, I'd like to turn the call over to Al.

Albert Bolles -- President, Chief Executive Officer

Thanks, Jeff. Good afternoon, everyone, and thank you for joining us today. On today's call I'll provide highlights from our fiscal 2021 results. Jim Hall will then review some of the exciting developments at Lifecore. I'll cover our operational progress and Curation Foods; and John Morberg will discuss our financial results and fiscal 2022 outlook. We'll then open the call for your questions.

We had a solid finish to fiscal 2021 with the fiscal fourth-quarter performances that exceeded our revised expectations. Full-year consolidated revenues of $544 million exceeded the high-end expectations of $12 million, driven by both Curation Foods and Lifecore. Similarly, consolidated adjusted EBITDA for the year end was $31.4 million, ahead of the high end of our guidance by $2.4 million. Both segments performed well and I'm proud of the team for the collective efforts in what was a challenging year, complete with a turnaround of our Curation Foods segment during a global pandemic.

Lifecore proved to be especially resilient in the COVID-19 disruptions and earnings top-line growth of 14% and adjusted EBITDA growth of 22% for the full year. This was really an exceptional performance in a highly uncertain year and is consistent with the low-to-mid teens compound annual growth trajectory that we expect out of this business over the long term. And at Curation Foods, we were pleased to meet our year-end steady-state goal of generating segment gross profit margins in the range of 11% to 14% and reported margin of 11.9% in the fiscal fourth quarter. Our turnaround efforts with Curation Foods are on track and we have the added support of a more efficient distribution network that expands our reach while further simplifying our operations.

Looking ahead to fiscal 2022, we have the benefit of some customer momentum at both Lifecore and Curation Foods, a nimble organization and an improving balance sheet that will help us keep pace with our long-term growth objectives. For FY '22, we currently anticipate full-year consolidated revenues of $545 million to $554 million and consolidated adjusted EBITDA of $33.3 million to $35.5 million. I think FY '22 is best characterized as an investment year for Lifecore. We will be spending additional funds on capex and in areas of sales and marketing to grow new development channels, thereby expanding our future opportunities in this attractive CDMO space.

As we will discuss in further detail, certain customers were carrying larger inventories during COVID, resulting in our FY '22 revenue growth expectations having an annual impact of approximately five percentage points. Including this impact, we expect revenue growth of 7% to 10% and adjusted EBITDA growth of 6% to 10% next year. We are continuing to position the Lifecore segment for consistent long-term profit growth going forward.

On the Curation side, we continue to see growth in our Avocado Products business, offsetting planned declines in our core vege and tray business. We expect overall revenues to be flat to slightly negative year-over-year. However, we are expecting adjusted EBITDA to grow 9% to 18% based on the full year benefit from our operational enhancements and cost controls, which will drive improved gross margins, partially offset by inflationary pressures that we expect to continue. I'm proud of our accomplishments and excited by the opportunities that lie ahead.

We have more work to do, but we are on the right track. We have a solid foundation at both are businesses and expect to drive more consistent results going forward, as we work toward delivering shareholder value. I do want to mention that Pat Walsh, one of our directors, resigned due to personal reasons. As we stated in our 8-K, there were no disagreements with Pat in the company. And we thank him for his invaluable service to Landec and wish him all the best. Currently, the Board also voted to reduce the size of the board from 11 to 10 directors.

With that, I'll turn the call over to Jim.

James G. Hall -- Lifecore-President

Thank you, Al. We had a very exciting fourth quarter with the highlight being our CMO partner, Heron Therapeutics, FDA approval for its Zen relief product, an important new therapy for treating certain post-surgical pain. The approval showcases the support that Lifecore's world-class quality systems and manufacturing engineering excellence provides to our partners.

We now look forward to continuing to work with Heron on commercializing Zen relief over the course of our fiscal '22, which includes the continued process optimization and scale up of our commercial manufacturing process that will support this important product.

Naturally, our revenue scale up in aseptic fill and finish as batch size increases are commercialized, contingent with market penetration rates, or as in prior years, the revenues were primarily in development that were associated with known timelines. Nonetheless, we are always back-filling our development pipeline with projects that reach across the spectrum and don;t anticipate a material shift in the complexion of the revenue generators in the near term.

In the fourth quarter, we learned that many of our commercial customers carried large inventories of finished products during COVID due to the temporary deceleration in procedure volumes. Our customers are now in the process of rebalancing their inventories over the first half of our fiscal '22, which is translating to some timing variances in our revenue growth versus prior year, which we believe represents approximately five percentage points of headwind on our fiscal '22 revenue guidance growth rates.

