Q4 2023 Lifecore Biomedical Inc Earnings Call

Speaker 1: Good morning and thank you for joining LifeCorps's fiscal 2023 fourth quarter earnings call. During the presentation...

Good morning, and thank you for joining life course fiscal 2023 fourth quarter earnings call.

During the presentation, all participants will be in a listen only mode.

Speaker 1: Now I'd like to turn the call over to Jeff Sonick, Investor Relations at ICR.

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

Good morning, and thank you for joining us today to discuss life core Biomedicals fourth quarter and full year fiscal 2023 earnings results hosting the call today from the company are Jim Hall, President and Chief Executive Officer, and John <unk>, Chief Financial Officer.

Speaker 2: Good morning, and thank you for joining us today to discuss LifeCorps Biomedicals fourth quarter and full year fiscal 2023 earnings results. Posting the call today from the company are Jim Hall, President and Chief Executive Officer, and John Mooreburg, Chief Financial Officer.

Before we begin today, we'd like to remind everyone of the safe Harbor statement.

Speaker 2: Before we begin today, we'd like to remind everyone of the safe harbor statement.

Speaker 2: Certain statements made in the course of this conference call contain forward-looking states.

Certain statements made in the course of this conference call contain forward looking statements.

Speaker 2: 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 A for fiscal year 2023 and their subsequent periodic report.

To note that the Companys 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.

As contained from time to time in the company's filings with the SEC, including but not limited to the company's Form 10-K, a for fiscal year 2023, and our subsequent periodic reports.

Speaker 2: Finally, in Lazy Company's ongoing exploration of strategic alternatives, management will not be conducting a live Q&A session on today's call.

Finally in light of the company's ongoing exploration of strategic alternatives management will not be conducting a live Q&A session on today's call with that I'd like to turn the call over to Jim Hall, Chief Executive Officer, Jim.

Speaker 2: With that, I'd like to turn the call over to Jim Hall, Chief Executive Officer. Jim.

Thank you Jeff Good morning, everyone and thank you for joining us for our fiscal 2023 fourth quarter and year end update.

Speaker 3: Thank you, Jeff. Good morning everyone and thank you for joining us for our fiscal 2023 fourth quarter and year end update.

Speaker 3: Today, I'll briefly touch on our fiscal 2023 fourth quarter and your end results and provide an update on our development portfolio. Before I do so, I want to briefly address the outstanding strategic review process, which remains ongoing.

Today I'll briefly touch on our fiscal 2023 fourth quarter and year end results and provide an update on our development portfolio before I do so I wanted to briefly address the outstanding strategic review process, which remains ongoing.

Speaker 3: We aren't in a position today to provide any updates, but we remain focused on continuing to execute on our business plan, and that the board continues its evaluation of potential strategic alternatives. So as to determine the best path forward to maximize value for our stockholders.

We aren't in a position today to provide any updates, but we remain focused on continuing to execute on our business plan and that the board continues its evaluation of potential strategic alternatives. So as to determine the best path forward to maximize value for our stockholders.

Speaker 3: As you recall from our last call, at the end of May, we took significant step forward with the execution of an expanded supply agreement with significant long-term customer Alcon as well as completing a comprehensive restructuring of our debt arrangements in which Alcon became our primary lender.

As you recall from our last call at the end of May we took a significant step forward with the execution of an expanded supply agreement with significant long term customer of alcon as well as completing a comprehensive restructuring of our debt arrangements and what you all kind of became.

Our primary lender.

Speaker 3: These transactions were significant in creating a more stable and sustainable capital structure for life core. These transactions also brought some added complexity to our year-end reporting, which is the primary reason for the delay in providing you with our full year fiscal 2023 update.

These transactions were significant and creating a more stable and sustainable capital structure for life core. These transactions also brought some added complexity to our year end reporting which is the primary reason for the delay in providing you with our full year fiscal 2023 update.

Speaker 3: In the fiscal 23-4-quarter, life-court generated segment revenue of $31.5 million, and segment adjusted EBITDAV $6.1 million, both of which were consistent with our expectations and the cadence that we disclosed during our third quarter call.

And the physical twenty-three fourth quarter life core generated segment revenue of $31 5 million.

And segment adjusted EBITDA of $6 1 million Boes.

Both of which were consistent with our expectations and the cadence that we disclosed during our third quarter call.

Speaker 3: We believe our business remains very well positioned as a fully integrated CDMO with highly differentiated capabilities for the development, fill-in finish, of complex sterile and injectable grade pharmaceutical products.

We believe our business remains very well positioned as a fully integrated C. D M. All.

With highly differentiated capabilities for the development fill and finish of complex sterile injectable grade pharmaceutical products.

Speaker 3: These technical capabilities have been honed from our more than 40 years of experience in building a premier pharmaceutical injectable-grade hyaluronic acid manufacturing platform with a focus on complex and highly regulated product.

These technical capabilities have been home from our more than 40 years of experience in building a premier pharmaceutical injectable grade hyaluronic acid manufacturing platform with a focus on complex and highly regulated products.

Speaker 3: We continue to believe that our unique expertise coupled with ongoing industry trends towards outsourcing of new drug development and our four decades of experience in creating a world-class quality management system. Physicians Life Corps as a preferred partner to provide CDMO services for new injectable drug applications.

We continue to believe that our unique expertise coupled with ongoing industry trends towards outsourcing of new drug development.

And our four decades of experience in creating a world class quality management system.

<unk> life core as a preferred partner to provide C. D M. All services for new injectable drug applications and.

Speaker 3: In fact, life core is the only major manufacturer, the pharmaceutical injectable grade HA with injectable CDMO expertise in the market today.

In fact life core is the only major manufacturer pharmaceutical injectable great H, a what's injectable C. D M. All expertise in the market today.

Speaker 3: Approximately 55% of all new drug applications are injectables and pre-filled syringe demand is growing at an estimated 13% compound annual rate according to Michigan Transport

Approximately 55% of all new drug applications are injectables and pre filled syringe demand is growing at an estimated 13% compound annual rate according to pharma projects.

