Lifecore Biomedical, Inc. Q1 FY2025 earnings call

• Paul Josephs discussed streamlining operations, adding leaders, signing new customers, regaining Nasdaq compliance, and raising funds in his first 100 days.
• Ryan Lake provided financial results, noted successful $24.3 million pipe offering, and stated the company's financial stability from financing allows focus on growth.
• Operational highlights: Completed installation of high-speed, multipurpose 5-head isolator filler (GMP-ready, doubling capacity and increasing max revenue to $300M annually); signed 4 new customers, including Lindy Biosciences; added 2 sales reps; increased participation in industry conferences.

For the quarter ended August 25, 2024, revenues were $24.7 million compared to $24.5 million in the comparable 2023 period. The increase was due to a $1.5 million rise in HA manufacturing revenues from the largest customer, offset by a $1.3 million decrease in CDMO revenues. Gross profit was $5.4 million vs $2.7 million in the prior year. Net loss was $16.2 million or $0.53 per diluted share vs $10.8 million or $0.35 per diluted share in 2023. EBITDA adjusted was negative $1.8 million, consistent with the prior year's negative $2 million.

• Reaffirmed guidance for fiscal 2025 revenue and adjusted EBITDA.
• Medium-term objectives: Double-digit revenue growth and improved adjusted EBITDA margins consistent with injectable CDMO peers.
• No immediate plans for additional capital raise; financing addresses near-term liquidity needs.

Q: Good morning and thanks for taking the questions. Maybe first up on some of the new wins. Obviously, congratulations on the efforts there. Obviously, you provided some details on the Lindy opportunity. I guess regarding that one, they -- and you noted this in your press release that they have recently signed a new contract. Is there an opportunity for you to kind of -- once you've proven that you can manufacture to their needs that you could expand into some of their partner base? And then secondly, could you provide a little bit of color on the other wins, maybe market size, the early stage, late stage? Any additional color on those would be helpful.

A: Sure, Matt. Sorry about that, too. The interruption brought to you by Verizon, just a little joke there. Certainly, as it relates to Lindy, we couldn't be more excited about that opportunity and to partner with them. I think it's just indicative of the technical strength of our technical talent here at Lifecore. It was a very competitive process, one in which they looked at a broad range of competitors and chose us not because of price but because of our technical capability. And it just validated one of the reasons I'm so excited to be part of the organization. With regard to the deal itself, it gives us the opportunity to scale Lindy's proprietary technology to commercial scale and then from there on out, partner with their licensees on the commercial manufacturing of their various programs. So that's how we see it playing out over a period of time. Obviously, as they're more successful signing on more and more partners like the global multinational pharmaceutical company that they announced in the past month, it will add to our development portfolio going forward. As it relates to the three other opportunities that we closed, those are all early stage, really specialty pharma, two of them being specialty pharma, one being a large multinational pharmaceutical company.

Q: Good morning. This is Mac on for Jacob. Just a few quick ones. Ryan, good to hear from you again. Given it's been your first 30 days in the seat, I figured I'd tell you a question real quick. So where are you focusing your efforts in the near term and where do you see the opportunities to improve margins beyond what has already been announced over the past couple of months? And do you feel appropriately sized to support sustainable growth moving forward from here?