Our pipeline continues to be robust, supported by our reputation for quality and execution of difficult projects. We now have a total of 21 active projects that are in various stages of their product lifecycle and are in active discussions with several potential new projects. The growth of our pipeline continues to provide us comfort around our goals to deliver long-term revenue growth.

According to market research, in the last 10 years, approximately 75% of new drug development among small to mid-sized pharma companies has been outsourced. Injectable products represent approximately 45% of total products in development, which have projected compound annual growth rates of 10.5% and pre-filled syringes have a projected compound annual growth rate of 13% through 2023.

Based on the expectation for an acceleration in injectable approvals, their significant unmet demand for specialized CDMO vial and syringe capacity, which the industry estimates will grow by an incremental 75 million to 100 billion units, we believe that Lifecore can play an even greater role to meet the large incremental needs of the fast-growing CDMO industry. Our expertise in viscose materials and our world-class quality system that supports not only drugs but biologics, medical devices and combination products enables us to stand out as a specialized leader in the CDMO industry.

While we are very pleased with the continued expansion and activity in our pipeline, it is imperative that we keep pushing ahead with our planned capacity investments to satisfy demand that we see on the horizon. As such, we are making capital investments in fiscal '22 of approximately 32 million toward expanding our filling capacity beyond our current 10 million units to reach approximately 37 million units over the next five years.

This investment will support future capacity needs and nearly double Lifecore's revenue generating capacity on aseptic fill and finish. In fiscal '22, we are also investing an incremental $1.6 million in the P&L through sales and marketing and development resource expenses to expand our reach with new customers and to increase our development service capabilities, which ultimately allow us to continue to expand our development pipeline and open new sales channels that complement our existing capabilities.

We believe that organic sales expansion is highly profitable with attractive returns on investment.

We operate in an amazing industry with strong fundamentals and Lifecore is perfectly positioned to take advantage of the growing opportunities to deliver attractive financial returns to all of our stakeholders. Thank you for your continued interest in our story and I look forward to updating you throughout the year.

Now, I would like to return the call to Al.

Albert Bolles -- President, Chief Executive Officer

Thanks, Jim. FY '21 was very busy and important year in our supply chain. And Curation Foods made some significant advancements within projects SWIFT to simplify the business in the fourth quarter to finish out the year.

We dealt with COVID integrating facilities and entered into a new strategic distribution agreement. We also monetized our one set investment. Last year, COVID-19 had a tremendous impact on our workforce. I am very proud to say that our team took the threat seriously, implemented recommended mitigations quickly. And as a result, we were able to maintain the health and well-being of our people while continuing to grow our risk process and shift the very best guacamole, salads, and vegetables. And we did this for the entire year.

At the same time, we were also optimizing our operational footprint by pairing back capacity to better match our product focus and generate profitable growth. As previously reported, we have divested underutilized assets in the fiscal first quarter. This included our Hanover and Ontario assets; in third quarter, our Vero Beach facility; and in fourth quarter, our Rock Hill operations. These strategic moves reduced organizational complexity by broadening leadership accountabilities and flattening our management structure.

We also entered into a logistics agreement with Castellini, a premier fresh produce distributor. This strategic partnership will allow us to improve our delivery performance as a result of their existing route infrastructure both in terms of frequency and reach. We also have the benefit of leveraging their excellent transportation management system, which in turn results in better information available for our customer service team to keep customers well informed of delivery status.

Finally, we will enjoy shared productivity as we improve the utilization of Castellini's assets. In FY '22, our focus was about driving efficiencies in our operational performance to maturing our operational excellence program, which we referred to as ZEST; Zero waste, Employee engagement, Standardization, and Training. This is an approach based on the lean principles that are a well-recognized for improving operational performance.

We have discussed inflationary concerns as a leadership team and are looking at our cost base to try to anticipate the impact. Fortunately, many of the programs that we commenced in FY '21 including the reduction in facilities and the casting in the contract set us up to deal with the broad inflationary pressures that are impacting global economies. We have a focused program to drive continuous productivity through the supply chain with a concerted effort to offset cost increases.

Where we are unable to offset cost increases, we are also working with our sales teams to discuss price increases to customers as we are committed to maintain gross margins in the 11% to 14% steady-state range.

On the commercial front, our retail merchandising efforts related to resets and new items are starting to build as we hold more top level customer need. Even club stores are planning demos again in September, which is extremely encouraging. You'll see all these signs as positive indicators for our business.

Now, I will turn the call over to John.

John D. Morberg -- Chief Financial Officer

Thank you, Al. I'm pleased to share with you our financial results for the fourth quarter and full year of fiscal '21. I'll begin with a summary review of each segment, before concluding with a consolidated financial review.