Speaker 3: Giving the industry's limited specialized injectable drug manufacturing capacity, we intend to continue to take full advantage of this incredible opportunity and deliver much needed capacity that we've been investing in during the past few years.

Giving the industries limited specialized injectable drug manufacturing capacity, we intend to continue to take full advantage of this incredible opportunity and deliver much needed capacity that we've been investing in during the past few years.

Overall, our development portfolio of active projects advanced nicely in the fourth quarter with the addition of several later stage projects in total as of the end of our fiscal year in May our active development projects increased by five to 29.

These five new projects are also with five new customers, which brought our development customer count as of year end up to 27.

Speaker 3: These five new projects are also with five new customers, which brought our development customer count as of your end up to 27.

These projects are spread across early phase clinical development with seven projects.

Speaker 3: These projects are spread across early phase clinical development with seven projects. Phase one and two clinical development with eight projects. And phase three clinical development and scale up commercial validation activity with 14 projects.

He is wanting to clinical development with eight projects.

And phase III clinical development and scale up commercial validation activity with 14 projects.

Speaker 3: We continue to see an active project pipeline and continue work on the velocity at which we close on new project opportunities.

We continue to see an active project pipeline and continue work on the velocity at which we close on new project opportunities.

Speaker 3: As a result, we expect to add several new projects to our development portfolio by the end of our first quarter of fiscal 24.

As a result, we expect to add several new projects to our development portfolio by the end of our first quarter of fiscal 'twenty four.

Speaker 3: Our team is doing a great job ramping up commercial presence in the market.

Our team is doing a great job ramping up commercial presence in the market.

Speaker 3: As we've discussed several times over the past year, we believe our investments in our business development team are paying dividends in terms of our project pipeline.

As we've discussed several times over the past year, we believe our investments in our business development team are paying dividends in terms of our project pipeline.

Okay.

Speaker 3: Our two new isolator fillers remain on track, which broadener opportunity set in a significant way has a request for usage of that category of fillers for customers projects are in particularly high demand.

Our two new Isolator fillers remain on track, which broaden our opportunity set in a significant way as a request for usage of that category of fillers for customers projects are in particularly high demand.

Speaker 3: Our approach has shifted in response to that. We've continued to evaluate and target our perspective opportunities with the increased capacity represented by those fillers in mind.

Our approach has shifted in response to that.

We've continued to evaluate and target our perspective opportunities with the increased capacity represented by those fillers in mind.

Speaker 3: As we look toward the future state with more optimized and balanced capacity.

As we look towards the future state with more optimized imbalanced capacity.

Our targeted and focused sales approach is highlighted and identified 44 perspective projects in our development opportunity pipeline as of the end of the fiscal fourth quarter that are as diverse and impactful as we've ever had at life core.

Speaker 3: Our targeted and focused sales approach is highlighted and identified 44 prospective projects and our development opportunity pipeline as of the end of the fiscal fourth quarter that are as diverse and impactful as we've ever had at life.

Speaker 3: These opportunities span multiple end markets, classes of drugs and medical devices, and within a sort of companies both large and small, which we believe speaks to the attractive CDMO capabilities within life-cores growing expertise that the farming industry is actively seeking in a CDMO partner.

These opportunities span multiple end markets classes of drugs and medical devices and with an assortment of companies, both large and small which we believe speaks to the attractive seeding them all capabilities within life course growing expertise that the pharma industry is actively seeking an a C. D M O.

Hartner.

This is especially exciting as we work on leveraging our expanded set of capabilities. We are seeing great interest from potential customers, who are working on drug products, which represents approximately half of our current development opportunity pipeline and includes the potential to expand our reach.

Speaker 3: This is especially exciting as we work on leveraging our expanded set of capability.

Speaker 3: We are seeing great interests from potential customers who are working on drug products, which represents approximate we half of our current development opportunity pipeline, and includes the potential to expand our relationships with some of the larger pharma companies in the industry.

<unk> chips with some of the larger pharma companies in the industry.

Speaker 3: But we also continue to see substantial interests and customers who want to utilize our HA expertise for highly viscous products.

But we also continue to see substantial interest from customers, who want to utilize our H a expertise for highly viscous products.

Speaker 3: We are making progress on opening paths to other segments of the market that we previously may not have had the ability to execute and refining our pipeline to focus on opportunities that we believe are uniquely situated to capitalize upon.

We are making progress on opening passed to other segments of the market that we previously may not have had the ability to execute and refining our pipeline to focus on opportunities that we believe are uniquely situated to capitalize upon.

Speaker 3: When combined with our unique expertise working with difficult materials, we feel like we are in an extremely strong position.

When combined with our unique expertise working with difficult materials, we feel like we are in an extremely strong position.

Speaker 3: In terms of our growth and ability to meet customers, needs, contemplated in our development portfolio, we continue to invest in capacity.

In terms of our growth and ability to meet customers' needs contemplated in our development portfolio we.

We continue to invest in capacity.

Speaker 3: Today, our theoretical filling capacity remains at 22 million units versus demand of 8 to 10 million units that we expect will be fully utilized over the next few years with projects within our existing development portfolio.

Today, our theoretical filling capacity remains at 22 million units versus demand of eight to 10 million units that we expect will be fully utilized over the next few years with projects within our existing development portfolio.

Speaker 3: As such, we need to keep our eye on the near and long term, given weed times with installing new capacity, and the necessary human capital that's required to operate these higher levels.

As such we need to keep our eye on the near and long term given lead times with installing new capacity and the necessary human capital that's required to operate these higher levels.

We have invested in two new Isolator fillers are five had an a 10 had that had been manufactured and are going through the final stages of factory acceptance testing.

Speaker 3: We have invested in two new isolator fillers, a five-head and a ten-head that have been manufactured and are going through the final stages of factory acceptance testing with anticipated delivery dates this fall. Our five-head isolated filler and new fillroom are planned to be GMP ready by Q1 of calendar 2024.

