Q4 2024 Lifecore Biomedical Inc Earnings Call

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Speaker Change: The New Year's Eve

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Speaker Change: Hello, everyone!

Speaker Change: Greetings and welcome to the Life Corps Biomedical Q4 in full year 2024 earnings call. At this time, up to spring, some listeners only mode.

Speaker Change: 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 contains forward looking statements. It is important to note that the company's actual results could differ materially from those projected in such forward looking statements additional information concerning risk factors that could cause actual results to differ.

Speaker Change: Materially from those in the forward looking statements is contained from time to time in the company's filings with the Securities and Exchange Commission.

Speaker Change: Putting but not limited to the company's Form 10-K for fiscal year 'twenty 'twenty four filed yesterday with that I'd like to turn the call over to Paul Joseph <unk>, Chief Executive Officer.

Paul Joseph: Thank you Stephanie good morning, everyone and thank you for joining us for our fiscal 'twenty 'twenty four fourth quarter and year end update.

Paul Joseph: I'm pleased to join you for my first earnings call as life course, President and CEO.

Speaker Change: Joined the company in May of this year and this is my 30 <unk> you're in the C. D M O industry.

Speaker Change: We have leverage this experience to help me assess life core strength and significant growth opportunities ahead.

Speaker Change: After my first 90 days with the company I am pleased to share that I have even greater confidence in life course business potential than I had when I decided to join the company.

Supported by a robust quality management system high.

Speaker Change: Highly skilled team and long standing track record.

Speaker Change: <unk> has a strong foundation that I believe will enable us to provide differentiated solutions to our customers and the high end quality products for their patients in the U S and abroad.

Speaker Change: And it is my intent to lead our teams to implement efficiency driving initiatives that will further improve the company's performance over time.

Speaker Change: Forward to earning your trust and sharing more exciting information as it becomes available.

Speaker Change: In the meantime, I'd like to pivot to discuss the company's results for the fourth quarter and full year 2024.

Operationally fiscal 2024 was a strong top line year for the company as we recorded $128 $3 million in revenues, representing a 24, 2% increase over fiscal 2023.

Speaker Change: And while we were very pleased with its performance it's important to address the hurdles of the company overcame in parallel with these achievements.

Speaker Change: As previously recorded last year life course parent company completed divestitures of several food businesses, which enabled <unk> to establish itself as a standalone C. D M O.

Speaker Change: These divestitures Unfortunately contributed to several public reporting challenges, including the previously disclosed restatements for several historical periods.

Speaker Change: As a result.

Speaker Change: Significant delays in its public filings we.

Speaker Change: We recognize that these delays have caused concern among our stakeholders and we deeply appreciate your patience as we work through these issues.

Speaker Change: I'm also pleased to report that.

Speaker Change: Now with Yesterdays filing of our Form 10-K. The company is now current with our SEC filings and is looking forward to refocusing its efforts to drive improved performance.

Speaker Change: We will now turn to our financial results for the fourth quarter and full year ended May 26, 2024, and further detail before discussing our outlook for the future for that I will pass it to John.

John: Thank you Paul.

John: As Paul stated we were pleased to announce that we are now current on all our FCC filings on.

John: On August 9th we filed the 310-Qs for the first three quarters of fiscal 2024 and yesterday, we filed our fiscal 'twenty 'twenty four annual report on Form 10-K.

Speaker Change: Before we discuss the company's financial results in further detail, we want to share some important changes regarding our financial presentation.

Since our last earnings call, which we believe will provide helpful context, and comparing our performance to historical periods.

Speaker Change: First as previously communicated.

Speaker Change: We have transitioned to a single reporting segment.

Speaker Change: As the food business divestitures are complete and the company is now a standalone C D M O business.

Speaker Change: All of our financial information has been consolidated into what was previously the life for our biomedical segment, including what was previously category categorized under the corporate and other segment.

Speaker Change: Which has now collapsed into our income statement.

Speaker Change: Secondly, we have changed our methodology for calculating adjusted EBITDA on a go forward basis, which begins with this fiscal 'twenty for presentation as well as the historical periods that are being compared.

Speaker Change: It also carries over to our fiscal 'twenty five outlook.

Speaker Change: Specifically, we are adding back stock based compensation into our calculation of adjusted EBITDA.

Speaker Change: Which is consistent with the reporting method used for the life core only segment and prior years and many of our peers.

Speaker Change: We will continue to provide transparency regarding stock based compensation as a line item in our adjusted EBITDA reconciliation.

Speaker Change: This change is aimed at providing a clearer and more consolidated view of our ability to generate cash as well as to align our performance with that of our peer group, which largely follows the same convention.

Speaker Change: With that in mind, I will turn to our full year fiscal 'twenty four financial results.

Speaker Change: For the full fiscal year of 2024, our performance was consistent with the prior updates we've provided and the guidance we laid out for the year.

Speaker Change: Life core successfully exited the trough experienced in the prior year.

Speaker Change: Cheating a recovery of revenue and profitability.

Speaker Change: The company reported a total revenue increase of 24, 2%.

Speaker Change: Reaching $128 $3 million.

Speaker Change: This growth was driven by a 17, 7% increase in the hyaluronic acid or H, a raw material manufacturing or fermentation business.

Speaker Change: And a 26, 5% increase in the C D M O business.