Starting with our Lifecore segment. Fourth quarter revenues ended at $25.8 million, a 1.3% increase over the same period of the prior year. CDMO revenues posted a modest increase of 1% to $21.9 million from the prior year, primarily due to the timing of aseptic commercial shipments within the fiscal year, particularly the large 33% growth rate we previously shared with you in the third quarter. Fermentation revenues similarly grew by 2% to $3.9 million.

Gross profit margin improved by approximately 90 basis points versus the prior year to 43.5%, largely due to timing and mix. Segment adjusted EBITDA totaled $7.7 million for the quarter, a 2.6% increase over the prior year and EBITDA margin was 29.8%, marking a slight 40 basis points of improvement versus prior year.

For the full year, Lifecore revenue grew 14.3% to $98.1 million, above our high estimate guidance range generating a 22% year-over-year increase in adjusted EBITDA of $24.5 million, which is at the high end of our guidance range.

Let's turn to our Curation Foods segment results for the fiscal fourth quarter. Revenues totaled $114 million, a 12.7% decline from the prior- year fourth quarter, which included the additional 14th week. On a comparable basis, excluding the additional 14th week and the prior year, revenues decreased approximately 6%. Fresh packaged salads and vegetables declined 13.9% or 7.2% excluding the additional week in the prior year, which was primarily due to the planned reduction in the lower margin legacy vegetable and trade business.

Avocado Products revenues declined 5.7% from the prior year or excluding the effects of the additional week in the prior year, increased approximately 1.6%. We achieved our steady-state gross margin goal with an 11.9% gross margin performance in the fiscal fourth quarter, an increase of approximately 180 basis points over the per year.

On a sequential basis from the third quarter of fiscal '21, gross margin improved 450 basis points, which was impacted by channel disruption related to COVID that we previously discussed. This was a significant accomplishment for team and reflects the improved profitability in the Curation segment that will carry forward into fiscal year '22, as we benefit from a more favorable mix of higher margin products and improvement to some of our lower margin products.

Adjusted EBITDA after the quarter totaled $5.9 million with a corresponding margin of 5.2%. For the full year, Curation revenues declined 11.6% to $446.1 million, well above the high end of our revised guidance range and we generated adjusted EBITDA of $11 million, which is $2 million above the high end of our revised guidance range.

The $11 million adjusted EBITDA represents an increase of 148% over the $4.4 million adjusted EBITDA on the prior year, which included a one-time $1.5 million royalty. Excluding the effects of the one-time royalty in the prior year, adjusted EBITDA would have increased to 274%. Briefly turning to our consolidated financial performance, fiscal fourth quarter revenues declined 10.4% to $139.8 million and full year of fiscal year '21 revenues declined 7.8% to $544.2 million.

Selling, general and administrative expenses decreased $2.1 million versus the prior year to $16.1 million in the fourth quarter and decreased $6.8 million versus the prior year to $65.4 million for the full fiscal year. Consolidated adjusted EBITDA totaled $12.1 million for the fourth quarter compared to $14.1 million in the prior year period. Consolidated adjusted EBITDA totaled $31.4 million for the full year fiscal '21, an increase of 43% over the prior year.

Let's now turn to our improving cash flow performance. Cash provided by operations was $15 million for the full year ended May 30th 2021, which marks a $32.1 million improvement compared to cash used by operations of $17 million in the prior-year period. Cash from investing activities improved by $13 million compared to the prior year through a combination of a $3 million reduction in capex and a $10.5 million increase in sales proceeds.

At the end of the fourth quarter, our net debt was $192.6 million. But as a reminder, we realized $45.1 million of proceeds for the sale of our interest in the Windset investment, and correspondingly used $41.4 million to repay debt subsequent to the fourth quarter close. Our pro forma net debt would have been $151.2 million, and our pro forma net leverage ratio would have been approximately 4.8 times, an improvement of 1.3 turns.

We continue to improve our financial position and create greater financial flexibility to ensure that we can execute our strategic plans as we similarly and strategically review each and every aspect of our business, and we will continue to do so.

With that, I want to share our outlook for fiscal '22, along with some considerations to help shape the cadence of the year and some of the drivers that will impact comparability. Let's begin with our overall consolidated outlook for the full fiscal year. We are introducing guidance for consolidated revenues in the range of $545 million to $554 million, representing a range of flat to plus 2% and consolidated adjusted EBITDA is expected in a range of $33.3 million to $35.5 million, representing an increase of 6% to 13%. At the segment level, we are guiding Lifecore revenues to a range of $105 million to $108 million, representing growth of approximately 7% to 10% and adjusted EBITDA in the range of $26 million to $27 million, representing an increase of approximately 6% to 10%.