With anticipated delivery dates this fall or five had isolated filler our new film room are planned to be GMP ready by Q1 of calendar 2024.

Speaker 3: We believe that these fillers will allow us to double our theoretical capacity to approximately 45 million units, putting life core in a great position to meet market needs and optimize our production across our manufacturing footprint.

We believe that these fillers will allow us to double our theoretical capacity to approximately 45 million units, putting life core in a great position to meet market needs and optimize our production across our manufacturing footprint.

Another capacity investment is related to our fermentation production. We're in the process of moving from a single shift fermentation production staff.

Speaker 3: Another capacity investment is related to our fermentation production, in the process of moving from a single shift fermentation production staff to hiring a full 24 or seven staff to increase our sterile HA capacity by 50% by June 2024 to address the increased HA volume requirements associated with our expanded supply agreement with LK.

Hi, Aaron a full 24 seven staff to increase our sterile <unk> capacity by 50% by June 2024 to address the increased H a volume requirements associated with our expanded supply agreement with Alcon.

Along with capacity enhancements, we continue to build out our organizational capabilities to attract new talent and develop the team we already have in place.

Speaker 3: Along with capacity enhancements, we continue to build out our organizational capabilities to attract new talent and develop the team we already have in place.

Speaker 3: Our LifeCore University Training Program is a key element of that, as is our Lean Certification Program, which continues to elevate our team.

Our life Korea University training program is a key element of that as is our lean certification program, which continues to elevate our team.

Speaker 3: We are proud of the 10 individuals who are granted their lean practitioner certification.

We are proud of the 10 individuals who are granted their lean practitioner certification.

Speaker 3: and have an additional lean certification training group staged to start November .

And having an additional lean certification training group stage to start in November .

Speaker 3: Our operational excellence team continues to focus on creating metrics that matter, enhancing our training program, and creating an efficient environment for enhanced cross-functional communication. With our portfolio...

Our operational excellence team continues to focus on creating metrics that matter enhancing our training program and creating an efficient environment for enhanced cross functional communication.

With our portfolio of current development projects.

Speaker 3: and the pipeline of opportunities we are seeing, the new fillers will be very timely to assist life core in fulfilling our customer's forecasted commercial units, which we see on the horizon. What?

And the pipeline of opportunities we are seeing the new fillers will be very timely to assist life core and fulfilling our customers' forecasted commercial units, which we see on the horizon once again.

Speaker 3: We believe LifeCorps is well positioned to take advantage of the strong industry fundamentals and customers' projects as they progress through development and into commercialization.

We believe life core is well positioned to take advantage of the strong industry fundamentals and customers' projects as they progress through development and into commercialization.

Speaker 3: We believe this position will translate into significant revenue generating potential in FY24 and beyond.

Believe this position will translate into significant revenue generating potential in FY 'twenty four and beyond.

In summary, we are making important progress on preparing life core for the growth that we see in our development portfolio I am extremely pleased with the resilience that our organization has demonstrated and thank each of our team members for their individual contributions.

Speaker 3: In summary, we are making important progress on preparing life core for the growth that we see in our development portfolio. I'm extremely pleased with the resilience that our organization has demonstrated and thank each of our team members for their individual contributions.

Speaker 3: We operate in an exciting and rapidly growing industry, and I believe we are well positioned for significant growth ahead. With that, I'll pass the call to John to discuss life course financials.

We operate in an exciting and rapidly growing industry and I believe we are well positioned for significant growth ahead.

With that I'll pass the call to John to discuss life quarters financials.

Thank you Jen.

Speaker 4: I'll begin with a brief review of our financial results before transitioning to the balance sheet, the impacts from our recent refinancing,

I'll begin with a brief review of our financial results before transitioning to the balance sheet the impacts from our recent refinancing some timing perspectives on our SEC filings and a brief guide on our fiscal 'twenty four forecasted business.

Speaker 4: some timing perspectives on our SEC filings, and a brief guide on our Fiscal 24 Forecasted Business.

For the fiscal fourth quarter of 'twenty three life core segment revenues increased 14, 2%.

Speaker 4: For the fiscal fourth quarter of 23, LifeCorps segment revenues increased 14.2%

Speaker 4: to 31.5 million driven by a 38% increase in our hyaluronic acid, HA, raw material manufacturing, or fermentation business, and a 9% increase in our CDMO business.

The 31 5 million driven by a 38% increase in or hyaluronic acid H, a raw material manufacturing or fermentation business and a 9% increase in our <unk> business.

The increase in H, a raw material manufacturing revenue was primarily due to the higher demand in the current year.

Speaker 4: The increase in H.A. raw material manufacturing revenue was primarily due to the higher demand in the current year.

Speaker 4: The increase in CDMO revenues was primarily due to the timing of customer shipments, as well as a higher mix of earlier phase development projects onboarded at the earlier lower initial revenue stage, but have nevertheless strong runways for future periods.

The increase in <unk> revenues was primarily due to the timing of customer shipments as well as a higher mix of earlier phase development projects on boarded at the earlier lower initial revenue stage, but have nevertheless, strong runways for future periods.

Yeah.

Speaker 4: Life for a segment gross profit decrease 4.9 million to 8.5 million for the fourth quarter of 23 representing a gross margin of 26.9%.

<unk> segment gross profit decreased $4 9 million to $8 5 million for the fourth quarter of 'twenty three.

Representing a gross margin of 26, 9%.

Speaker 4: which compares to 48.4% in the prior year period.

Which compares to 48, 4% in the prior year period.

Speaker 4: The gross profit decline was primarily due to a favorable volume variance of 1.9 million due to the increase in your over your revenues.

The gross profit decline was primarily due to a favorable volume variance of $1 9 million due to the increase in year over year revenues.

Speaker 4: Offset by an unfavorable rate variance of 6.8 million.

Offset by an unfavorable rate variance of $6 8 million.

The rate variance was driven by the lower volume of higher margin development revenues in the current year period inflationary.

Speaker 4: The rate variance was driven by the lower volume of higher margin development revenues in the current year period.