Speaker Change: The rise in H, a manufacturing revenue was primarily due to higher demand in the current year.

Speaker Change: Meanwhile, the C. D M O revenue growth was attributed to the previously announced commercialization of the new product in the second quarter of fiscal year 'twenty four.

Speaker Change: Increased demand from existing customers price increases from amended commercial agreements at the beginning of the calendar year.

Speaker Change: Antibiotics increase in development services projects.

Speaker Change: Life course gross profit for the full year of 24 increased by 49, 5%, reaching 41 9 million, which represents a gross margin of 32, 6%.

Speaker Change: Up from 27, 1% in the prior year.

Speaker Change: This significant improvement in gross profit was primarily due to a favorable volume variance of $6 8 million driven by the year over year revenue increase and a favorable rate variance of $7 1 million.

Speaker Change: The rate variance was influenced by the higher revenue volumes in the current year leveraging fixed overhead costs as.

Speaker Change: As well as the price increases contained in commercial contract amendments to.

Speaker Change: To offset inflationary impacts and prior years.

Speaker Change: Adjusted EBITDA for the full year of 24.

Speaker Change: Increased by $9 1 million or 82%, reaching 22 billion.

Speaker Change: As noted previously these figures add back stock based compensation in both periods for fiscal year, 'twenty, four and the amount of $6 2 million.

Speaker Change: And in fiscal year, 'twenty, three and the amount of $3 6 million.

Speaker Change: The adjusted EBITDA margin ended at 15, 8%, marking a 5.1 percentage point increase over the prior year.

Speaker Change: Excluded from adjusted EBITDA for the full year of 24, our restructuring reorganization.

Speaker Change: Monetary penalties and shareholder settlement costs of approximately $15 7 million.

Speaker Change: Which is down from $20 1 million in the prior year.

Speaker Change: And startup and other costs of approximately $2 3 million <unk>.

Speaker Change: Compared to 1 million in the prior year.

Speaker Change: The company continues to incur restructuring and reorganization costs as part of its continued re centralization of back office functions.

Speaker Change: <unk> financial accounting compliance and it infrastructure.

Speaker Change: For fiscal year, 'twenty, five life, where expects to incur five five to $6 5 million of restructuring and reorganization costs.

Speaker Change: Primarily in the first half of the fiscal year.

Speaker Change: These costs are associated with elevated accounting fees related to the delayed filings and auditor changeover.

Legal costs related to our recent shareholder activism settlement.

Speaker Change: And severance costs from the previously announced reduction in workforce.

Speaker Change: In terms of quarterly performance for fiscal fourth quarter 2024.

Speaker Change: Of course revenue follows the prior guidance on quarterly cadence with approximately 43% recognized in the first two quarters.

Speaker Change: 57% in the second two quarters of fiscal 'twenty for <unk>.

Speaker Change: Including 29% in fiscal 'twenty for fourth quarter.

Speaker Change: This distribution aligns with the company's expectations and reflects a strategic approach to managing our revenue growth throughout the fiscal year.

Shifting to our fiscal 'twenty five outlook, we are introducing revenue guidance in the range of $126 five to 130 million.

Speaker Change: Which implies a growth rate of minus one 4% to plus one 4%.

Speaker Change: And it's consistent with our fiscal year 'twenty for revenues at the midpoint of the range.

Speaker Change: This flat revenue outlook for the upcoming year is influenced by several factors.

Speaker Change: Primarily one of our key customers is undertaking a global initiative to reduce and rebalanced their inventories.

Speaker Change: Which will temper temporarily limit our revenue growth.

Speaker Change: However, we anticipate more stable and sustainable order patterns in the future as their order patterns should begin to align more closely with our robust anticipated sales cadence.

Speaker Change: Next we do not currently expect new commercial launches from our development pipeline in fiscal year 'twenty five as we did in fiscal year 'twenty four due to the timing of FDA approvals.

Speaker Change: Additionally, a small commercial customer who contributed approximately $3 2 million in revenue during Q2 and Q3 of fiscal 'twenty four.

Speaker Change: To move their production in house.

This revenue will not be repeated in fiscal 'twenty five.

Speaker Change: We also finalized a 5 billion dollar development services project at the end of the fourth quarter of fiscal 'twenty four.

Which will not contribute to fiscal 'twenty five revenues.

Speaker Change: While we anticipate slower revenue growth in fiscal year 'twenty five due to these factors we remain confident in the improvement of both our revenue growth and margins beyond this period.

Speaker Change: We plan to share more details on our long range strategy.

Speaker Change: Our Investor Day in November 2024, and will provide further scheduling details when available.

Speaker Change: From an adjusted EBITDA perspective, we are guiding to a range of 19 to 21 billion.

Excluding stock based compensation costs of nine to 10 million, which is an increase in stock based compensation costs from $6 2 million in the prior year.

Speaker Change: The forecasted adjusted EBITDA margin is expected to be between 53% to 16, 2%.

Speaker Change: We anticipate gross margins to decline by approximately 225 to 275 basis points due to a mix shift towards more commercial revenues and increased depreciation cost for new equipment purchases.

Speaker Change: Additionally, we expect the operating expenses after excluding restructuring and reorganization costs and stock based compensation costs in both fiscal years 25, and 24 decreased by approximately 200 to 250 basis points.