Curation Foods revenues are expected in a range of $440 million to $446 million, representing a slight year-over-year decrease of flat to down 1.4% and adjusted EBITDA as expected in the range of $12 million to $13 million representing an increase of approximately 9% to 18%. As you think about the segment level guidance and how it builds into our consolidated outlook, we think it is helpful to share some framework to inform your modeling and judgment of our future performance.

First, starting with Lifecore. As discussed, Lifecore's top-line growth in fiscal year '22 is hindered by approximately 500 basis points due to excess customer inventory as a result of a delay in elective procedures. The expectation is that this will rebalance at the end of our fiscal second quarter, which results in flattish expectations for growth in the first half, then, transitioning into substantial second-half growth to meet the plan we are putting forth today for growth of 7% to 10%. Layering on the 500 basis points inventory headwind, we bridge back to Lifecore's long term expectations for compound annual revenue growth to low-to-mid teens.

From an adjusted EBITDA perspective, we expect the first half to approximate 25% to 30% of the full-year guidance. With the first quarter approximating our results from the prior year first quarter fiscal 2021. For the fiscal second half, growth should recover a very material fashion to meet our guidance for the fiscal year, which implies an increase of approximately 6% to 10%.

As Jim discussed, please keep in mind that the businesses investing in sales, marketing and development activities to drive longer term development revenues and to enhance some capabilities in anticipation of future growth. So, adjusted EBITDA margin expansion on the higher revenues is temporarily muted but expected to resume over the intermediate and long term.

Shifting over to the Curation Food segment. We expect a fairly consistent year of quarterly growth, saved for the first fiscal quarter where the positive impacts of store resets aren't yet completely realized. So, in the case of the first quarter, we are expecting a low single digit decrease, followed by modest quarterly growth thereafter. Gross margin has been an important KPI for Curation since embarking on Project SWIFT and we expect to drive additional gains in fiscal year '22 as a result of those operational enhancement and simplification efforts that Al spoke to.

We ended fiscal year '21 with a segment gross margin of 9.7% and we believe that we will meet our steady-state goals of 11% to 14% on a full=year basis for fiscal year '22 as we realize the full-year impact from those initiatives. And from an adjusted EBITDA perspective, we expect the quarterly cadence to be largely aligned with the prior year of fiscal year '21, saved for some higher relative growth rates in fiscal first and third quarters due to some more favorable comparisons.

Net, we have the business in a much better place heading into fiscal year '22. And those operational improvements are translating to gains and adjusted EBITDA as referenced via our implied growth in the range of 9% to 18% for the full year.

And finally from a capex perspective, in addition to the $32 billion at Lifecore, we plan to spend more modestly at Curation with up to $7 million on projects primarily related to maintenance capex and some minor automation enhancements.

And with that, the operator, please open the call for Q&A.

Questions and Answers:

Operator

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question is from Mark Smith of Lake Street Capital Markets. Please state your question.

Mark Smith -- Lake Street Capital Markets -- Analyst

Hi, guys. Thanks for taking the question. First, I just want to look at Curation Foods a little bit. Can you discuss some of the inflationary pressure where you've seen it; whether it's labor, delivery, whether this is in kind of response to initial price increases or other ways to kind of mitigate this?

Albert Bolles -- President, Chief Executive Officer

Yeah. Hi, Mark. It's Al. How are you today?

Mark Smith -- Lake Street Capital Markets -- Analyst

Doing well. How are you?

Albert Bolles -- President, Chief Executive Officer

Good, good. A lot of the inflation is coming from our direct materials, things like corrugate packaging, those type of things. And we're very focused on our efficiency program to ZEST. To continue to take costs out, we have some further automation planned as well. But as I said in my statements earlier that we think we have a pretty good head start on this with the actions that we took with SWIFT last year and getting the full-year impact of the reduction of the workforce and getting our footprint much more tighter.

So, that's pretty much where they're coming from. I think other companies are feeling the same thing. But we feel like we have a little bit of a head start in that area. And if we continue to see inflation build, we're not afraid to take pricing where we feel we have leverage to do that. And those are some of the discussions that we have going on right now. But our culture is much more focused and we know that this is a headwind, but it's one that we're going to think we have a head start on and we have some other things planned as a fiscal year evolves for us to mitigate those risks because we're really focused, Mark, on achieving a level of 14% gross margins in our business.

Mark Smith -- Lake Street Capital Markets -- Analyst

Perfect. And then one more on Curation. Just can you discuss food service maybe what you're seeing, any kind of changes in consumer behavior with the reopening and maybe any benefit from that?

Albert Bolles -- President, Chief Executive Officer

Yeah. As I had mentioned previously, we hired a head of food service last fiscal year. We never had that focused salesperson dedicated to food service before. So, we are anticipating growth in the food service area. We're seeing it open up for us primarily in our green bean business as restaurants are coming back to back up, as well as salads. And just recently, we started shipping to Amazon, which is a new channel for us that we had not been in before.