Speaker 4: inflationary impacts of commercial aseptic products on certain legacy contracts somewhat offset by the higher volume of fermentation revenue.

Inflationary impacts of commercially septic products on certain legacy contracts.

Somewhat offset by the higher volume affirm <unk> revenues.

Speaker 4: Life course pigment, adjustity, but what 6.1 million for the fourth quarter of 23 representing an adjustity but a margin of 19.3%.

<unk> segment, adjusted EBITDA was $6 1 million for the fourth quarter of 23, representing an adjusted EBITDA margin of 19, 3%.

Speaker 4: Given the divestment of the remaining creation foods businesses in Q4, I will not comment on those segment results.

Given the divestment of the remaining curation foods businesses in Q4, I will not comment on the segment results.

In the corporate other segment adjusted EBITDA was negative 1.9 million for Q4 of fiscal year, 'twenty, three which was consistent with our expectations.

Speaker 4: In the corporate other segment, Adjusted EBITDA was negative 1.9 million for Q4 or Fiscal Year 23, which was consistent with our expectations.

Speaker 4: And as a reminder, this is the final quarter of reporting the corporate other segment. Beginning to the first quarter of fiscal 24, we will be collapsing this segment into life corps's GNA.

As a reminder, this is the final quarter of.

Reporting the corporate other segment beginning in the first quarter of fiscal 'twenty four we will be collapsing this segment into life course G&A.

Speaker 4: We're still in the process of transitioning all remaining holding company back office functions, including financial, accounting, compliance, and IT infrastructure. And once that is complete, we will then be able to finalize our reduction and stranded costs from the legacy land at holding company structure.

We're still in the process of transitioning all remaining holding company back office functions, including financial accounting and compliance and it infrastructure and once that is complete we will then be able to finalize our reduction in stranded costs from the legacy land Bank holding company structure.

Consequently, while we collapsed the holding company segment into a single reporting segment.

Speaker 4: Consequently, why we collapse the holding company segment into a single reporting segment.

Speaker 4: We will still communicate to shareholders the amount that would have been part of the holding company structure, particularly as we remain in the strategic review process that our shareholders have an apples to apples comparison.

We will still communicate to shareholders the amount that would have been part of the holding company structure.

Particularly as we remain in the strategic review process, so that our shareholders have an apples to apples comparison.

While not reflected in our adjusted EBITDA figures, our fourth quarter net income was impacted by $6 9 million in restructuring and other nonrecurring charges net of tax primarily related to consolidating and transitioning operations associated with the divestment of duration.

Speaker 4: Well, not reflected in our just a debit of figures, our fourth quarter net income was impacted by 6.9 million in restructuring and other non-recurring charges, net of tax primarily related to consolidating and transitioning operations associated with the Department of Curation Foods businesses.

<unk> businesses advisory costs audit fees and transition costs from corporate headquarters transition to life core as well as restructuring and advisory costs associated with our refinancing activities.

Speaker 4: Advisory costs, autofes, and transition costs from corporate headquarters, transition to life-corder, as well as restructuring and advisory costs associated with our refinancing activity.

Speaker 4: In terms of outlook, particularly in light of our ongoing strategic review process, we are not in a position to provide formal guidance for fiscal 24 at this time.

In terms of outlook, particularly in light of our ongoing strategic review process.

We are not in a position to provide formal guidance for fiscal 'twenty four at this time.

Speaker 4: However, as we have discussed during our fiscal third quarter update, the timing impacts we have been experiencing.

However, as we have discussed during our fiscal third quarter update the timing impacts we have been experiencing <unk>.

Speaker 4: including the completion of some larger revenue, late stage development projects, and delays in commercialization.

Including the completion of some larger revenue late stage development projects.

And delays in commercialization of others.

Unknown Executive: Good morning and thank you for joining Lifecore's fiscal 2023 fourth quarter earnings call. During the presentation, all participants will be in listening mode.

Speaker 4: The timing and mix of new development projects and smaller earlier stage projects, as well as the inflationary impacts on certain legacy commercial contracts.

The timing and mix of new development projects and smaller earlier stage projects as well as the inflationary impacts on certain legacy commercial contracts.

Jeff Sonnek: Now I'd like to turn the call over to Jeff Sonnek, Investor Relations at ICR. Good morning and thank you for joining us today to discuss Lifecore Biomedicals fourth quarter and full year fiscal 2023 earnings results. Hosting the call today from the company, our Jim Hall, President and Chief Executive Officer, and John Morberg, Chief Financial Officer.

Speaker 4: I expected to continue in our first fiscal quarter of 2024 results.

Are expected to continue in our first fiscal quarter of.

2024 results.

Speaker 4: Later in Q2 of fiscal year 24, we expect that those impacts will ease as delayed commercial projects begin shipping in earnest. And by January 1st of 2024, we expect to be able to effectuate pricing offsets under existing contracts to help mitigate some of the impacts of the recent inflationary pressures.

Later in Q2 of fiscal year 'twenty four we expect that those impacts will ease as delayed commercial projects began shipping in earnest and by January one of 2024, we expect to be able to effectuate pricing offsets under existing contracts.

Unknown Executive: 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 contained 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.

Unknown Executive: Additional information concerning risk factors that could cause actual results to differ materially from those in the forward looking statements. It is contained from time to time in the company's filings with the SEC, including, but not limited to, the company's formed 10KA for fiscal year 2023 and their subsequent periodic reports.

Mitigate some of the impacts of the recent inflationary pressures.

Speaker 4: Consequently, we expect Q1 of fiscal 24 to represent the low point for the year, and on a sequential basis relative to the Q4 that we are reporting today, Q1 revenue and adjustity bidar are expected to decrease before re-accelerating across the balance of the year.

Consequently, we expect Q1 of fiscal 'twenty four to represent the low point for the year.

On a sequential basis relative to the Q4 that we're reporting today Q1 revenue and adjusted EBITDA are expected to decrease before reaccelerate, even across the balance of the year.

