Lifecore Biomedical, Inc. Price & Performance (LFCR)

Including but not limited to the company's Form 10 Q for the third quarter fiscal twenty twenty five, which was filed this afternoon. With that, I'd like to turn the call over to Paul Joseph, Chief Executive Officer. Thank you, Stephanie. Good afternoon, everyone, and thank you for joining us for our fiscal twenty twenty five third quarter update. During the third quarter, Lifecore continued to aggressively and successfully execute against our stated plan for the year. With noteworthy accomplishments across multiple areas of our business. During the period, our teams signed multiple new agreements with both new and existing customers. Our revenues for the period remained strong, and on target for our guidance for the year. And our cash balance was strengthened through the sale of an of our unused filling. Lastly, significant improvements and efficiencies were incorporated throughout our business to enhance our overall operations and improve our margins. I will provide additional details on business development and operations for the period, following an overview of our third quarter fiscal twenty twenty five financial results. For that, I'll turn the call over to Ryan. Thank you, Paul. In conjunction with my comments, I'd like to recommend that participants refer to Lifecore's Form 10 Q filing with the Securities and Exchange Commission, which we filed today.

I'll now go over results for the third quarter and nine months ended 02/23/2025, beginning with results for the quarter. Revenues for the three months ended 02/23/2025 were 35,200,000.0 a decrease of 2% compared to $35,700,000 for the comparable prior year period. The decrease in revenues was primarily due to $1.5 decrease in CDMO revenues primarily due to completion of discrete development revenue project lifecycles and timing of customer projects offset by our hyaluronic acid or manufacturing revenues which increased $1,000,000 primarily from increased demand from a customer due to their supply chain initiatives. Gross profit for the three months ended 02/23/2025 was $9,800,000 compared to $11,900,000 for the same period last year. The $2,000,000 decline in gross profit is due to a $3,000,000 decrease in CDMO gross profit, primarily due to prior year adjustments of inventories to their net realizable value and lower development revenue offset by a $1,000,000 increase in manufacturing gross profit due to increased volumes in manufacturing. Variances. Selling, general and administrative expenses for the three months ended 02/23/2025 were $10,100,000 compared to $9,800,000 for the same period last year. Excluding the increase in stock based compensation, SG and A decreased by $700,000 due to lower finance and accounting consulting.

Also included in SG and A expenses for the current period is 2,200,000.0 primarily related to litigation expenses related to an activist investor matter and a securities class action lawsuit. The prior period included $2,300,000 primarily related to incremental audit and consulting fees related to the financial restatement and expenses related to the divestiture of Curation Foods. For the three months ended 02/23/2025, the company recorded a net loss of $14,800,000 or $0.47 of loss per diluted share as compared to net income of $15,600,000 and $0.42 of income per diluted share for the same period last year, which included a one time favorable $21,000,000 non cash fair market value adjustment to the debt derivative liability associated with the term loan credit facility. Adjusted EBITDA for the three months ended 02/23/2025 was $5,700,000 a decrease of $700,000 compared to $6,400,000 in the prior year period. The decrease in adjusted EBITDA was primarily due to the decrease in gross profit exclusive of inventory and equipment write off of 1,100,000.0 I'll now review results for the first nine months of fiscal twenty twenty five. Revenues for the nine months ended 02/23/2025, were $92,400,000 an increase of 2% compared to $90,400,000 for the comparable prior year period.

The increase in revenues was due to a $3,000,000 increase in manufacturing demand, primarily due to our largest customer supply chain initiatives. This was slightly offset by a decrease in CDMO revenues, primarily due to completion of discrete development revenue project lifecycles, and timing of customer projects. Gross profit for the nine months ended 02/23/2025 was $26,300,000 compared to $24,600,000 for the same period last year.

The $1,700,000 improvement in gross profit is primarily due to an increase in manufacturing gross profit due to increased volumes and manufacturing variances. CDMO gross profit was essentially flat year over year due to offsetting factors. Selling, general and administrative expenses for the nine months ended 02/23/2025 were $35,100,000 compared to 28,200,000.0 for the same period last year. Excluding a $3,800,000 increase in stock based compensation, SG and A is up 3,100,000.0 primarily from a shift of legacy matters. Included in SG and A for the current period is $9,500,000 primarily related to various legacy legal matters and costs associated with the financial [indiscernible] The prior period included $7,200,000 primarily related to incremental audit and consulting fees related to financial restatement and expenses related to strategic alternatives and the divestiture of Curation Foods.