Speaker Change: This decrease was primarily due to cost savings from the reduction in force.

As previously reported in early July we implemented a strategic reduction in our workforce.

Speaker Change: <unk> 46 employees or 9% of our employee base.

Speaker Change: From a total compensation perspective, the reduction resulted in approximately $4 7 million in annual salary and benefit savings of which approximately 65% is in direct and indirect labor.

Speaker Change: Which we expect to provide a benefit to gross margin in future periods as the lower cost inventories are sold through.

Speaker Change: The balance of the estimated savings or 35% is expected to be reflected in selling general and administrative expenses.

Speaker Change: With respect to quarterly cadence.

Speaker Change: We expect fiscal year 'twenty five revenues to follow the seasonal trends observed in fiscal year 'twenty four.

Speaker Change: Specifically Q1 is projected to be in our lowest revenue quarter of the year.

Speaker Change: At about 17% to 19% of our annual revenues, which is customary given the scheduled downtime to recertify our clean rooms.

Speaker Change: This results in an overall revenue split of approximately 42% in the first half.

And 58% in the second half of the fiscal year.

Speaker Change: Adjusted EBITDA is also expected to follow the fiscal year 'twenty for seasonal trends.

Speaker Change: With 85% to 90% of our adjusted EBITDA occurring in the back half of the fiscal year.

Speaker Change: Now turning to our balance sheet.

Net term and revolver debt on a reported basis for fiscal year 'twenty four was $175 2 million, including $8 5 million of cash, which compares to net bank debt at the end of fiscal 'twenty three of $147 9 billion.

Speaker Change: The $27 7 million increase in net debt is due to $14 8 million in non cash pik interest on the term debt.

Speaker Change: Two 9 million additional borrowings under the revolver.

Speaker Change: 600000 payments under the sale leaseback and a cash balance of decrease of $10 6 million.

Speaker Change: The debt derivative liability recorded at the commencement of the term debt declined by $42 1 billion to $22 8 million.

Operator: Ladies and gentlemen, thank you for standing by. Our conference begins started momentarily. Please continue to hold once again. Our conference is beginning started momentarily. Please continue to hold. We do thank you for your patience. Please continue to hold.

Unknown Executive: Ladies and gentlemen, thank you for standing by. Our conference begins started momentarily. Please continue to hold once again. Our conference is beginning started momentarily. Please continue to hold. We do thank you for your patience. Please continue to hold.

Speaker Change: Due to the completion of the strategic alternatives review process.

Speaker Change: We're probabilities of the change in control embedded derivatives significantly decline, resulting in a noncash other income in the statement of operations.

Speaker Change: Moving to Capex cash used for capital expenditures totaled $17 9 million for fiscal year, 'twenty four as compared to $21 5 million in fiscal 'twenty three.

Speaker Change: Focused on supporting life course long term growth initiatives.

Speaker Change: Primarily related to the new Isolator fillers, and the associated formulation and process support equipment.

Speaker Change: For fiscal 'twenty, five we expect capital expenditures to decline to approximately 10 to 14 million depending on the timing of payments.

As compared to capital expenditures of $17 9 million during fiscal year 2024.

Speaker Change: The fiscal 'twenty five capex spend is primarily related to finalizing payments on the new sellers, including final installation costs of the five head filler.

Speaker Change: And maintenance Capex.

Speaker Change: From a cash flows perspective, we expect to generate slightly negative free cash flow for fiscal year 'twenty five with her guidance announced today.

Speaker Change: Including our Capex spend and estimated restructuring and reorganization costs.

Speaker Change: And that concludes my financial review I'll now turn the call back over to Paul for an overview of operations for the period.

Paul Joseph: Thank you John.

Paul Joseph: To reiterate I am pleased to report our accounting issues are resolved and we are now current with all of our SEC filings.

Paul Joseph: I would like to thank my sincere. Thank you to our dedicated accounting finance and support teams that worked tirelessly with our auditors and legal groups to complete this formidable task.

Paul Joseph: With this as a meter administrative matters behind us we are fully focused on the business ahead.

Paul Joseph: As I mentioned in my opening comments I believe the growth opportunity at life core is substantial.

Paul Joseph: Capitalize on this growth opportunity, we must execute our strategic plan with precision and conviction.

Paul Joseph: This work is already underway.

Paul Joseph: As we are conducting a comprehensive review of life course operations procedures capabilities and facilities I.

Paul Joseph: I will now provide an update on our progress in each of these areas beginning with operations.

Speaker Change: One of my first acts as CEO was to conduct a comprehensive review of all aspects of the company's operations, including head count.

Speaker Change: As part of this process it became clear to me that our company's head count was oversized for our current business.

Speaker Change: Well such decisions are never easy our reduction in force was necessary to align the organization with our current business needs.

Speaker Change: While unfortunate I believe this decision was key as a first step to achieving our goal of improved efficiencies and creating a more agile responsive and competitive organization.

Speaker Change: With these adjustments made our focus now shifts to driving profitable growth through three key areas. The first is maximization of our base business and customers.

Speaker Change: I've spent considerable time with our current commercial customers to better understand their business and long term needs.

Speaker Change: Based on these discussions I believe that our current commercial business represents strong opportunity for growth in the next few years.

Speaker Change: In addition, based on our team's excellent track record of service and the trust we've earned with our existing customers. We are in active discussions with a number of our partners to add new programs to our site.

