Categories Consumer, Earnings Call Transcripts

Landec Corporation (LNDC) Q4 2022 Earnings Call Transcript

LNDC Earnings Call - Final Transcript

Landec Corporation  (NASDAQ: LNDC) Q4 2022 earnings call dated Aug. 10, 2022

Corporate Participants:

Jeff Sonnek — Investor Relations

James G. Hall — Chief Executive Officer

John D. Morberg — Chief Financial Officer

Analysts:

Jacob Johnson — Stephens — Analyst

Mike Petusky — Barrington Research — Analyst

Connor Jensen — Lake Street Capital Markets — Analyst

Presentation:

Operator

Good afternoon and thank you for joining Landec’s Fiscal 2022 fourth quarter earnings call. [Operator Instructions] Now, I would like to turn the call over to Jeff Sonnek, Investor Relations at ICR. Thank you, sir. You may begin.

Jeff Sonnek — Investor Relations

Good afternoon and thank you for joining us to discuss Landec Corporation’s fourth Quarter Fiscal 2022 earnings results. In connection with today’s announcement, I’d also like to draw your attention to the investor presentation on Landec’s Investor Relations website, as well as the separate press release concerning the corporate transition to Lifecore that is now underway. In connection with that announcement, Jim Hall has been named CEO of Landec and elected to the Board of Directors. Jim will lead today’s call alongside John Morberg, Landec’s Chief Financial Officer.

Before we begin, we’d like to remind everyone of the Safe Harbor statement. Certain statements made in the course of this call may contain forward-looking statements. It is 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 2022. Copies of these filings may be obtained from the company’s website.

And with that, I’d like to turn the call over to Jim.

James G. Hall — Chief Executive Officer

Thank you, Jeff. Good afternoon, everyone. And thank you for joining us today. I’d like to start by recognizing today’s press release announcement that was posted in parallel with our earnings results that signaled our formal attempt to transition the focus of the company to the Lifecore business going forward. This is an exciting milestone for the company and has been years in the making following the efforts by Dr. Al Bolles to simplify and turnaround the Curation Foods business via our Project SWIFT framework. Al and his team have made significant progress in that regard, which to date has resulted in proceeds of 112 million that we’ve used to pay down debt and establish a healthier capital structure for the go forward organization. I’d like to extend a personal thank you to Al for his individual contributions, having stepped into the CEO role from his Board seat in 2019, he quickly established a value creation plan and then executed on that plan, so we could get to this position today, announcing the corporate transition to Lifecore Biomedical.

In connection with this announcement, we announced our intent to change our corporate name from Landec Corporation to Lifecore Biomedical and change our ticker symbol to LFCR in the coming months. In addition, effective today, the Board has also made several leadership changes to align our company and board to the new go-forward strategy. These include, Dr. Bolles stepping down as CEO and Board member of parent Landec Corporation and into the role of President of Curation Foods to oversee the remaining disposition of the Curation Foods assets. In addition, I have transitioned from my role as President of Lifecore Biomedical to serve as the CEO and on the Board of Landec going forward. I am humbled by this opportunity to serve the company in this new capacity and I am truly excited by what the future holds for this company going forward. In addition, John Morberg will continue as our CFO creating valuable continuity during this transition. I believe Jon’s continued financial leadership at Lifecore will greatly benefit the company as we continue the build out our capabilities.

Finally, as it pertains to the Board of Directors, we also announced the anticipated realignment of our board with Deborah Carosella, Tonia Pankopf, Andrew Powell and Catherine Sohn, each having indicated that they intend to either step down from the Board of Directors or not stand for re-election at our next Annual Meeting, which is scheduled for October of this year. We believe these changes will create a more focused Board of Directors with experience and expertise that will help us accelerate growth at Lifecore and generate shareholder value. I’d like to recognize Ms. Carosella, Pankopf and Sohn, and Mr. Powell for their many contributions to the company over the years.

Naturally, there are sure to be many questions surrounding the transition such as timing, costs, proceeds and long-term opportunities. While we are prepared to answer some of those questions here today, many others will be addressed in due course as we get closer to some of the approaching milestones. You have our commitment that we’ll make this as clear and simple as possible but the primary message we’d like you to take away from today’s call is that we are a life sciences focused business with a leadership team and a Board to support our growth ambitions.