A: Yeah. Thanks, Mac, for the questions. And it’s nice to be talking to you as well. Please give Jacob my regards. I think, just in terms of my key areas of focus here, the first month that's been one on the team, primarily the finance team. It's also been on quite a few SEC filings that we've had come due over the past 30 days and then also capital financing kind of with the recent announcement with the capital raise as well. I think -- and this touches on Matt's question as well. But I think -- and this will get to kind of the EBITDA question that you have. But I think as we look at the revenue guidance for the year of $126.5 million to $130 million, we expect that to be split kind of in the low 40% range in the first half of the year. And we expect that to ramp, so in the mid-50% range in the back half of the year. And yeah, this is a tremendous workload and complexity our teams are managing. As the business evolves, there's supply chain juggling and timing of production runs, completion of those services and also kind of the complexity of trying to figure out the expectation of timing to sign some of the new top -- top new business opportunities that we have that are either outside the pipeline, on top of the pipeline and when we expect to be able to earn that backlog. So overall, we expect gross margins to be relatively consistent with the prior year in the low 30% range with some variability between quarter-to-quarter based on product mix and timing of shipments. And that split for the year will probably be about 30% of the overall gross profit in the first half versus 70% in the second half. And I think as we think about that over time, the majority of our costs are fixed. So once we absorb our fixed costs, we should be able to see leverage improvement as volumes increase. And then in terms of areas where we're looking to improve, overall for the year, we believe OpEx will be in a similar range as the prior year. SG&A expenses, in particular this year, include some expenses that we don't expect to recur on a normalized basis. And they're going to be heavier in the first half of the year primarily as a result of some increased professional fees. And then the cadence would be anticipated to be kind of split about 60% versus the back half of about 40% based on expected reductions and cost savings initiatives that we expect to be able to help improve the run rate. And we estimate kind of in the back half that we'll be able to take out kind of mid-single-digit millions out of the OpEx base. And overall, that will mean adjusted EBITDA because of those items that I mentioned, including kind of those increased professional fees, particularly in the first half of the year, we would expect adjusted EBITDA to be split in the 5% range for the first half of the year and 90% in the back half of the year. But I think there's a lot of opportunities for us to improve that as time goes on as look at our kind of medium-term guidance. And I would just note that we did put a deck out or a slide out in our investor deck as well kind of alluding to what those expectations are over the medium term and how we expect to be able to improve both the revenue CAGR as well as aspirations as it relates to our goal or targeted EBITDA margin range.

Q: Hi, good morning. So, Paul, I wanted to make sure that I was tracking with a comment you made in your prepared remarks. When you said -- I think you said 25 development programs, including 10 late stage. So the 10 late stage are not in addition to 25 other development programs, it's 25 total. Is that correct?

A: 25 total, correct.

Q: Okay. So I guess I want to understand. So I think when you guys reported in the spring, obviously, prior to you being in the chair, there was something like, I think, 33 development programs. You guys look like you've added four in this quarter, which to me -- the math would seem to leave 12 that either you guys shut down or that ended or can you just sort of speak to that gap if I'm doing the math right?

A: You're doing the math right, Mike. And so first of all, thank you for the question. Here's how I look at it, and I want to be very clear is that we have these 25 programs that we believe are active or we know are active, that we're working on towards commercialization with our partners. We do have another approaching 10 or so programs that are in some level of quiescent period that we've taken out of our forward-looking projections. So, to your point, yeah, whether it's a clinical stall or financing related, we've just sort of taken those out of our forward-looking projections. And the other piece I would add, there's a couple of programs that were in there that also were just HA-related. I will say no forward-looking commercial potential revenue, but it was just a single stage development program, sort of taking that out of our forward-looking projection as well.

Q: Okay. And just real quickly to sort of finish it up. On the ones that you sort of described as a clinical stall, et cetera, et cetera, is it possible that some of those sort of revive or is it really we should sort of just essentially look at this as 25 programs, 10 late stage?

A: No. There is a potential for them to come back 100%. We've just taken them out at this point to be very clear with regard to our active pipeline.

Q: Got you. All right. Excellent. And then, Ryan, I guess, obviously, congrats on the cap raise, gives you guys some room to sort of focus on growing this business. But I'm sure that people are still really super interested in cash flow. Looks like in terms of cash flow from ops slightly negative, free cash flow about negative $4 million. Would you expect that the just reported quarter would be sort of the low watermark in terms of cash flow generation? Or is there anything you can just sort of speak to in terms of cash flow cadence throughout the year? Thanks.

A: Thanks. So we are expected to burn cash in the first half of this fiscal year and then be cash neutral during the second half of the year as a result of the items I mentioned previously regarding cadence. We believe the equity raise that we just completed, along with other non-dilutive initiatives that we have ongoing, including cost savings initiatives will address the company's near-term liquidity needs and don't have any plans to raise additional capital in the near term.

Q: Let me just make sure, and I just want to clarify, in terms of cash neutral in the second half, that includes the impact of CapEx, right? So we're talking about free cash neutral, not cash flow from ops neutral, correct?

A: That is the expectation, yes.

Q: Okay. And would you expect somewhat of an improvement in terms of free cash -- understanding it will still be likely negative in the second quarter, would you expect some improvement in Q2 versus Q1?

A: I don't have that in front of me, but we are expecting to be negative in the first half versus the second half.