Speaker 4: That said, first quarter life court of Justin EBITDA is expected to be approximately break even excluding the burden of our other segment, which as I noted, we expect to collapse into our confolidated results beginning in fiscal 24, first quarter.

That said first quarter last quarter adjusted EBITDA is expected to be approximately breakeven excluding the burden of our other segment, which as I noted, we expect to collapse into our consolidated results beginning in fiscal 'twenty for first quarter.

Unknown Executive: Finally, in the company's ongoing exploration of strategic alternatives, management will not be conducting a live Q&A session on today's call.

Jim Hall: With that, I'd like to turn the call over to Jim Hall, Chief Executive Officer Jim. Thank you, Jeff. Good morning, everyone, and thank you for joining us for our fiscal 2023 fourth quarter and year end update. Today, I'll briefly touch on our fiscal 2023 fourth quarter and year end results and provide an update on our development portfolio. Before I do so, I want to briefly address the outstanding strategic review process which remains ongoing.

Speaker 4: In Q2 of fiscal year 24, we expect revenues and adjustity bidda to show accelerated improvement following the commencement of commercial shipments that were delayed.

In Q2 of fiscal year 'twenty, four we expect revenues and adjusted EBITDA to show accelerated improvement following the commencement of commercial shipments that were delayed.

Speaker 4: Relative to the prior year, second quarter, we anticipate FY24 Q2 revenues to grow by nearly 40% and life court adjusted EBITDA to grow to approximately twice the rate of revenues, which implies some margin expansion due to the aforementioned improvement in revenue mix associated with new commercial shipments.

Relative to the prior year second quarter, we anticipate FY 'twenty for Q2 revenues to grow by nearly 40% and life core adjusted EBITDA to grow at approximately twice the rate of revenues, which implies some margin expansion due to the aforementioned improvement and revenue mix.

Jim Hall: We aren't in a position today to provide any updates, but we remain focused on continuing to execute on our business plan and that the board continues its evaluation of potential strategic alternatives. So as to determine the best path forward, can maximize value for our stockholders. As you recall from our last call, at the end of May, we took significant step forward with the execution of an expanded supply agreement with significant long term customer Alcon, as well as completing a comprehensive restructuring of our debt arrangements, in which Alcon became our primary lender. These transactions were significant in creating a more stable and sustainable capital structure for life core.

Associated with new commercial shipments.

Speaker 4: strong fermentation revenues and pipeline development projects that are expected to come online during the second quarter.

Wrong fermentation revenues and pipeline development projects that are expected to come online during the second quarter.

Then in Q3 and Q4 of fiscal year 'twenty four we expect to generate adjusted EBITDA at more normalized levels similar to or greater than what we achieved in fiscal year 'twenty, two third and fourth quarters.

Speaker 4: Then in Q3 and Q4 of fiscal year 24, we expect to generate a justity but a at more normalized levels, similar to or greater than what we achieved in fiscal year 22, third and fourth quarters.

Speaker 4: I'd like to emphasize that these quarterly forecasts are being provided without the impact of our other segment which reflects the corporate overhead that we still carry. And we are sharing this added granularity to help you isolate an apples-dapples comparison to our prior segmentation.

I'd like to emphasize that these quarterly forecasts are being provided without the impact of our other segment, which reflects the corporate overhead that we still carry and we are sharing this added granularity to help you isolate an apples to apples comparison to our prior segmentation.

Speaker 4: As for these corporate costs, we believe that there will be ultimately savings to be realized.

As for these corporate costs, we believe that there will be ultimately savings to be realized.

Jim Hall: These transactions also brought some added complexity to our year end reporting, which is the primary reason for the delay in providing you with our full year fiscal 2023 update. In the fiscal 23 fourth quarter, life core generated segment revenue of 31.5 million and segment adjusted EBITDAV 6.1 million, both of which were consistent with our expectations and the cadence that we disclosed during our third quarter call. We believe 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 product.

Speaker 4: And for modeling purposes, we believe it is prudent to assume that our current quarterly run rate of approximately 1.8 to 2.1 million continues in the near term.

And for modeling purposes, we believe it is prudent to assume that our current quarterly run rate of approximately one eight to $2 1 million continues in the near term.

In addition, and excluded from our FY 'twenty for adjusted EBITDA expectations are approximately two to $2 8 million and startup costs associated with the HMA fermentation capacity improvements there.

Speaker 4: In addition, and excluded from our FY24 adjusted EBITDA expectations are approximately 2 to 2.8 million and start-up costs associated with the HA fermentation capacity improvement.

Speaker 4: that Jim mentioned earlier, including the transition to a 24-7 work shift, requiring significant one-time recruiting, hiring and training costs associated with this approximately 50% capacity increase in HA fermentation. SOLE

That Jim mentioned earlier, including the transition to a 24 seven work shift requiring significant one time recruiting hiring and training costs associated with this approximately 50% capacity increase in fermentation.

Jim Hall: Box. These technical capabilities have been home from our more than 40 years of experience and building a premier pharmaceutical injectable grade hyaluronic acid manufacturing platform with a focus on complex and highly regulated products. We continue to believe that our unique expertise coupled with ongoing industry trends towards outsourcing of new drug development and our four decades of experience in creating a world-class quality management system, physicians, Lifecore as a preferred partner to provide CDMO services for new injectable drug applications.

Speaker 4: We began incurring these costs during the fiscal first quarter and expect that they should be relatively consistent across the balance of fiscal 24.

We began incurring these costs during the fiscal first quarter and expect that they should be relatively consistent across the balance of fiscal 'twenty four.

Speaker 4: Now turning to our balance sheet, note that at the end of fiscal year end in May 28, 2023, our balance sheet reflects the revised capital structure and impact from our recent refinancing.

Now turning to our balance sheet note that at the end of fiscal year ended May 28, 2023, our balance sheet reflects the revised capital structure and impact from our recent refinancing.

Speaker 4: Net term and revolver debt on a reported basis for fiscal year 23 was 147.2 million.