Our teams are moving as fast as possible through the various processes with our remaining Curation Foods assets. But as we hope you can appreciate, the shifting macroeconomic environment has added new complexity that has slowed things down to a degree. We look forward to updating the market on those developments in the future as appropriate.

With that, I’ll shift to the review of our fiscal fourth quarter results and focus my commentary on Lifecore’s results and accomplishments. John will then take you through a deeper dive on the financials, as well as introduce our fiscal 2023 outlook before opening the call to your questions.

Lifecore finished fiscal 2022 on a high note, delivering a strong fiscal fourth quarter that helped us exceed our guidance, achieving full-year revenue growth over 11% to $109.3 million and adjusted EBITDA growth of 18% to $28.9 million. Our business remains very well positioned as a fully integrated CDMO with highly differentiated capabilities for the development fill and finish of complex sterile injectable grade pharmaceutical products. These capabilities were born from over 35 years of technical experience building a premier pharmaceutical injectable grade HA manufacturing platform with a focus on complex and highly regulated products.

Couple our unique experience with ongoing industry trends towards outsourcing of new drug development, Lifecore is ideally positioned to participate as a CDMO partner with new injectable drug applications that are utilizing these capabilities. In fact, approximately 55% of all new drug applications are injectables and prefilled syringe demand is growing at a 13% compound annual rate. Given the Industries Limited injectable drug manufacturing capacity, we intend to take full advantage of this incredible opportunity to fill unmet demand with our existing capacity that we’ve been investing in over the past few years. Our development portfolio of active projects continues to be very strong, supported by the initiation of new projects and advancement of existing projects.

In fiscal fourth quarter, we initiated work on three new development programs with three new customers. One of these is in the preclinical phase of development, and the other two are in phases I and II of development. We have also had three early phase projects exit our active project portfolio due to changes in their product design criteria which is a common occurrence for products in the early phases of development. We remain in discussion regarding the potential redesign of these products and when appropriate, they may re-enter our portfolio again. So net, our project portfolio remains at 24 projects with 21 different customers.

These projects are spread across early phase clinical development with five projects, Phase I and II clinical development with 11 projects, and Phase II clinical development and scale up commercial validation activity with 8 projects. On a sequential basis, relative to our fiscal third quarter results, we continue to make progress with advancing projects within our portfolio with one early phase project advancing to the Phase I and II stage and one of our late phase scale of projects advancing the full commercial stage.

As it pertains to our forecasted value of these projects, we believe that the 16 projects that comprise development revenue related activity are in the range of $50 million to $80 million. And for the second group of eight projects that comprise our silo late-stage Phase III and scale up commercial validation work, we believe that commercial revenue value is in the range of $45 million to $120 million. Taken together, we have a portfolio of existing projects that we are working on today that represent as much as $200 million of revenue opportunity in the coming years and we expect this will continue to grow.

In terms of our commercial strategy to convert new potential engagements, I am extremely pleased with the team we’ve assembled. This past fiscal year, we have made some targeted investments in new talent that brings expanded capabilities in sales, marketing and development resources in an effort to broaden our reach with new customers. In particular, we’ve been focused on increasing our development services, which allows us to open new sales channels that expand and complement our existing capabilities. There is no question this has had an immediate impact to the expansion of our prospective project pipeline of opportunities.

As of the end of the fiscal fourth quarter, we had 51 projects in our prospect pipeline that we are in various stages of discussion. These opportunities span multiple end markets, multiple classes of drugs and medical devices, and with an assortment of companies, both large and small, which we believe speaks to the limited CDMO capabilities that exist in the market today, making Lifecore’s expertise increasingly valuable. While the number of potential projects will shift over time as we convert some and dismiss others, we expect that trend line to increase over time based on our expanded commercial strategy.

On the operational front, our organization continues to prepare for growth. During fiscal 2022, we expanded and modernized our quality control lab at our headquarters at SiteOne. We received client approval of our quality control lab at site 2 and our site 3 warehouse that is utilized for product storage and distribution was also approved by customers. The expansion and subsequent approval of these labs enhances capacity and capabilities and improves workflows for both our team and products.