So, we expect some growth from that, as well as continuing growth with the away-from-home category with HelloFresh continues to grow very strongly for us. So, we're starting to see it open up and we're going to benefit from that, which really was a big part of our decline with COVID during the last fiscal year.

Mark Smith -- Lake Street Capital Markets -- Analyst

Okay. And then the last one for me, just looking at Lifecore. As we look at this -- I don't know if excessive is the right word, inventory and kind of the timing of the roll off. Will this be kind of a gradual kind of slow roll-off throughout the first half, or is it more abrupt that in the next six months it happens more abruptly?

And then is there anything that could change kind of these inventory levels or could help take some of this pain away in the first half as far as new accounts coming on new customers?

Albert Bolles -- President, Chief Executive Officer

Yeah, let me take the first part of that and I'll turn it over to Jim for more color. But we don't have visibility for more color. But we don't have visibility into our customers' inventories until they really order. And they're kind of -- had built a stockpile during COVID, and we expect that to roll off here in the first half of the year and really get back on track in January. But I will let Jim give you some more color there.

James G. Hall -- Lifecore-President

Yeah. Hi, Mark. Like Al said, what we -- we started noticing lower order patterns from some of our customers and started working with them to understand what the issue was with their inventory levels and got some insight really through all Q4. And what the issue is, is not so much in the U.S. Most of these customers sell their products worldwide. Things are opening up and pretty much back to historical rates in the U.S., not so much in the rest of the world.

And as things open up over there, they expect to work through. They have surgeries lined up for the product. The reason they let it build off is the uncertainty of how fast things would open. So, we're working hand-in-hand with these customers to understand how this goes. We're hopeful that it happens relatively quickly as things open up and vaccination rates pick up. But it's something we'll monitor, and like always, we continually try to build our pipeline with new projects that could potentially offset some of this. But we're not projecting that.

Mark Smith -- Lake Street Capital Markets -- Analyst

Okay, that's helpful. Thank you, guys.

Operator

[Operator instructions] Our next question is from Anthony Vendetti of Maxim Group. Please state your question.

Anthony Vendetti -- Maxim Group -- Analyst

Sure. Thanks. Good afternoon, guys. I was just -- I wanted to follow up on the comments you made on your agreement with Castellini Transportation. Obviously, you're looking to get some efficiencies there. And I was wondering if you could quantify a little bit more what this could mean in the near term, and then what's the total opportunity. Is this going to bring down your transportation expenses by X or contribute to margin by Y? What can we look for there?

Albert Bolles -- President, Chief Executive Officer

Yeah. Hi, Anthony. This is Al. How are you today?

Anthony Vendetti -- Maxim Group -- Analyst

Good. Thank you.

Albert Bolles -- President, Chief Executive Officer

I want to talk just to give you a little bit of background here. We had our own logistics system and this move was primarily driven by us to be more efficient and more effective. One of the things that we have not been able to do is deliver six times a week, which enables us to have fresher product on the shelf. And now, with this agreement that we just put in place, and right now, we're in the middle of just starting to roll it out and implement it, it's going to help us with our reach to being able to deliver six times a week, which should translate into decreased shrinkage at our customers.

That's primarily due to our selling fresher products on the shelf. And there are places today we just couldn't get to with our own logistics system is a fair amount of white space out there for us, primarily in the Midwest, and Castellini delivers to those places. So, it's going to help us in terms of being able to generate new business for us with our customers where we cannot be able to get there with our own logistics system.

So, they have the ability as well that we didn't have based on the scale of being able to hedge pricing fuel. We were not able to do that. So, our timing couldn't have been better in terms of doing that. So, we feel really good about the efficiency and the effectiveness that we're going to reach.

John, any color you like to add here?

John D. Morberg -- Chief Financial Officer

No. It's great. It's just that with Castellini it's what they really do, right? They're experts in it. It was just something that we were nearly as efficient. We weren't sending out full trucks. You know we're one of the products that Castellini delivers. And by the way, the cost of us to deliver six days a week would have added several million dollars. And this -- in our agreement, we have a guaranteed savings per year built in and it can only get better. And I really describe it as a strategic partnership. And so, I think there's just a lot of benefits for the company, a built-in logistics team.

So -- And really the timing just couldn't be better, particularly walking into a year with a lot of inflationary pressures. And it's nice to have that done versus having inflation hitting and then trying to figure it out. And that project was probably being worked on for the better part of a year or so. It's a lot of work logistics to get right. And I think there's just a lot of benefits for the company from a white space, the costs distribution, all those things. So, our sales team is very excited about it because of the service levels we can provide to our customers in particular.