Net term and revolver debt on a reported basis for fiscal year 'twenty three it was $147 2 million <unk>.

Speaker 4: including 19.1 million of cash and cash equivalents, which compares to net bank debt at the end of fiscal 22 of 137.2 million.

Including $19 1 million of cash and cash equivalents, which compares to net bank debt at the end of fiscal 'twenty two of $137 2 million.

Jim Hall: In fact, Lifecore is the only major manufacturer of pharmaceutical injectable grade HA with injectable CDMO expertise in the market today. Approximately 55% of all new drug applications are injectables and pre-filled syringe demand is growing at an estimated 13% compound annual rate, according to pharma projects. Giving the industry's limited specialized injectable drug manufacturing capacity, we intend to continue to take full advantage of this incredible opportunity and deliver much needed capacity that we've been investing in during the past few years.

Speaker 4: In analyzing the new term debt, we identified and valued certain embedded derivative features totaling 64.5 million that you will see broken out separately on the balance sheet.

In analyzing the new term debt, we identified and valued certain embedded derivative features totaling $64 5 million that you will see broken out separately on the balance sheet.

Speaker 4: The embedded derivatives result from certain call and put features associated with the debt and are more fully described in the credit agreement.

The embedded derivatives result from certain call and put features associated with the debt and are more fully described in the credit agreement.

Speaker 4: To be clear, the 147.2 million of reported net debt includes the derivative liability.

To be clear the $147 2 million of reported net debt includes the derivative liability.

Speaker 4: CAPEX was 20.8 million for fiscal year 23, which includes 2.5 million of capitalized interest, which is consistent with our prior expectation.

Capex was $20 8 million for fiscal year, 'twenty, three which includes $2 5 million of capitalized interest, which is consistent with our prior expectation.

Jim Hall: Overall, our development portfolio of active projects advance nicely in the fourth quarter with the addition of several later stage projects. In total, as of the end of our fiscal year in May, our active development projects increase by five to 29. These five new projects are also with five new customers which brought our development customer count as of your end of the 27. These projects are spread across early phase clinical development with seven projects, phase one and two clinical development with eight projects, and phase three clinical development and scale up commercial validation activity with 14 projects.

Capex is focused on supporting <unk> long term growth initiatives and is earmarked for two multi use isolator fillers and the associated formulation and process support equipment.

Speaker 4: CAPEX is focused on supporting LifeCorps long-term growth initiatives and is earmarked for two multi-use isolator fillers and the associated formulation and process support equipment.

Speaker 4: For fiscal 24, we expect CAPEX to be somewhat moderated to fiscal 23, depending on the timing of payments, and likely in the range of 17 million to 19 million.

For fiscal 'twenty, four we expect capex to be somewhat moderated to fiscal 'twenty three depending on the timing of payments and likely in the range of 17 million to $19 million.

Speaker 4: included anticipated capitalized interests similar to FY 23 level.

Included anticipated capitalized interest similar to FY2023 levels, but first half loaded as we walk them in our two new fillers.

Speaker 4: but first half loaded as we welcome in our two new sellers.

Yeah.

Speaker 4: Before closing the call, I'd like to comment on our SEC filing process in the timing of our Form 10K filing.

Before closing the call I'd like to comment on our SEC filing process and the timing of our Form 10-K filing.

Speaker 4: It is our attention to file the 10K as soon as practicable as we finish up the remaining documentation matters in our urine filing.

It has our attention to file the 10-K as soon as practicable as we finish up the remaining documentation matters in our year end filings.

Jim Hall: We continue to see an active project pipeline and continue work on the velocity at which we close on new project opportunities. As a result, we expect to add several new projects to our development portfolio by the end of our first quarter of fiscal 24. Our team is doing a great job ramping up commercial presence in the market as we've discussed several times over the past year. We believe our investments in our business development team are paying dividends in terms of our project pipeline.

Speaker 4: The Final Traction Fid's, Divestment in Q4, and the Accounting for Activities associated with closing up the Transition Services Agreements and prior period of divestments, including the treatment of discontinued operations and restructuring costs combined with the significant refinancing that close in the closing days of Q423 has caused significant additional staff and audit effort to complete the year in processes.

The final curation foods divestment in Q4, and the accounting for activities associated with closing up the transition services agreements and prior period divestments, including the treatment of discontinued operations.

Structuring costs combined with the significant refinancing that closed in the closing days of Q4 'twenty three has caused significant additional staff and audit effort to complete the year end processes.

Speaker 4: On the refinancing side, we had analyzed the embedded derivative features I discussed earlier and engaged specialists to value the derivatives, a very technical and time-consuming effort.

On the refinancing side, we had analyzed the embedded derivative features I discussed earlier.

Jim Hall: Our two new isolator fillers remain on track which broaden our opportunity set in a significant way as a request for usage of that category of fillers for customers projects are in particularly high demand. Our approach is shifted in response to that. We've continued to evaluate and target our perspective opportunities with the increased capacity represented by those fillers in mind. As we look toward the future state with more optimized and balanced capacity.

And engaged specialists to value of the derivatives are very technical and time consuming effort.

Speaker 4: Additionally, post-closing adjustments to the sale lease back included a fair market value study by a pre-ser that also took on significant time and effort.

Additionally, post closing adjustments to the sale leaseback included a fair market value study by an appraiser that also took a significant time and effort.

Speaker 4: Consequently, these areas, when factored into the smaller footprint of a standalone life-course segment operation, resulted in lower audit materiality thresholds and significant efforts by third-party specialists.

Consequently, these areas when factored into the smaller footprint of a standalone life core segment operation.

Resulted in lower audit materiality thresholds and significant efforts by third party specialists.

Speaker 4: Fortunately that work is winding down and we expect to be on file in the near future

Fortunately that work is winding down and we expect to be on file in the near future.