Further, we also completed the implementation of our laboratory information management system in June, which automates manual processes for key internal monitoring for over 12,000 samples monthly. Together with our initiatives around Human Resources and Talent Development, which we call Lifecore University, we are building a team that we can leverage for more efficient operations and prepare for the growth that we see ahead in our pipeline. This is the continuous operational improvement that drives Lifecore and allows us to be more effective partners with our customers.

Looking ahead to fiscal 2023 our growth continues to be driven by our robust development project portfolio, expansion of our prospect development pipeline and conversion of these projects in our active development portfolio. We remain focused on driving towards a multi-year acceleration of our annual revenue growth into the mid to high teens based upon current project portfolio characteristics and favorable industry tailwinds in the coming years.

As I noted, it is imperative that we continue to push our organization forward with the implementation of best practices and new capabilities so we can efficiently accelerate our growth. This covers resource planning across our entire organization so we are prepared to add new manufacturing lines and shifts, and do so with an efficient workforce that we can introduce as capacity and demand requires.

Additionally, we are modernizing systems and creating automation wherever possible. This is especially important heading into fiscal 2023, where we have line of sight to three new products with the PDUFA dates before the end of calendar 2022. We are preparing for pre-approval inspections now and expect commercial launch for all three products in the coming year.

Efficiency is also an important element of our capital planning. While we continue to focus on maximizing the revenue generating capacity within our current infrastructure, we are also balancing known future capacity requirements. Within our project portfolio with a multi-year lead-times on specialized equipment that needs to be manufactured to our specifications and undergo rigorous testing, customer acceptance and regulatory approval. So, for fiscal 2023, we are introducing a capex budget in the range of $34 million to $38 million which is earmarked for two multi-use Isolator fillers, and the associated formulation and process support equipment, which will be ready for acceptance testing next summer.

As a reminder, included in this estimate is approximately $3.4 million of capex carryover from fiscal 2022. This keeps us on track to expand our operational filling capacity from our current 10 million units to 22 million units and beyond. To meet expected growth and capacity demand driven by projected growth in our base commercial business and commercialization of products in the late phases of development in our active project portfolio.

In summary, we are very excited about the corporate transition that we announced today and the excellent position of our business within a robust CDMO industry supported by powerful fundamental tailwinds. Our expertise in complex and viscous materials and our world-class quality management system that supports drugs, biologics, medical devices and combination products, enables us to stand out as a value-added and specialized leader in the CDMO industry. We continue to feel confident about delivering a multi-year acceleration in our revenue growth trajectory, which is supported by known projects within our existing project portfolio and will be further enhanced by new opportunities with prospective projects in our development pipeline.

Now I would like to turn the call to John for his financial review.

John D. Morberg — Chief Financial Officer

Thank you, Jim. I’ll start with a review of Lifecore’s financial performance in the fiscal ’23 outlook before shifting to some comments around the financial aspects of the transition plan that we’ve laid out today. As a reminder, Lifecore’s fiscal year experienced a slower first half of fiscal ’22 due to the inventory rationalization by our customers as a result of the lower elective procedure volume during COVID. Then in Q3, we experienced a pull forward of revenues due to the greater than anticipated normalization of this customer inventory rationalization. Therefore, we think it is useful to look at the second half of the fiscal year to normalize for this impact, which I will share in addition to Q4 results.

For the fiscal fourth quarter of ’22, Lifecore total revenues increased 6.9% to $27.6 million, driven by a 2% increase in our CDMO business and a 34.1% increase in our fermentation business, which was above our expectations and drove upside to our guidance.

For the second half of fiscal ’22, total revenues increased 17.6%, which is more representative of the growth that we expect from this business. Lifecore gross profit increased 19% to $13.4 million for the fourth quarter of ’22, representing a gross margin of 48.4% which compares to 58.9% in the prior year period. The margin variance versus prior year is again due to the revenue mix and timing of customer shipments.