Anthony Vendetti -- Maxim Group -- Analyst

Okay, good. I mean, it sounds like you had a home-grown system that was clearly inefficient and like you said, for all the reasons you just mentioned as well as some of the external events going on, transportation has been getting expensive for goods across all industries, trouble hiring truck drivers and...

Albert Bolles -- President, Chief Executive Officer

Right.

Anthony Vendetti -- Maxim Group -- Analyst

Various reasons. So, to get that off your plate, I'm sure, is a big win. And what I want to segue into is Project SWIFT, right, because constant improvement and efficiencies is something, I'm sure, you're working on a regular basis. But if we had to just quantify Project SWIFT, where is that at in terms of total savings recognized since that was implemented? And do you have a specific end date for Project SWIFT, recognizing, of course, that you're always going to be looking for efficiencies and better systems and so forth. But I'll just -- just to focus on Project SWIFT for this question.

Albert Bolles -- President, Chief Executive Officer

Yeah, Anthony. I'm a big baseball fan. So, I would say we're probably in the sixth inning as well. The Castellini deal was a deal that was on my strategic focus to get after. We just had so much to do in terms of rightsizing our operations and the ability for us now to get that done at the end of fiscal year and begin the implementation of that. It is really important to us. It was a key part of Project SWIFT.

SWIFT is just a way of -- the way it's going to be at Curation Foods. We're always looking to improve our efficiencies and our operations. So, that's where as well our -- a lot of the heavy lifting is done. I would have gotten that Castellini sooner, but we just had so many other things that "we had to clean up" in our system to right size the operations in terms of our footprint and the rate structure in place from a people standpoint that would go along with that.

Anthony Vendetti -- Maxim Group -- Analyst

Okay. And Al, do you have a total savings since you implemented Project SWIFT to date on an annualized basis?

Albert Bolles -- President, Chief Executive Officer

Yeah. So, Anthony, we -- that's been a key part for us as our focus on gross margins and that's what's been enabling us to get our gross margins up to that 11% to 14% range. In terms of total assets sold to date, I think it's been around $20 million or so that with our focus on the balance sheet to pay down debt and it's going to help us as we begin to fight the inflationary pressures that we see ahead.

John, anything you wanted to add here for Anthony?

John D. Morberg -- Chief Financial Officer

Yeah, Anthony, I think I'd just add that I think Project SWIFT is more than just a savings to EBITDA, but it's also really a cultural change. It's about simplification. It's about picking up assets and trying to make and simplifying. And so, it's things like how do we monetize our investment. And Wing Set, for instance, that was not strategic. So, instead that we could put more investment into Lifecore's capex going forward, that is very strategic for the business. It just makes a lot more sense.

It's also those kinds of things that really fall into our thinking around {roject SWIFT. It was the idea of how do we find a strategic partner and think through logistics in a smarter way for us. So, it wasn't just how do we put more EBITDA at the bottom line, but how do we do it in a -- really in a smart way and how we make our culture work for us in a better way as well.

So, it just -- it's a really a bigger thinking process and when the culture starts getting behind it, it's just -- there's just so much more they can get accomplished. And I think that's really the benefit and the brilliance that Al brought to that when he started that and it just feels like -- I agree with Al that we're probably like in the fifth inning or so. And I think it'll be with the company for quite some time because it's -- we've -- as we rationalize skews as we think through our marketing efforts, all those things are kind of still falling within the idea of the framework of Project SWIFT.

Anthony Vendetti -- Maxim Group -- Analyst

Okay, no, that's helpful. Just -- If you're in the fifth inning, are there any -- obviously, transportation was a big item. Are there any big items like that on the near-term horizon that you've identified, said hey there's a huge opportunity here to make this particular piece of the business much more efficient?

Albert Bolles -- President, Chief Executive Officer

Well, I think most of the heavy lifting is behind us, Anthony, as I mentioned. And our focus is less SWIFT to continually to simplify. And we got a lot of things to look at in terms of how we work with inside the business, we made big improvements in our processes, big improvements in our forecasting. We have things that we're working on in the harvest area that I'm very excited about that we're not ready to talk about today, but how can we improve our forecasting and our time to harvest? How do we continually grow our green bean business by diversifying or planting, as well as where we plant and how we plant to get ready for seasonality upticks in the business?

So, it's really about getting it to work for us now much harder and much more efficiently than we had before. But I do believe that, from a footprint standpoint, we're down to two manufacturing facilities. We're leveraging castaways. So we're able to take down our Rock Hill facility. We shut down Vero Beach, which only had one line in it that made green beans. Now, we're able to make all those green beans in Bowling Green with the investments that we made there. So, we'll continue to focus on the big opportunities. But for the most part, the heavy lifting is behind us. It's really about getting it to work for us now as we move forward.