Jim Hall: Our targeted and focused sales approach is highlighted in identified 44 prospective projects and our development opportunity pipeline as of the end of the fiscal fourth quarter that are as diverse and impactful as we've ever had at Lifecore. These opportunities span multiple in markets, classes of drugs and medical devices and with an assortment of companies both large and small, which we believe speaks to the attractive CDMO capabilities within Lifecore's growing expertise that the farming industry is actively seeking in a CDMO partner.

Speaker 4: In conclusion, I'd like to recognize the great work that the life core team is putting forward.

In conclusion I'd like to recognize the great work that <unk> team is putting forth.

Speaker 4: While filing delays in the strategic review process have created some added complexity to our communication,

Filing delays in the strategic review process have created some added complexity to our communications as you heard today from Jim our commercial efforts are advancing nicely our development pipeline is growing in a healthy and diversified fashion.

Speaker 4: As you heard today from Jim, our commercial efforts are advancing nicely. Our development pipeline is growing in a healthy and diversified fashion.

Speaker 4: And we have the business gearing up for a significant expansion and the quarters in years to come.

And we have the business gearing up for a significant expansion in the quarters and years to come.

Speaker 4: That concludes our call today. Thank you for participating.

That concludes our call today. Thank.

Thank you for participating.

Jim Hall: This is especially exciting as we work on leveraging our expanded set of capabilities. We are seeing great interests from potential customers who are working on drug products which represents approximate we have of our current development opportunity pipeline and includes the potential to expand our relationships with some of the larger farmer companies in the industry. But we also continue to see substantial interests from customers who want to utilize our HA expertise for highly viscous products.

Jim Hall: We are making progress on opening paths to other segments of the market that we previously may not have had the ability to execute and refining our pipeline to focus on opportunities that we believe are uniquely situated to capitalize upon. When combined with our unique expertise working with difficult materials, we feel like we are in an extremely strong position. In terms of our growth and ability to meet customers' needs, contemplated in our development portfolio, we continue to invest in capacity.

Okay.

Jim Hall: Today our theoretical filling capacity remains at 22 million units versus demand of 8 to 10 million units that we expect will be fully utilized over the next few years with projects within our existing development portfolio. As such, we need to keep our eye on the near and long term given weed times with installing new capacity and the necessary human capital that is required to operate these higher levels. We have invested in two new isolator fillers, a five-head and a ten-head that have been manufactured and are going through the final stages of factory acceptance testing with anticipated delivery dates this fall.

Jim Hall: Our five-head isolated filler and new fillroom are planned to be GMP ready by Q1 of calendar 2024. We believe that these fillers will allow us to double our theoretical capacity to approximate 45 million units, putting life core in a great position to meet market needs and optimize our production across our manufacturing footprint. Another capacity investment is related to our fermentation production, where in the process of moving from a single-shift fermentation production staff to hiring a full 24 or seven staff to increase our sterile HA capacity by 50 percent by June 2024 to address the increased HA volume requirements associated with our expanded supply agreement with L-CAN.

Jim Hall: Along with capacity enhancements, we continue to build out our organizational capabilities to attract new talent and develop the team we already have in place. Our Lifecore University training program is a key element of that, as is our lean certification program which continues to elevate our team. We are proud of the 10 individuals who are granted their lean practitioner certification and have an additional lean certification training group staged to start November. Our operational excellence team continues to focus on creating metrics that matter, enhancing our training program and creating an efficient environment for enhanced cross-functional communication.

Jim Hall: With our portfolio of current development projects and the pipeline of opportunities we are seeing, the new fillers will be very timely to assist Lifecore in fulfilling our customers forecasted commercial units which we see on the horizon. Once again, we believe Lifecore is well positioned to take advantage of the strong industry fundamentals and customers' projects as they progress through development and into commercialization. We believe this position will translate into significant revenue generating potential and FY24 and beyond. In summary, we are making important progress on preparing Lifecore for the growth that we see in our development portfolio.

Jim Hall: I'm extremely pleased with the resilience that our organization has demonstrated and thank each of our team members for their individual contributions. We operate in an exciting and rapidly growing industry and I believe we are well positioned for significant growth ahead.

John Morberg: With that, I'll pass the call to John to discuss Lifecore's financials. Thank you, Jim. I'll begin with a brief review of our financial results before transitioning to the balance sheet, the impacts from our recent refinancing, some timing perspectives on our SEC filings, and a brief guide on our fiscal 24 forecasted business. For the fiscal fourth quarter of 23, Lifecore segment revenues increase 14.2% to 31.5 million, driven by a 38% increase in our hyaluronic acid, HA, raw material manufacturing, or fermentation business, and a 9% increase in our CDMO business.

John Morberg: The increase in HA raw material manufacturing revenue was primarily due to the higher demand in the current year. The increase in CDMO revenues was primarily due to the timing of customer shipments, as well as a higher mix of earlier phase development projects onboarded at the earlier lower initial revenue stage, but have nevertheless strong runways for future periods. Lifecore segment gross profit decrease 4.9 million to 8.5 million for the fourth quarter of 23, representing a gross margin of 26.9%.

John Morberg: David, which compares to 48.4% in the prior year period. The gross profit decline was primarily due to a favorable volume variance of 1.9 million due to the increase in year-over-year revenues offset by an unfavorable rate variance of 6.8 million. The rate variance was driven by the lower volume of higher margin development revenues in the current year period, inflationary impacts of commercial aseptic products on certain legacy contracts, somewhat offset by the higher volume of fermentation revenues.

John Morberg: Lifecore's figment adjusted EBITDA with 6.1 million for the fourth quarter of 23, representing an adjusted EBITDA margin of 19.3%. Given the divestment of the remaining curation foods businesses in Q4, I will not comment on those segment results. In the corporate other segment, adjusted EBITDA was negative 1.9 million for Q4 of fiscal year 23, which was consistent with our expectations. And as a reminder, this is the final quarter of reporting the corporate other segment.

John Morberg: Beginning to the first quarter of fiscal 24, we will be collapsing this segment into Lifecore's GNA. We're still in the process of transitioning all remaining holding company back office functions, including financial accounting compliance and IT infrastructure. And once that is complete, we will then be able to finalize our reduction in stranded costs from the legacy landech holding company structure. Consequently, why we collapse the holding company segment into a single reporting segment.