For the second half of fiscal year ’22, gross profit grew 15.2% to $26.3 million with a gross margin of 42.1% as compared to 43% in the prior year of second half. Lifecore adjusted EBITDA increased 15.9% to $8.9 million for the fourth quarter of ’22 with an adjusted EBITDA margin of 32.3% as compared to 29.8% in the prior year fourth quarter.

For the second half of ’22, adjusted EBITDA grew 10.8% to $17.5 million dollars with an adjusted EBITDA margin of 28% as compared to 30% in the prior year second half.

As Jim noted, Lifecore exceeded its full-year ’22 guidance on both revenue and adjusted EBITDA delivering revenue growth of 11% to $109.3 million, and adjusted EBITDA growth of 18% to $28.9 million.

While the year was a typical on a quarter-to-quarter basis due to the aforementioned inventory rationalization, we still achieved double-digit revenue growth and strong adjusted EBITDA leverage, which is consistent with the broader operating performance that the business has demonstrated over many years.

Shifting to our fiscal ’23 outlook for our Lifecore segment. We are introducing revenue guidance in the range of $122 million to $126 million which implies growth in the range of 12% to 15% and adjusted EBITDA guidance in the range of $31 million to $32.5 million which implies growth in the range of 7% to 12%.

There are few modeling considerations of note. We anticipate gross margins to decline by approximately 100 basis points in fiscal year ’23 to approximately 39% which is very consistent with fiscal year ’20 and fiscal year ’21 performance. And this is due to an expected mix shift toward higher commercial revenues, which on a relative basis have lower margins than our other revenue streams.

Additionally, we will continue to invest in the sales and marketing functions as we drive an acceleration of top line growth, taking advantage of the favorable industry tailwinds. And as a result, we anticipate a similar but slightly higher level of operating expenses versus the prior year. Perhaps by approximately 50 basis points as a percentage of sales for the full year.

With respect to quarterly cadence, consistent with prior years, our first quarter is our seasonally lowest quarter in terms of revenues and EBITDA. And this seasonality results from idling our manufacturing lines for annual required cleanroom certification and facility maintenance. This slows shipment volumes and causes first quarter to be our lightest quarter of the year. As a result, we anticipate fiscal first quarter ’23 revenue growth to be in the single-digit range, which is below that of the full-year guidance range. Naturally, on the smaller revenue quarter in our mid or idle facilities, we also have lower absorption of costs and therefore expect that adjusted EBITDA will be approximately flattish with the prior year first quarter.

As for the balance of the year, based on our current visibility of demand and expected shipment timing, from a revenue standpoint, we expect sequential growth from first to second quarter and second to third quarter, and then, similar revenue in both the third and fourth quarters. And as a reminder, third quarter fiscal ’22 revenues were higher than expected due to shipment timing and therefore this year’s third quarter is expected to be approximately flat with the prior year. Adjusted EBITDA is expected to increase sequentially from the first through the third quarters, but then flatten out in fiscal fourth quarter, which is expected to be similar in size to that of the third quarter. Additionally, we are providing full year guidance on our other segment, which reflects the ongoing corporate cost of the organization, which we expect in the range of $7 million to $7.5 million.

On this point, I’d remind everyone that while our intent is to formally transition to Lifecore, that organization is yet to establish the corporate infrastructure that we carry at Landec. As this transition progresses, we will be making those changes, but in the near term, we think it is most appropriate to expect those expenses to continue. Longer term, we believe there will be some modest savings given the smaller Lifecore organization and lower complexity of managing that business.

Now turning to Landec’s balance sheet which still reflects our remaining Curation Foods assets and liabilities and the impact of the segment’s cash flows. Net bank debt on a reported basis for fiscal year ended May 29, 2022 was $136.4 million compared to net bank debt at the end of fiscal year ’21 of $192.7 million, which reflects the deployment of 109.1 million in proceeds from asset monetization, events, to debt pay down via our Project SWIFT actions.

In fiscal year ’22, Lifecore spent $23.6 million in capital expenditures, which was below our previously revised guidance of $27 million as we continue to be laser focused on cash flows across all of our businesses, allowing us to delay approximately $3.4 million to the next year. In fiscal year 23, we expect to invest approximately $34 million to $38 million in capex, which includes the fiscal year ’22 carryover and allows us to stay on track with our accelerating revenue plans.