For the nine months ended 02/23/2025, the company recorded a net loss of 37,600,000.0 and $1.24 of loss per diluted share as compared to net income of $19,100,000 and $0.52 of income per diluted share for the same period last year. Which included a one time favorable $41,900,000 non cash fair market value adjustment to the debt derivative liability associated with the term loan credit facility. Adjusted EBITDA for the nine months ended 02/23/2025 was 10,400,000.0 a $600,000 increase from $9,800,000 in the prior year period. The increase in adjusted EBITDA was primarily due to the increase in gross profit exclusive of inventory and equipment write off. Of 800,000.0 Our financial performance for the quarter was steady and consistent with guidance. As such, we are reiterating our financial guidance for the fiscal year and expect revenue to be approximately $126.5 to 130,000,000 and adjusted EBITDA to be in the range of 19,000,000 to 21,000,000 And with our cash balance bolstered by the sale of our isolator filler, we believe we remain well positioned for future growth. This concludes my financial overview For those interested in reviewing our non GAAP reconciliations, please refer to our eight filing or the press release issued today.

I'll now turn the call back over to Paul for an update on operations and achievements during the period.

Thank you, Ryan. During the third quarter, our team continued to successfully execute against our plan that was outlined during our Investor Day presentation last November. This strategy is focused on driving a 12% revenue CAGR and increasing EBITDA margins to over 25%, over the next few years. Key contributors to this growth plan include maximizing our existing customer business the advancement of programs currently within our late stage development pipeline towards commercialization, And finally, winning new and impactful business that will continue to fill our project pipeline from early stage work to commercialization. During the third quarter, we continued to make substantive progress in each of these core areas. First, with respect to maximizing our existing customer business, our team continued to make meaningful progress on an expansion program with one of our large multinational partners. As we communicated in our twenty twenty four Investor Day, this partnership is poised to deliver a significant inflection point in volume demand in 2027, and this impactful project remains on target. We are excited to expand our business with this partner, and serve their needs in a more meaningful way. Their continued and growing confidence in Lifecore as a partner continues to serve as validation for the quality work of our team.

With respect to our second strategic goal, which is the advancement of our pipeline towards commercialization, Several important milestones were achieved during the quarter. Giving us great optimism for this important objective. As previously disclosed, 10 of Lifecore's late stage pipeline programs are poised for potential FDA approval, and commercialization by 2028. And while there is no guarantee that they will all reach the finish line, even a modest subset of this group could generate substantial and impactful growth for the company in the midterm. During the quarter, our project management team signed statements of work with multiple partners in our late stage pipeline, which will continue to move these programs closer to commercialization. This includes a significant statement of work with a large multinational partner. Separately, one of the aforementioned programs is committed now to advancing to a process performance qualification or PPQ campaign, at Lifecore. In late twenty twenty five or early twenty twenty six. TPQ programs are particularly important as they are a pre commercialization requirement. And while we caution that the execution of a PPQ campaign is only the beginning of a one to two year journey towards commercial approval and subsequent manufacturing we cannot understate the importance that we believe such programs may have on our growth now and in the future.

As we expect they will drive an increase in revenues capacity utilization, and ultimately improvement in our margins. We are pleased with the advancement of these late stage programs and believe the progress during the quarter continues to support our expectations for commercialization of the programs in the midterm. Turning now to the third area of our strategic growth focus, Our team continues to sign new and impactful business at various stages of development. Lifecore has added six new customers during the first nine months of our fiscal twenty twenty five, Notably, this includes a new agreement with Nursem Laboratories signed during the third quarter. Nursem selected Lifecore to provide CDMO services focused on supporting clinical development of its lead campaign, NRS, -thirty three. NRS033 is a novel treatment for opioid use disorder and alcohol use disorder that is currently entering phase II in clinical development. Under the newly signed agreement, Lifecore will continue to provide nursing with filled syringes for use in clinical development of NRS -thirty three. Subsequent to the quarter end, we added a seventh new customer. Signing an agreement with Humanetics that is focused in on the company's exciting BIO 300 program. We will be responsible for conducting a tech transfer of the existing fillfinish process for BIO 300.

Including a formulation development gap assessment, and filling of a pilot batch. This will be followed by analytical method work including feasibility assessments designed to estimate future development work for the product candidate. BIO-three hundred is the exact type of promising, cutting edge, biopharmaceutical product we strive to support and we are excited to have been selected by Humanetics to provide these services. Though Lifecore's past focus was on complex highly viscous formulations, our new business development team is dedicated to the promotion of our broad capabilities to best position the company to support products across multiple modalities. Given this goal, we are very pleased with the continued expansion and evolution of our new business pipeline. Each of these programs is currently undergoing qualification review and we believe we will be successful in adding multiple new programs to our manufacturing pipeline in the months ahead. I would now like to shift the focus to our the important organizational strategies and measures that we are actively implementing to enhance our sustainability and profitability. Specifically, we are reducing operational expenses facilitating a performance driven culture and strengthening our recognized commitment to quality. While we made progress in each of these initiatives during the quarter, I would like to highlight the substantial improvements that we have made in reducing the cost of our operations over the past few months.