John Morberg: We will still communicate to shareholders the amount that would have been part of the holding company structure, particularly as we remain in the strategic review process, so that our shareholders have an apples to apples comparison. We'll not reflected in our adjusted EBITDA figures. Our fourth quarter net income was impacted by 6.9 million in restructuring and other non-recurring charges, net of tax, primarily related to consolidating and transitioning operations associated with the divestment of curation foods businesses, advisory costs, autofes, and transition costs from corporate headquarters, transition to Lifecore, as well as restructuring and advisory costs associated with refinancing activities.

John Morberg: In terms of outlook, particularly in light of our ongoing strategic review process, we are not in a position to provide formal guidance for fiscal 24 at this time. However, as we have discussed during our fiscal third quarter update, the timing impacts we have been experiencing, including the completion of some larger revenue, late-stage development projects, and delays in commercialization of others, the timing and mix of new development projects and smaller earlier-stage projects, as well as the inflationary impacts on certain legacy commercial contracts are expected to continue in our first fiscal quarter of 2024 results.

John Morberg: Later in Q2, a fiscal year 24, we expect that those impacts will ease as delayed commercial projects begin shipping and earnest. And by January 1st of 2024, we expect to be able to effectuate pricing offsets under existing contracts to help mitigate some of the impacts of the recent inflationary pressures. Consequently, we expect Q1 of fiscal 24 to represent the low point for the year and on a sequential basis relative to the Q4 that we are reporting today, Q1 revenue and adjusted EBITDA are expected to decrease before re-accelerating across the balance of the year.

John Morberg: That said, first quarter life core adjusted EBITDA is expected to be approximately break even excluding the burden of our other segment, which as I noted, we expect to collapse into our consolidated results beginning in fiscal 24 first quarter. In Q2 of fiscal year 24, we expect revenues and adjusted EBITDA to show accelerated improvement following the commencement of commercial shipments that were delayed. Relative to the prior year, second quarter, we anticipate FY24 Q2 revenues to grow by nearly 40% and life core adjusted EBITDA to grow to approximately twice the rate of revenues, which implies some margin expansion due to the aforementioned improvement and revenue mix associated with new commercial shipments, strong fermentation revenues, and pipeline development projects that are expected to come online during the second quarter.

John Morberg: Then in Q3 and Q4 of fiscal year 24, we expect to generate adjusted EBITDA at more normalized levels, similar to or greater than what we achieved in fiscal year 22, third and fourth quarters. I'd like to emphasize that these quarterly forecasts are being provided without the impact of our other segment, which reflects the corporate overhead that we still carry, and we are sharing this added granularity to help you isolate an apples to apples comparison to our prior segmentation.

John Morberg: As for these corporate costs, we believe that there will be ultimately savings to be realized, and for modeling purposes, we believe it is prudent to assume that our current quarterly run rate of approximately 1.8 to 2.1 million continues in the near term. In addition, and excluded from our FY24 adjusted EBITDA expectations are approximately 2 to 2.8 million and start-up costs associated with the HA fermentation capacity improvements that Jim mentioned earlier, including the transition to a 24-7 work shift, requiring significant one-time recruiting, hiring, and training costs associated with this approximately 50%.

John Morberg: We began incurring these costs during the fiscal first quarter and expect that they should be relatively consistent across the balance of fiscal 24. Now turning to our balance sheet, note that at the end of fiscal year end in May 28, 2023, our balance sheet reflects the revised capital structure and impact from our recent refinancing. Net term and revolver debt on a reported basis for fiscal year 23 was 147.2 million, including 19.1 million of cash and cash equivalents, which compares to net bank debt at the end of fiscal 22 of 137.2 million.

John Morberg: In analyzing the new term debt, we identified and valued certain embedded derivative features totaling 64.5 million that you will see broken out separately on the balance sheet. The embedded derivatives result from certain call and put features associated with the debt that are more fully described in the credit agreement. To be clear, the 147.2 million of reported net debt includes the derivative liability. CapEx was 20.8 million for fiscal year 23, which includes 2.5 million of capitalized interest, which is consistent with our prior expectation.

John Morberg: CapEx is focused on supporting Lifecore's long-term growth initiatives and is earmarked for two multi-use isolator fillers and the associated formulation and process support equipment. For fiscal 24, we expect CapEx to be somewhat moderated to fiscal 23, depending on the timing of payments and likely in the range of 17 million to 19 million, included anticipated capitalized interest similar to FY23 levels, but first half loaded as we welcome in our two new fillers.

John Morberg: Before closing the call, I'd like to comment on our SEC filing process and the timing of our form 10K filing. It is our intention to file the 10K as soon as practicable as we finish up the remaining documentation matters in our urine filings. The final creation foods, divestment and Q4, and accounting for activities associated with closing up the transition services agreements and prior period of divestments, including the treatment of discontinued operations and restructuring costs combined with the significant refinancing that close in the closing days of Q4, 23 has caused significant additional staff and audit effort to complete the year-end processes.

John Morberg: On the refinancing side, we had analyzed the embedded derivative features I discussed earlier and engaged specialists to value the derivatives a very technical and time-consuming effort. Additionally, post-closing adjustments to the sale leaseback included a fair market value study by an appraiser that also took on significant time and effort. Consequently, these areas, when factored into the smaller footprint of a standalone life-course segment operation, resulted in lower audit materiality thresholds and significant efforts by third-party specialists. Fortunately, that work is winding down and we expect to be on file in the near future.

John Morberg: In conclusion, I'd like to recognize the great work that the life-court team is putting forward. While filing delays in the strategic review process have created some added complexity to our communications, as you heard today from Jim, our commercial efforts are advancing nicely, our development pipeline is growing in a healthy and diversified fashion, and we have the business gearing up for a significant expansion in the quarters in years to come.

Unknown Executive: That concludes our call today. Thank you for participating.