With respect to the transition announcement, I’ll make a few final comments surrounding our strategy and path forward. As Jim noted, and as our press release clearly demonstrates, the future is with Lifecore. We are currently working processes for the two remaining assets both of which we expect to monetize as soon as possible and during our fiscal year.

However, we can’t comment on expected valuations or proceeds here today to protect our negotiations and optionality. Consistent with the Project SWIFT framework, we have several work streams in place to optimize those values, while continuing to support those businesses through the eventual closing. Thus, while we understand the desire for estimates remaining corporate costs to support the standalone Lifecore business, we are not in a position to provide those estimates to you today, given the continuing operations at the Curation Foods and corporate segments.

That said, we are confident that there are savings to be had given the reduced complexity and smaller standalone operation that we see in the future. We look forward to updating you on the timing of the various aspects of the transition, including the corporate name change, NASDAQ, ticker flip, revised credit agreements, and of course, any monetization event that takes place.

And with that, operator, please open the call for questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Jacob Johnson with Stephens. Please proceed with your question.

Jacob Johnson — Stephens — Analyst

Hey, good afternoon. Congrats on the quarter. Congrats on Lifecore announcement. And Jim, congrats on the CEO title. I guess first question, just on the Curation Foods sale. As we think about that transaction, it sounds like you have two processes going on right now. So should we think about this as probably [Phonetic] a couple of different transactions if you’re looking to completely exit the Curation Foods segment?

James G. Hall — Chief Executive Officer

Hey, Jacob, this is Jim. And thanks for your comments. And before I have John dive into that. I just want to thank everybody. This is obviously very humbling for me to take over the leadership role here. And throughout the leadership over the past several years, we’ve made excellent progress that’s gotten us to this point. Also want to comment how seriously we’re taking the monetization of the remaining Curation assets. And I’ll have John go over that here in a little bit. And then just from Lifecore standpoint, we’ve been getting ready for this for a long time. We’re all very excited. The organization’s prepared and ready to go to continue to deliver our strategy and growth plan. So it’s a big day here at Lifecore as well. So I’ll have John go over a little bit more detail on your question. So John, take it.

John D. Morberg — Chief Financial Officer

Yes. Hey, Jacob, how are you? Yes, absolutely. We started Project SWIFT when we had five assets, really that we needed to divest. And they’re all very different kinds of assets with really different kinds of buyers. So, as you know, we sold the Winset investment about 16 months early, then Eat Smart, and finally BreatheWay just right after our year-end. So the remaining two of the avocado products business and olive — again, are two different kinds of assets, with two different kinds of buyers. And so our processes to sell them will take care — or take place really at the same time and we hope to complete those as soon as practicable. But really on terms and under the circumstances, we believe, to maximize shareholder value, particularly in light of the current economic environment and the state of the debt markets. So that’s what we’ll be doing.

Jacob Johnson — Stephens — Analyst

Okay, thanks for that, Jim and John. And then, Jim, going back to the Lifecore strategy now that Landec is becoming Lifecore, how does the new name, the ticker change, you being CEO, does that change the strategy at Lifecore? Change the direction it’s going at all? Or it seems like maybe you’ve been going — moving in this direction, so perhaps no change at all?

James G. Hall — Chief Executive Officer

Yes, really, Jacob, there is no change at all. We’ve laid out the strategy over the last several years. We’ve been working hard to get Lifecore ready for this day building out the organization. We’re at a point now where we’ve added in the investments in sales and marketing. We’ve been spending a lot of time getting Lifecore’s name out there across all fronts. Implemented our targeted sales approach. I think you can see by the activity in some of the things that we’ve introduced. If you haven’t had time, we’ve updated the corporate deck with more transparency into the pipeline and prospect pipeline. And all of that is attributed to the work we’ve been doing there. It’s just accelerating the strategy we’ve had all along and what we’ve been working towards for the last several years. So no change. The focus is just continued acceleration of that pipeline and getting as many of our prospects on board as soon as we can.