John Morales: [inaudible] John Morales, John Morales, John[inaudible] Morales, John Morales John Morales, John Morales, John Morales, John Morales, John[inaudible] Morales, John Morales, John Morales, John Morales, John Morales, Good morning, and thank you for joining us today to discuss Lifecore Biomedical's fourth quarter and full year fiscal 2024 earnings results.

James Hall: James Hall, John Morberg, Jeff Sonnek, Lifecore James Hall, John Morberg, Jeff Sonnek, Lifecore James Hall, John Morberg, Jeff Sonnek, Lifecore James Hall, John Morberg, Jeff Sonnek, Lifecore James Hall, John Morberg, Jeff Sonnek, Lifecore[inaudible] James Hall, John Morberg, Jeff Sonnek, Lifecore Good morning, and thank you for joining us today to discuss Lifecore Biomedical's fourth quarter and full year fiscal 2024 earnings results.

Speaker Change: Development and commercial site transfers that would expand our share of these existing customers production budgets.

Speaker Change: Finally from a commercial excellence perspective, we were focusing on standardizing our approach to ensure that we are appropriately and equitably com compensated for the work we do on behalf of our customers.

Speaker Change: My second area of focus for growth is the advancement of our development portfolio towards commercialization.

Speaker Change: With our project management business development operations and finance team, we have conducted a rigorous review of our current programs and the status of their status of development.

Speaker Change: This is a resulted in us removing a small number of programs from our forward looking projections.

Speaker Change: We then probability weighted the remaining programs based on timing of commercial launch and projected volume overtime.

Speaker Change: Result is we have an exciting collection of programs, which span the development spectrum phase one to phase III, along with development medical device program, which we believe will drive growth.

Speaker Change: Over a multiyear period.

Speaker Change: The third and final area of our growth strategies that I will focus on today is the.

Speaker Change: We are targeting a aggressive addition of new programs to the company's pipeline.

Speaker Change: <unk> has a strong and undeniable legacy of manufacturing viscous and hard to handle programs.

Speaker Change: Through the addition of our new five had isolator filler capabilities. We believe we are well positioned to favorably compete in this large and growing market space.

Speaker Change: Despite the aforementioned reduction in force, we have increased our commercial presence at our marketing spend to drive market awareness of life core.

Speaker Change: In fact, we have recently expanded our commercial team with the addition of new sales Representatives, who are focusing on key drug development geographies in the United States. These new Representatives joined the organization in Q Q1, 2025, and we look forward to their contributions.

Speaker Change: From an initial targeting perspective over the last 60 days, we have engaged with significant multinational pharmaceutical companies on our new filler capabilities.

Speaker Change: The investment in these new fillers has opened the door to partnering type discussions with multiple leading multinational pharmaceutical companies regarding dedicated capacity for a range of products we.

Speaker Change: We're pleased with the interest we have seen with instead of dedicated capacity model and while nothing is imminent, we believe that multiple impactful opportunities may emerge from these discussions.

Speaker Change: In conclusion I'm on.

Speaker Change: Honored to lead life core during this exciting time.

Speaker Change: We are working diligently to leverage our operational foundation and refined commercial strategy.

Speaker Change: Elevate life core in the future.

Speaker Change: Incorporating efficiencies and delivering exceptional value to our customers. We believe life, we're well positioned to emerge as a leader in the C. D M O sector.

Speaker Change: We look forward to sharing our progress in future earnings calls and at our Investor Day on November 21.

Speaker Change: We will provide a comprehensive overview of our advancement and future plans.

Speaker Change: We hope that you will join us.

Speaker Change: This concludes our prepared remarks for today operator, you may now open the call for questions.

Operator: Hosting a call today from the company, our Paul Joseph, President and CEO, and John Morberg Chief Financial Officer. Before we begin today, we'd like to remind everyone of the safe harbor statement. Certain statements made in the course of this conference call contain forward-looking statements. It is important to note that the company's actual results could differ materially from those projected in such forward-looking statements. Additional information concerning risk factors that could cause actual results to differ materially from those in the forward-looking statements is contained from time to time in the company's filings with the Securities and Exchange Commission, including but not limited to the company's Form 10K for fiscal year 2024 filed yesterday.

Stephanie Diaz: Hosting a call today from the company, our Paul Josephs, President and CEO, and John Morberg Chief Financial Officer. Before we begin today, we'd like to remind everyone of the safe harbor statement. Certain statements made in the course of this conference call contain forward-looking statements. It is important to note that the company's actual results could differ materially from those projected in such forward-looking statements. Additional information concerning risk factors that could cause actual results to differ materially from those in the forward-looking statements is contained from time to time in the company's filings with the Securities and Exchange Commission, including but not limited to the company's form 10K for fiscal year 2024 filed yesterday.

Speaker Change: Thank you well now be conducting a question and answer session, if you'd like to be placed into the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he'd like to move a question from the queue for participants using speaker equipment be miss it necessary.

Speaker Change: To pick up your handset before pressing star one.

Speaker Change: Yeah that star one to be placed into the question queue.

Michael Buttowski: Our first question today is coming from Michael but to ski from Barrington Research. Your line is that life.

Michael Buttowski: Hi, good morning.