First and foremost, Lifecore utilizes state of the art technologies and employs what we believe to be the best CDMO talent in the industry. Our commitment to quality is unwavering. And we will never reduce the costs required to maintain the high standard that our customers and the patients they serve expect. With that said, our new leadership team reviews monthly metrics trends, and opportunities we continue to identify meaningful areas that can improve our efficiency and productivity without compromising the quality of service we deliver. We have and are continuing to take action to capitalize on these opportunities and continue to reduce operational expenses as a percent of our overall revenue. Specifically, our production efficiencies have continued to improve throughout the fiscal year. A prime example is the better coordination between our supply chain and operations team. Which has resulted in a less volatile production schedule that has allowed us to better manage our workforce without compromising customer service. In addition, via enhanced training, and improved management processes, we are experiencing improved productivity in all direct labor areas. Aseptic, packaging, and fermentation. Finally, we have also improved our fermentation processing efficiencies which has resulted in an increase in our yield and less waste.

With respect to our business operations, we have eliminated numerous consulting relationships in favor of hiring the right number of employees in house. For example, we have now rebuilt our finance team by eliminating unnecessary outside parties and hiring a small number of highly experienced and talented personnel. Our new finance team is focused efficient, and more than keeping us in compliance with all regulatory requirements. And has quickly added value to our overall business. In addition to common sense cost cutting measures, we have also made key investments that will further enhance our operations. One example is recent implementation of live production monitoring. The data captured by this system assists management in assessing performance and measuring output. Allowing our team to make adjustments in real time to increase efficiencies. With an eye to efficiency, our team is implementing similar enhancements throughout our company, including updating of our pricing with customers in order to account for inflationary factors. In closing, I believe it is evident that we are executing aggressively against the plan we articulated last November. We are working with existing customers to accommodate their future manufacturing needs We are supporting our late stage clients as they advance towards potential regulatory approval and commercialization.

And we are successfully pursuing new business opportunities in an expanded range of products and formulations across multiple modalities. Further, we are reorganizing our business to better support the value creation derived from our three pronged growth strategy. Steps taken to date have resulted in new found efficiencies in performance across our workforce, [indiscernible] This has been done without disruption to our business or those of our customers and we continue to deliver exceptional quality throughout the organization. Looking ahead, we believe that our plan and actions today are positioning us well to meet the goals and objectives that we have articulated for fiscal twenty twenty five. We look forward to reporting on our progress in coming months. This concludes our prepared remarks for today. Operator, you may now open the call for questions.

Thank you. A question, please press 11 on your telephone. You will then hear an automated message advising your hand is raised. If you would like to withdraw your question, please press 11 again. One moment for the first question. And our first question will be coming from the line of Matthew Hewitt of Craig Hallum Capital.

Group. Your line is open.

Good afternoon and thank you for taking the questions. Obviously, a front of mind for everybody over the last twenty four hours is on the tariff front. And while it's at least at the moment clear that pharmaceuticals are not going to be impacted or hit attacks. There has been chatter about wanting or the desire to bring back drug manufacturing in The U. S. I'm just curious what you've heard over the past couple of months. From prospective customers that you've been talking about? And are you seeing that desire and willingness to repatriate drug manufacturing year? And what does that mean for you as you look at the remainder of this calendar year? Good afternoon, and thanks for the question. Last month, we were at one of our largest conferences, the Drug which is what's called DCAT in New York, It's called the Drug, Chemical, and Associated Technologies Conference. And we met with a number of large multinational pharmaceutical companies And I had met in my past number of years I've been in this business, I've never heard as much discussion A lot of it's theoretical around buster manufacturing and the importance of domestic manufacturing. Driven a lot by what we're characterizing as administrative uncertainty.

So nothing quantitative to move on today, but certainly from a qualitative perspective, based on the near term discussions that we've had, are certainly top of mind for a lot of our customers and prospects. That's helpful. Thank you. And then maybe just and I'm sorry if I missed this, but the humanetics contract post quarter that you signed, congratulations. What stage Is that also a later stage, obviously, if it's a tech transfer, but how should we be thinking about that? Think of it as a Phase II, Matt. It was a site transfer from another contract manufacturer, where they thought there was a better value proposition to work with Lifecore Biomedical. So we're excited to work with them. In our backyard, and it's a promising project. We're excited. That's great. Thank you. Thank you.

Thank you. One moment for the next question. And our next question will be coming from the line of Michael Petusky of Barrington Research. Your line is open.

Hey, good afternoon guys.