Jacob Johnson — Stephens — Analyst

Thanks. Thanks for that, Jim. And then just last question from me just Jim you mentioned the continued investments on the sales and marketing side, can you just talk about the evolution of the business development effort at Lifecore maybe over the last year or two? Where were you? Where are you now? And then, as we look out the next couple of years, maybe what does it look like?

John D. Morberg — Chief Financial Officer

Yes, sure. And as you know we’ve talked in the past, historically, Lifecore’s pipeline in new projects really relied on our reputation and not really going out after new opportunities and really targeting what Lifecore skill set isn’t finding, what’s all there to bring in. How that’s changed and advanced over the last year or two, I think the last time we reported our prospect pipeline, it was around 30, there’s 51 things in it now. Several of those are in very late stages of discussion that we hope and hope to onboard. And we’ve added — we have two sales directors out in the field now, actively going after new prospects. We’ve got and implemented our new internal marketing person that’s done a lot of work getting our message out there. And what we’ve really done is spend a lot of time getting the organization ready for the increase in activity from a development standpoint, from an employee standpoint. We spent a lot of time on our employee development through our Lifecore University Avenue. And it’s really all just getting the organization ready and it’s bearing fruit. And there is a lot of new activity and a lot of new projects heading our way.

Jacob Johnson — Stephens — Analyst

Got it. Thanks for taking the questions, Jim and John. And congrats on all the announcements.

John D. Morberg — Chief Financial Officer

Thank you.

James G. Hall — Chief Executive Officer

Thanks, Jacob.

Operator

And our next question comes from the line of Mike Petusky with Barrington Research. Please proceed with your question.

Mike Petusky — Barrington Research — Analyst

Hey, guys. Exciting night. Exciting news. So I may have missed this but the change of name and ticker, does that have to wait until the assets in Curation are sold or will that happen regardless over the next few months?

John D. Morberg — Chief Financial Officer

Hey, Mike. Yes, we’ve already started the process. It’s a process — a process is probably 30 to 90 days with like the State of Delaware and getting the right consents. So it should happen pretty quickly here.

Mike Petusky — Barrington Research — Analyst

Okay.

John D. Morberg — Chief Financial Officer

It doesn’t have to wait on any remaining asset sales.

Mike Petusky — Barrington Research — Analyst

Okay, very good. I guess then, in terms of the project pipeline, Jim, I mean, is there — how do you guys think about like goals there? I mean is there like a goal to add 20% to the pipeline every year or is there some metric to think about as to what’s the successful year in terms of ads or how do you think about that?

James G. Hall — Chief Executive Officer

Yes. There is a couple of things we look at, Mike, and it’s not solely based on the number of projects, but the quality of the projects and what we’re doing to drive that. Every year, every fiscal year, we don’t break this out, but we have an internal goal of new development revenue associated with that pipeline that’s typically in the upper-double digits growth criteria. But really what we focus on is identifying the right projects and making sure that we’re on-boarding the right ones. We have an internal saying at Lifecore. It’s called right fit, can we win, and do we want to win. And we spend a lot of time evaluating the criteria of potential opportunities that include what market to win [Phonetic] does it utilize our existing assets, the experience of the management team on the other side. There is a whole list of things that we use. So there is no set number. I can tell you it’s going to expand. We see it directionally increasing both the projects that we’re actively working on and also ones that we’re trying to on board. So hopefully that helps in some of the directions we’re looking at.

Mike Petusky — Barrington Research — Analyst

Just in terms of the effort it takes to onboard. I mean, if half a dozen of these 51 projects said yes tomorrow. I mean, would you be able to start the process with all six or does it have to be staged just based on the people resources you have?

James G. Hall — Chief Executive Officer

You know what, naturally stages simply — and you’ve heard me discuss our pipeline opportunities going through the funnel of evaluation and they naturally gave themselves. Right. And I can tell you with the things that we have in active discussion, we have pretty late stage proposals out to several of those opportunities. The organization is ready to handle them. And through Lifecore University, we spend a lot of time making sure that we can on board the people we need and stay in front of that curve. We have a pretty good line of sight on how these things will on board and it can usually add the resources we need to.

Mike Petusky — Barrington Research — Analyst

And then John, in terms of cash flow from ops [Phonetic], any comment there? Any guide as to what you’re expecting if the assets don’t sell any time soon?