Speaker Change: Part of the call it sort of going out and I am just curious did you guys mention the sort of the current projects that you have the ongoing Oh sorry. This is.

Paul Joseph: With that, I'd like to turn the call over to Paul Joseph, Chief Executive Officer. Thank you, Stephanie.

Paul Josephs: With that, I'd like to turn the call over to Paul Josephs, Chief Executive Officer. Thank you, Stephanie. Good morning, everyone, and thank you for joining us for our fiscal 2024 fourth quarter and year end update. I'm pleased to join you for my first earnings call as Lifecore's President and CEO. I joined the company in May of this year, and this is my 30th year in the CDMO industry. I've leveraged this experience to help me assess Lifecore's strength and significant growth opportunities ahead.

Speaker Change: Then sort of a historical way you guys sort of talk about the development stuff.

Paul Joseph: Good morning, everyone, and thank you for joining us for our fiscal 2024 fourth quarter and year end update. I'm pleased to join you for my first earnings call as Lifecore President and CEO. I joined the company in May of this year, and this is my 30th year in the CDMO industry. I've leveraged this experience to help me assess Lifecore strength and significant growth opportunities ahead. After my first 90 days with the company, I am pleased to share that I have even greater confidence in Lifecore's business potential than I had when I decided to join the company.

Michael Thanks for the question. This is Paul we talked about.

Speaker Change: With regard to our development pipeline are there.

Speaker Change: Number a number of programs that we anticipate commercializing over the next few years I did articulate that.

Speaker Change: During that review in my first 90 days, we did call out or call out a handful of programs from our forward looking projections, but.

Paul Josephs: After my first 90 days with the company, I am pleased to share that I have even greater confidence in Lifecore's business potential than I had when I decided to join the company. Supported by a robust quality management system, highly skilled team, and long-standing track record, Lifecore has a strong foundation that I believe will enable us to provide differentiated solutions to our customers and high-end quality products for their patients in the US and abroad.

The pipeline itself commercial projections remain strong and robust and we're very excited about the potential future of the commercial revenue associated with those programs.

Paul Joseph: Supported by a robust quality management system, highly skilled team, and longstanding track record, Lifecore has a strong foundation that I believe will enable us to provide differentiated solutions to our customers and high-end quality products for their patients in the US and abroad. And it is my intent to lead our team to implement efficiency driving initiatives that will further improve the company's performance over time. I look forward to earning your trust and sharing more exciting information as it becomes available.

Speaker Change: Oh I'm sorry, it maybe it may just be my phone, but I missed it but I missed about half of that did you did you guys talk did you guys talk about given the headwinds that you have with the key customer rebalancing inventory and the the one customer that.

Paul Josephs: And it is my intent to lead our team to implement efficiency driving initiatives that will further improve the company's performance over time. I look forward to earning your trust and sharing more exciting information as it becomes available.

Speaker Change: I guess, it will be sort of a negative three point.

Speaker Change: $4 million or so headwind did you talk about you know essentially what are the assumptions in terms of new customer wins or going deeper with customers. How do you make up the sort of the the gap between.

Paul Joseph: In the meantime, I'd like to pivot to discuss the company's results for the fourth quarter until year 2024. Operationally, fiscal 2024 was a strong top line year for the company as we recorded $128.3 million in revenues, representing a 24.2% increase over fiscal 2023. And while we are very pleased with this performance, it's important to address the hurdles that the company overcame in parallel with these achievements. As previously recorded last year, Lifecore's parent company completed the vestitures of several food businesses which enabled Lifecore to establish itself as a standalone CDMO.

Paul Josephs: In the meantime, I'd like to pivot to discuss the company's results for the fourth quarter and full year 2024. Operationally, fiscal 2024 was a strong top-line year for the company as we recorded $128.3 million in revenues, representing a 24.2% increase over fiscal 2023. And while we are very pleased with this performance, it's important to address the hurdles that the company overcame in parallel with these achievements. As previously recorded last year, Lifecore's parent company completed the vestitures of several food businesses which enabled Lifecore to establish itself as a standalone CDMO.

Speaker Change: The headwinds you're facing in sort of getting to flat rents for the year.

Speaker Change: Yeah that so.

Speaker Change: With regard to the flat revenues.

Speaker Change: As you stated we did lose a one specific customer who won't be recurring but.

Speaker Change: They have moved their production of internal the balance of our commercial rollout revenue remains very strong we have a strong outlook with regard to the forward looking demand for those programs and have great significant confidence in our 20th twenty-five projection. That's how the revenue is made up.

Paul Josephs: These vestitures, unfortunately, contributed to several public reporting challenges including the previously disclosed restatements for several historical periods. And as a result, significant delays in its public violence. We recognize that these delays of cause concern among our stakeholders and we deeply appreciate your patience as we work through these issues, and I'm also pleased to report that with yesterday's filing of our Form 10K, the company is now current with its SEC filing and is looking forward to refocusing its efforts to drive and improve performance. We will now turn to our financial results for the fourth quarter and full year ended May 26, 2024 in further detail before discussing our outlook for the future.

Paul Joseph: These vestitures, unfortunately, contributed to several public reporting challenges, including the previously disclosed restatements for several historical periods. And as a result, significant delays in its public violence. We recognize that these delays of cause concern among our stakeholders, and we deeply appreciate your patience as we work through these issues, and I'm also pleased to report that with yesterday's filing of our Form 10K, the company is now current with its SEC filing and is looking forward to refocusing its efforts to drive and improve performance.