Anthony Vendetti -- Maxim Group -- Analyst

Okay. Very helpful. I'll hop back in the queue. Thanks very much.

Albert Bolles -- President, Chief Executive Officer

Thanks, Anthony.

Operator

Our next question is from Mike Petusky of Barrington Research. Please state your question.

Michael Petusky -- Barrington Research -- Analyst

Hi, guys. Good evening. I guess the first one for Jim. Jim, could you remind me, and possibly a few others, just sort of as a product successfully gets regulatory approval and then goes to commercialization, can you just talk about the impact just in terms of that customer in terms of revenue sort of in the short term, margins in the short term, and then sort of how that will typically play out over time or your expectations for how that will play out over time just in terms of that customer that's gotten a regulatory clearance? Thanks.

Albert Bolles -- President, Chief Executive Officer

Yeah. Go ahead, Jim.

James G. Hall -- Lifecore-President

Okay. Hey, Mike. How are you doing? It's a good question and depends a lot on the product and how it's being launched. But typically, in the qualification process, we work through process qualification lots that are also utilized for commercial production. So, it depends on how a customer wants to build pretty large quantities. But typically, Lifecore is selling commercial product at least a quarter, if not earlier, before a product launches, and then it just depends on what type of launch it is and how rapidly they build their sales force.

If it's a customer that's got an established sales force, that happens quicker. If they're building the sales force and it's a newer company, it takes a little longer. So, typically, in the first fiscal year after launch, the build is relatively slower and ramps up. Margins are typically in line with what our targets are for our fill/finish business right out the gate. Otherwise, we wouldn't be working on that product.

And as market penetration happens, the quicker it happens, the faster it ramps up. So, we work on new products with typically a six-month rolling forecast that adds on a quarter every time we get an update. And so, it just depends on all those things; how fast they really penetrate the market. So, hopefully that helps.

Michael Petusky -- Barrington Research -- Analyst

Okay. Thank you. And sorry, John, I may have missed this but capex expectation for this coming fiscal.

John D. Morberg -- Chief Financial Officer

Yeah. So, last quarter we suggested $32 million and up to $7 million at Curation Foods for this year.

Michael Petusky -- Barrington Research -- Analyst

Okay. So, I'm assuming then almost certainly a negative free cash flow expectation for the fiscal year?

John D. Morberg -- Chief Financial Officer

Well, if you count the cash received for wins that will be a positive free cash flow.

Michael Petusky -- Barrington Research -- Analyst

Okay. Okay. But yeah, just from -- in terms of sort of operating, would you expect to have a more negative free cash flow, set aside Windset. But you'd expect them a higher negative free cash flow this year than last year?

John D. Morberg -- Chief Financial Officer

Yeah. Probably based upon the guidance today that that would probably be true. Yes.

Michael Petusky -- Barrington Research -- Analyst

Okay. And right. And just in terms of -- sorry, in terms of the cadence of the capex spend in fiscal 2022, is there any guide there? I mean, is that can be lumpy or is that can be fairly straight line? Can you speak to that?

John D. Morberg -- Chief Financial Officer

Yeah. I mean, I think it's -- I think you could almost assume it's going to be fairly linear for the year.

Michael Petusky -- Barrington Research -- Analyst

And then could you guys speak to what you're seeing going on in the Avocado business. Obviously, the year-over-year comp wasn't great and maybe there were some hope that with less COVID impact that Avocado would have looked better. Can you just speak to I guess what you're seeing there and what's your hope on sort of forward?

Albert Bolles -- President, Chief Executive Officer

Yeah. So, we're seeing the Avocado category slow down a bit. Some was COVID. There's some new competitors that have entered the marketplace. But we remain confident in our growth rates of Avocado products that we're going to be in the mid-to-high single digits with our products. Squeeze product is doing very well. I'm very excited about it. We have extremely high repeat on that business and we've got some money this year set aside that we have not had in previous years for sales and marketing. We are in a test right now in Cincinnati, where we just rolled out our new repositioning of the product all around building awareness, the Guacamole Now products.

So, we have a fair amount of dollars that we have set aside to do some marketing testing and how we can build that product and get awareness because once we get awareness, it really does well. It's doing extremely well at Walmart for us. They've gotten behind the products. And we continue to want to grow that because we have exclusive position with our products. And we're fairly excited about that. So, the category is slowing down a bit, a lot of private label pressure. But we feel really good and well positioned where we are to see mid-to-single digit growth, which is going to outpace the category.

James G. Hall -- Lifecore-President

Hey, Mike. I think last year the category grew in the mid-single digits, and if you back out the extra, the 53rd week last year, for the full year, we grew 4.3%, so very close and very -- actually fairly consistent with the category.