John D. Morberg — Chief Financial Officer

Yes, that’s — it’s a great question to ask, but it’s very difficult for us to respond to that today because it really all depends on what occurs with the assets at this point. So we’re really not in a position to share any guidance on that at this point in time.

Mike Petusky — Barrington Research — Analyst

What about interest [Phonetic] expense?

John D. Morberg — Chief Financial Officer

That’s close to the same thing. Right. So if you look at — obviously we ended the year at 136 million of debt. Trying to figure out what the debt would be at the end of the year, you have to model out either proceeds that we might get from the divestments or we’d have to consider, if they were to stay in the full year, what the overall debt would be considering the capex and performance of the Curation business. And as you can tell, we’re trying to focus in on Lifecore, so it’d be very difficult for us to share with you today those thoughts because we just don’t know.

Mike Petusky — Barrington Research — Analyst

John, forgive me, I’m at the end of a very long day and a long earnings season, what the — the $135 million, is that floating or is that mostly floating? I can’t recall. Forgive me for that.

John D. Morberg — Chief Financial Officer

Yes. So it’s a combination of both term debt and revolver debt. I mean I can share with you that our interest rate at the end of the year was in the 8%, it’s probably 8% to 9% with — it’s LIBOR floating and LIBOR is going up a bit. So if you wanted to model out, you could use somewhere, probably in the mid-eights for Q1, probably 9.5 for Q2.

Mike Petusky — Barrington Research — Analyst

All right, very good. I think that’s all I have for now. Jim, congrats, so well deserved. Thanks.

James G. Hall — Chief Executive Officer

Thanks, Mike. Appreciate it.

Operator

Thank you. And our final question comes from the line of Connor Jensen with Lake Street Capital Markets. Please proceed with your question.

Connor Jensen — Lake Street Capital Markets — Analyst

This is Connor Jensen for Mark Smith with Lake Street. I just wanted to say congrats James on the new title, new role. Very exciting stuff.

James G. Hall — Chief Executive Officer

Thank you, Connor.

Connor Jensen — Lake Street Capital Markets — Analyst

And I just wanted to talk about excess capacity there at Lifecore. What do you have today? Are you looking to add capacity? What are you doing right now?

James G. Hall — Chief Executive Officer

Yes. I think we’ve covered this in the past, but we have a theoretical filling capacity of 22 million units now with the filling lines that we have set up. We’re not set up operationally to do that much. We’re currently at approximately 10 million units of operational capacity. So that’s as staffed and as we’re set up with ancillary support equipment, we have the capability to add two new fill lines, which you heard me talk about in the opening that are on order and part of our capital spend this year to bring the capacity north of 45 million when we need it. And right now based on the line of sight with our pipeline, we see that 22 million units being filled up over the next three or four years and therefore needing to invest in the capacity beyond that now simply because of the lead times to get the equipment in, installed, validated, approved by FDA, et cetera.

Connor Jensen — Lake Street Capital Markets — Analyst

That’s helpful. And then second question here. I was just wondering — so for that other segment that’s just corporate expenses for the 2023 outlook that doesn’t have any of the legacy expenses in there from the old [Phonetic] business?

James G. Hall — Chief Executive Officer

Yes, that’s correct. Just like we have essentially have been reporting, the Landec other segment, it would be very similar. And at some point in the future when all the creation assets are sold, it would all just be consolidated and collapsed into a singular segment called Lifecore.

Connor Jensen — Lake Street Capital Markets — Analyst

Thank you. That’s all I have for right now. Congrats on the great quarter.

James G. Hall — Chief Executive Officer

Thanks. Connor.

John D. Morberg — Chief Financial Officer

Thank you.

Operator

Thank you. At this time we have reached the end of the question and answer session. And I would now like to turn the call back over to management for any closing remarks.

James G. Hall — Chief Executive Officer

Okay. I just want to thank everybody again for your interest. Obviously an exciting time for Lifecore and we look forward to talking to all of you again when we release our fiscal first quarter results here in a couple of months. So thanks for your interest and we’ll talk again soon.

Operator

[Operator Closing Remarks]

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