Speaker Change: On the development side, there's a small component that we are anticipating contributions from our BD team from new programs, but for the most for the most part our revenue was known to US and we have great confidence in that for FY 'twenty five.

Speaker Change: Okay.

Alright, Thank you very much.

Speaker Change: Thank God. It's a reminder, that star one to be placed in the question queue. Our next question is coming from Jacob Johnson from Stephens. Your line is now live.

Matt: Good morning. This is Matt on for Jacob just a few questions for me Paul now that now that you're in the C. E. O see how are you thinking about the medium term outlook beyond FY 'twenty four and now you're just kind of touched on it but is a double digit growth a reasonable expectation beyond FY 'twenty five and given.

John Morberg: We will now turn to our financial results for the fourth quarter and full year ended May 26, 2024 in further detail.

John Morberg: Before discussing our outlook for the future, for that, I'll pass it to John. Thank you, Paul. As Paul stated, we're pleased to announce that we are now current on all our SEC filings. On August 9, we filed the three 10Qs for the first three quarters of fiscal 2024 and yesterday we filed our fiscal 2024 annual report on Form 10K. Before we discuss the company's financial results in further detail, we want to share some important changes regarding our financial presentation since our last earnings call, which we believe will provide helpful context in comparing our performance to historical periods.

John Morberg: For that, I'll pass it to John. Thank you, Paul. As Paul stated, we're pleased to announce that we are now current on all our SEC filings. On August 9, we filed the three ten cues for the first three quarters of fiscal 2024 and yesterday we filed our fiscal 2024 annual report on Form 10K.

Speaker Change: On the fill finish assets you have and some of the demand we are seeing in the injectable market.

Speaker Change: Are there any opportunities for you to support G O P ones.

Speaker Change: Matt Thanks for the question.

Paul Joseph: We're only providing guidance here for FY 'twenty, five, but I would articulate to you that we feel very strongly about our future and our ability to participate favorably with regard to the growing market specifically with regard to the injectable space.

John Morberg: Before we discuss the company's financial results in further detail, we want to share some important changes regarding our financial presentation since our last earnings call, which we believe will provide helpful context in comparing our performance to historical periods. First, as previously communicated, we have transitioned to a single reporting segment as the food business divestitures are complete and the company is now a standalone CDMO business. All of our financial information has been consolidated into what was previously the life core biomedical segment, including what was previously categorized under the corporate other segment, which is now collapsed into our income statement.

Paul Joseph: We certainly have the capability to produce produce D. L. P ones and you know the entire pre filled syringe market is an exciting and growing market, which we think we will favorably compete huh.

John Morberg: First, as previously communicated, we have transitioned to a single reporting segment as the food business divestitures are complete and the company is now a standalone CDMO business. All of our financial information has been consolidated into what was previously the life core biomedical segment, including what was previously categorized under the corporate other segment, which is now collapsed into our income statement. Secondly, we have changed our methodology for calculating adjusted EBITDA on a go-forward basis, which begins with this fiscal 24 presentation, as well as the historical periods that are being compared and also carries over to our fiscal 25 outlook.

Okay.

Speaker Change: Quick follow up on.

On EBITDA margins are even margins were like roughly 15 15 out of 15, 7% in FY 'twenty four you're guiding to flattish EBITDA margins for FY 'twenty five.

Speaker Change: How much of a benefit does the RIF include I you may have mentioned in the prepared remarks, but.

Speaker Change: I may have missed it and looking ahead, how should we think about incremental margins as life core returns to growth.

Speaker Change: Oh, so certainly from an EBITDA margin standpoint, we expect to for improvement over a period of time.

John Morberg: Secondly, we have changed our methodology for calculating adjusted EBITDA on a go-forward basis, which begins with this fiscal 24 presentation as well as the historical periods that are being compared and also carries over to our fiscal 25 outlook. Specifically, we are adding back stock base compensation into our calculation of adjusted EBITDA, which is consistent with the reporting method used for the life core only segment in prior years and many of our peers.

Speaker Change: Through significant volume being added to the site and then the operational improvement with regard to the impact this year I'll, let John speak further to that.

Speaker Change: Yes, I think I had mentioned in the remarks, you know as far as guidance goes for next year you know we do have.

John Morberg: Specifically, we are adding back stock base compensation into our calculation of adjusted EBITDA, which is consistent with the reporting method used for the life core only segment in prior years and many of our peers. We will continue to provide transparency regarding stock base compensation as a line item in our adjusted EBITDA reconciliation. This change is aimed at providing a clearer and more consolidated view of our ability to generate cash, as well as to align our performance with that of our peer group, which largely follows the same convention.

John: You know a reduction that we're expecting in the grocery gross profit margin is primarily due to the mix between commercial and development revenues, but then with the RIF savings for everything that we've done we see us picking that up in the operating expense side.

John Morberg: We will continue to provide transparency regarding stock base compensation as a line item in our adjusted EBITDA reconciliation. This change is aimed at providing a clearer and more consolidated view of our ability to generate cash as well as to align our performance with that of our peer group, which largely follows the same convention.

John: You know, leaving overall, you know flat margins.

John: But as a as Paul mentioned you know, we we think those margins can certainly improve over time with a higher revenue base.