Paul, I guess, if you touched on this, missed it in the prepared remarks. Last quarter you talked about, hey, we've got we've identified 50 opportunities, 30% of these are multi I'm just wondering, roughly ninety days later, is there anything you can sort of say about those conversations or progress or how your capabilities are sort of being seen by particularly some of the bigger bigger guys, but anything you want to say about as you try to sort of build the customer base? Thanks.

Thanks for the question, Mike. Yeah, we continue to be pleased with the progress and I think composition of our pipeline. Obviously now the key is for us to continue to move those programs through the various stages of the sales process towards closure. I will say from a leading indicator perspective, we had I believe, four large multinationals on-site at Lifecore during the during the quarter, which is three of those in January, is a big number for us. Relatively speaking. So it tells me that our our strategy is working. And [indiscernible] we certainly met with more large multinational companies than heretofore the organization is has met with. One of the busiest schedules that I've been a part of, and based on the feedback from the legacy team, certainly the quality of the companies that we were meeting with was better than it's ever been.

Awesome. One for Ryan. Ryan, I haven't had a chance to go through the queue yet. What was the cash flow from ops and CapEx in the quarter, if you have that? Yes. Thanks for the question, Michael. So yeah, we saw some daylight this quarter and had positive cash flow from operations of about $2,000,000 and this is despite some one time non recurring expenses that we had from legacy legal matters of over $2,000,000 and there was still a portion of the filler as well that had not been paid for. So looking at the process and capital spending items net for the quarter within investing activities, You know, it was let's see. It net for the quarter within investing activities I believe we were pretty close to free cash flow breakeven for the quarter.

Yes. I just want to make sure I'm interpreting that comment correctly. So CapEx was roughly around $2,000,000 as well? Yes. Net of roughly $3,500,000 of the filler that was paid for. So it looked like CapEx spending was up a little bit, but it wasn't yet to net it against some of the proceeds that we received from the filler. Okay, then the outlook just on, I guess, the remainder of the fiscal, meaning the last quarter in terms of, I guess, expectations around? Cash flow from ops or free cash generation? Any Any thoughts on that?

Yes. So, I think importantly to note is we ended the Q3 with a little over $30,000,000 in liquidity, close to 31,000,000. So, in including cash off the balance sheet was a little over 5,000,000 and then availability under our revolver was a little over 25,000,000 So just as or just to reiterate, we, had used 17,000,000 of the proceeds from the pipe and filler sale to reduce the revolver. To save on interest expense, while maintaining the same level of liquidity. So we expect this to continue to improve as we the remaining 10,000,000 in proceeds from the filler sale. And as we think about kind of the remainder of the year, we're still expecting to be cash flow positive from operations in the second half and certainly depending on the course of timing of any of the one time non recurring items, expect to see a pretty dramatic improvement in free cash flow altogether in the second half of the year. And depending on the timing of capital expenditures, I think as you'll recall, Michael, we previously communicated we'd expect to be free cash flow neutral for the second half, and we still believe that and perhaps even slightly positive. [indiscernible] I guess, comment or two around continuing to look at reducing operating expenses.

And obviously, you're making really good progress on that SG and A line. I'm just curious, should we look at sort of Q3's and A level as sort of the run rate? Or do you feel like there's material improvement even that you can get off of what has been pretty darn good improvement in a short period of time. That's a great question. So, SG and A was down sequentially and it's been trending down ever since the first quarter We're still expecting to see G and A spend decrease overall in the second half of the year compared to the first half. And you know, as we mentioned earlier, we've made some great progress over the past couple of months off boarding consultants and, also the expectations around stock based compensation, we're expecting that to continue to to trend down. I think one of the things to look at as well is what we tried to call out were some of the legacy legal matters and items. And if you look at the quarter, I mean, that was over $2,000,000. Mean, once once those things are behind us, right, we should see a pretty dramatic decrease in overall SG and A spend and you'll also have noticed within the quarter there's about a $700,000, improvement due to lower finance and accounting consulting compared to the the prior year.

All right, very good. Thanks guys.

Thank you. Thank you. And that does conclude today's Q and A session. I would like to turn the call over to sorry, turn the call back over for closing remarks. Thank you.

Thank you, operator. In closing, I wish to thank our investors who continue to support our growth strategy for the future. I also wish to acknowledge our customers and collaborators who continue to entrust Lifecore as their partner of choice. And most importantly, I wish to extend my sincere gratitude to our incredibly hardworking and talented team, driving each of the successes that we have at Lifecore. With the support of each of these stakeholders, and with our strategic priorities both clear and achievable, we believe we are well positioned to achieve growth, and sustainable profitability in the coming years. That concludes our call today. Thank you for participating.

Thank you all for participating in today's conference call. You may now disconnect.