Michael Petusky -- Barrington Research -- Analyst

Right. But...

James G. Hall -- Lifecore-President

So, as...

Michael Petusky -- Barrington Research -- Analyst

Yeah.

James G. Hall -- Lifecore-President

So, 52 to 53 -- yeah, it's off 2.2%, but 4.3%, backing out the 53rd week.

Michael Petusky -- Barrington Research -- Analyst

Right, right. I got you. Al, so I think that sweet -- I mean, it's just my opinion, but I think that sweet product is probably the best thing you guys have come out with on Sweet Kale. Is there any openness to sort of disclosing either a revenue number there or just sort of the growth rates you're seeing there or something to sort of give us a sense? Because I do think that's a special product for you guys, potentially, not just now but going forward.

Albert Bolles -- President, Chief Executive Officer

Yeah. We don't disclose those growth rates. I will tell you, we have launched a Spicy Sweet Kale that we did up in Canada last year and did it with a customer in the Quebec region. They have now expanded that to all of Canada, and we're seeing uptick with some club mass channel customers with Spicy Sweet Kale in the -- in Canada, as well as retailers in the US are beginning to take it.

So Sweet Kale continues to be strong for us. We've switched to the slim bag, and when we are in market, in U.S. sales, in retail, we're seeing very nice uptick in velocities with our slim bag in Sweet Kale, along with all of our salads.

And we have some tests that are ongoing now with our mass of club channels to test some more different packaging variations of the Sweet Kale Salad. So, it continues to be a big driver of profitability for us. And we are flanking it with the right new ideas because we think -- we at least take the approach that Sweet Kale is a platform for us to innovate off of. So some of the packaging changes, flavor changes, we're expecting growth rates this year.

Michael Petusky -- Barrington Research -- Analyst

Okay. All right. Very good. Thanks guys. Appreciate it.

Albert Bolles -- President, Chief Executive Officer

Thanks, Mike.

Operator

Our next question is from Gerry Sweeney of ROTH Capital Partners. Please state your question.

Gerry Sweeney -- ROTH Capital Partners -- Analyst

Hey, good morning or good afternoon and thanks for taking my call. The question is probably more for Jim. Just wanted to ask a question around the capex and I think I got my numbers right $32 million investment in over the next -- I think it was five years like that investment or helps take filling capacity from 10 million units to 37 million units.

Just curious as to if -- what gives you the confidence that business is going to expand by that much. And then two, if you hit that 37 million type of fill, what does that mean for incremental revenue and profitability? Obviously there's business development and other revenues behind and within, but I'm just curious to see what that would do to the P&L.

Albert Bolles -- President, Chief Executive Officer

Yeah, Jim?

James G. Hall -- Lifecore-President

Do you want me to...

Albert Bolles -- President, Chief Executive Officer

Yeah [Technical Issues]. So, go ahead.

James G. Hall -- Lifecore-President

Yeah. Hi, Gerry. And we can talk about this later, too. But yeah -- so, yeah, I'll touch on that, on the build and confidence. Really, it's modeling our -- the commercialization rate of our development pipeline. And right now, out of the 21 things, we have five things in qualification and six of them are in Phase 3, so pretty far along and are the primary drivers of future capacity needs.

So, we're looking at approval rates over the next several years that really gets us to how much capacity we need to be prepared for. And as you know and we've talked about, it's a several year process to add additional filling capacity, so that's where we're focused. The spend also focuses on building out some preclinical and early phase clinical manufacturing capability to segregate back from the commercial lines since we're going to need all that for commercial product. So, there's that focus, too, as we continue to expand and build our pipeline.

And really, like we said and I said during the call, we look at building out and maximizing the revenue generating capacity at this facility by building out that going capacity, doubles that revenue generating capacity. So, that should give you some idea of where we see this going and how it supports a business moving forward.

Operator

Ladies and gentlemen, we have reached the end of question-and-answer session. And I will now turn the call back over to Dr. Al Bolles for closing remarks.

Albert Bolles -- President, Chief Executive Officer

Yes. Thank you again for your interest in Landec and your participation in the call today. We look forward to talking to you once again when we release our first quarter. Thank you very much.

Operator

[Operator Closing Remarks]

Duration: 60 minutes

Call participants:

Jeff Sonnek -- Investor Relations

Albert Bolles -- President, Chief Executive Officer

James G. Hall -- Lifecore-President

John D. Morberg -- Chief Financial Officer

Mark Smith -- Lake Street Capital Markets -- Analyst

Anthony Vendetti -- Maxim Group -- Analyst

Michael Petusky -- Barrington Research -- Analyst

Gerry Sweeney -- ROTH Capital Partners -- Analyst

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