Paul Joseph: You know, we do certainly expect to leverage margins, particularly in the operating expense side going forward.

Paul Joseph: Okay.

Speaker Change: Thank you I appreciate the color.

Speaker Change: Thank you we've reached end of our question and answer session I like to turn the floor back over to Paul for any further or closing comments.

John Morberg: With that in mind, I will turn to our full-year fiscal 24 financial results. For the full fiscal year of 2024, our performance was consistent with the prior updates we've provided in the guidance we laid out for the year. Life core successfully exited the trough experienced in the prior year, achieving a recovery of revenue and profitability. The company reported a total revenue increase of 24.2% reaching 128.3 million dollars. This growth was driven by a 17.7% increase in the hyaluronic acid or HA raw material manufacturing or fermentation business and a 26.5% increase in the CDMO business.

John Morberg: With that in mind, I will turn to our full-year fiscal 24 financial results. For the full fiscal year of 2024, our performance was consistent with the prior updates we've provided in the guidance we laid out for the year. Life core successfully exited the trough experience in the prior year, achieving a recovery of revenue and profitability. The company reported a total revenue increase of 24.2% reaching 128.3 million dollars. This growth was driven by a 17.7% increase in the hyaluronic acid or HA raw material manufacturing or fermentation business and a 26.5% increase in the CDMO business.

Paul Joseph: Thank you operator in closing I want to take a moment to express my sincere gratitude to our life core team for the warm welcome I've received.

Speaker Change: Dedication and hard work are the life be heartbeat of life core I appreciate your openness to change and your efforts to make a stronger every day.

Speaker Change: To our customers. Thank you for your partnership and Trust you place in us and to our shareholders. Your competence and life core is a foundation upon which we build our future.

Speaker Change: Together, we have an exciting future.

Speaker Change: In front of us.

Speaker Change: That concludes our call today, thank you for participating.

Speaker Change: Thank you that does conclude today's teleconference and webcast you may disconnect. Your line at this time and have a wonderful day, we thank you for your participation today.

Speaker Change: Yeah.

John Morberg: The rise in HA manufacturing revenue was primarily due to higher demand in the current year. Meanwhile, the CDMO revenue growth was attributed to the previously announced commercialization of a new product in the second quarter of fiscal year 24, increased demand from existing customers, price increases from amended commercial agreements at the beginning of the calendar year and a modest increase in development services projects. Lifecore's gross profit for the full year of 24 increased by 49.5% reaching 41.9 million, which represents a gross margin of 32.6% up from 27.1% in the prior year.

John Morberg: The rise in HA manufacturing revenue was primarily due to higher demand in the current year. Meanwhile, the CDMO revenue growth was attributed to the previously announced commercialization of a new product in the second quarter of fiscal year 24, increased demand from existing customers, price increases from amended commercial agreements at the beginning of the calendar year and a modest increase in development services projects. Lifecore's gross profit for the full year of 24 increased by 49.5% reaching 41.9 million, which represents a gross margin of 32.6% up from 27.1% in the prior year.

Speaker Change: Yeah.

Speaker Change: Yeah.

John Morberg: The significant improvement in gross profit was primarily due to a favorable volume variance at 6.8 million driven by the year-over-year revenue increase and a favorable rate variance of 7.1 million. The rate variance was influenced by the higher revenue volumes in the current year, leveraging fixed overhead costs as well as the price increases contained in commercial contract amendments to offset inflationary impacts in prior years. Adjusted EBITDA for the full year of 24 increased by 9.1 million or 82% reaching 20.2 million.

John Morberg: This significant improvement in gross profit was primarily due to a favorable volume variance at 6.8 million driven by the year-over-year revenue increase and a favorable rate variance of 7.1 million. The rate variance was influenced by the higher revenue volumes in the current year, leveraging fixed overhead costs as well as the price increases contained in commercial contract amendments to offset inflationary impacts in prior years. Adjust the EBITDA for the full year of 24 increased by 9.1 million or 82% reaching 20.2 million.

John Morberg: As noted previously, these figures add back sock-based compensation in both periods for fiscal year 24 in the amount of 6.2 million and in fiscal year 23 in the amount of 3.6 million. The adjusted EBITDA margin ended at 15.8% marking a 5.1 percentage point increase over the prior year. Excluded from adjusted EBITDA for the full year of 24 are restructuring reorganization, monetary penalties, and sureholder settlement costs of approximately 15.7 million, which is down from 20.1 million in the prior year, and start up another cost of approximately 2.3 million compared to 1 million in the prior year.

John Morberg: As noted previously, these figures add back stock-based compensation in both periods for fiscal year 24 in the amount of 6.2 million and in fiscal year 23 in the amount of 3.6 million. The adjusted EBITDA margin ended at 15.8%, marking a 5.1 percentage point increase over the prior year. Excluded from adjusted EBITDA for the full year of 24 are restructuring reorganization, monetary penalties, and sureholder settlement costs of approximately 15.7 million, which is down from 20.1 million in the prior year and start up another cost of approximately 2.3 million compared to 1 million in the prior year.

John Morberg: The company continues to incur restructuring and reorganization costs as part of its continued re-centralization of back office functions, including financial accounting, compliance, and IT infrastructure. For fiscal year 25, life work expects to incur 5.5 to 6.5 million of restructuring and reorganization costs. First, primarily in the first half of the fiscal year, these costs are associated with elevated accounting fees related to the delayed filings and modern exchange over legal costs related to a recent surholder activism settlement and severance costs from the previously announced reduction in workforce.

John Morberg: The company continues to incur restructuring and reorganization costs as part of its continued re-centralization of back office functions, including financial, accounting, compliance, and IT infrastructure. For fiscal year 25, life work expects to incur 5.5 to 6.5 million of restructuring and reorganization costs. First, primarily in the first half of the fiscal year, these costs are associated with elevated accounting fees related to the delayed filings and modern exchange over, legal costs related to a recent shareholder activism settlement, and severance costs from the previously announced reduction in workforce.

John Morberg: In terms of quarterly performance for fiscal fourth quarter 2024, Lifecore's revenue followed the prior guidance on quarterly cadence, with approximately 43% recognized in the first two quarters and 57% in the second two quarters of fiscal 24, including 29% in fiscal 24 fourth quarter. This distribution aligns with the company's expectations and reflects its strategic approach to managing revenue growth throughout the fiscal year.

John Morberg: In terms of quarterly performance for fiscal fourth quarter 2024, Lifecore's revenue followed the prior guidance on quarterly cadence, with approximately 43% recognized in the first two quarters and 57% in the second two quarters of fiscal 24, including 29% in fiscal 24 fourth quarter. This distribution aligns with the company's expectations and reflects its strategic approach to managing revenue growth throughout the fiscal year.

John Morberg: Shifting to our fiscal 25 outlook, we are introducing revenue guidance in the range of 126.5 to 139, which implies a growth rate of minus 1.4% to plus 1.4%, and is consistent with our fiscal year 24 revenues at the bid point of the range. This flat revenue outlook for the upcoming year is influenced by several factors. Primarily, one of our key customers is undertaking a global initiative to reduce and rebalance their inventories, which will temporarily limit our revenue growth.

John Morberg: Shifting to our fiscal 25 outlook, we are introducing revenue guidance in the range of 126.5 to 130 million, which implies a growth rate of minus 1.4% to plus 1.4% and is consistent with our fiscal year 24 revenues at the midpoint of the range. This flat revenue outlook for the upcoming year is influenced by several factors. Primarily, one of our key customers is undertaking a global initiative to reduce and rebalance their inventories, which will temporarily limit our revenue growth.

John Morberg: However, we anticipate more stable and sustainable order patterns in the future as their order patterns should begin to align more closely with their robust anticipated sales cadence. Next, we do not currently expect new commercial launches from our development pipeline in fiscal year 25, as we did in fiscal year 24 due to the timing of FDA approvals. Additionally, a small commercial customer who contributed approximately $3.2 million in revenue during Q2 and Q3 if fiscal 24 has moved their production in-house.

John Morberg: However, we anticipate more stable and sustainable order patterns in the future as their order patterns should begin to align more closely with their robust anticipated sales cadence. Next, we do not currently expect new commercial launches from our development pipeline in fiscal year 25, as we did in fiscal year 24 due to the timing of FDA approvals. Additionally, a small commercial customer who contributed approximately 3.2 million in revenue during Q2 and Q3 if fiscal 24 has moved their production in-house. This revenue will not be repeated in fiscal 25. We also finalized a $5 billion development services project at the end of the fourth quarter of fiscal 24, which will not contribute to fiscal 25 revenues.

John Morberg: While we anticipate slower revenue growth in fiscal year 25 due to these factors, we remain confident in the improvement of both our revenue growth and margins beyond this period.

John Morberg: This revenue will not be repeated in fiscal 25. We also finalized a $5 million development services project at the end of the fourth quarter of fiscal 24, which will not contribute to fiscal 25 revenues. While we anticipate slower revenue growth in fiscal year 25 due to these factors, we remain confident in the improvement of both our revenue growth and margins beyond this period.

John Morberg: And we plan to share more details on our long-range strategy during our investor day in November 2024 and will provide further scheduling details when available. From an adjusted EBITDA perspective, we are guiding to a range of 19 to 21 million, excluding stock-based compensation costs of 9 to 10 million, which is an increase in stock-based compensation costs from $6.2 million in the prior year. The forecast adjusted to EBIT on margin is expected to be between 15.3% to 16.2%.

John Morberg: We plan to share more details on our long-range strategy during our investor day in November 2024 and will provide further scheduling details when available. From an adjusted EBITDA perspective, we are guiding to a range of 19 to 21 billion, excluding stock-based compensation costs of 9 to 10 million, which is an increase in stock-based compensation costs from 6.2 million in the prior year. The forecast adjusted to EBIT on margin is expected to be between 15.3% to 16.2%.

John Morberg: We anticipate gross margins to decline by approximately 225 to 275 basis points due to a shift towards more commercial revenues and increased appreciation costs for new equipment purchases. Additionally, we expect operating expenses after excluding restructuring and reorganization costs and stock-based compensation costs in both fiscal years, 25 and 24, to decrease by approximately 200 to 250 basis points. This decrease is primarily due to cost savings from the reduction in force. As previously reported in early July, we implemented a strategic reduction in our workforce affecting 46 employees or 9% of our employee base.

John Morberg: We anticipate gross margins to decline by approximately 225 to 275 basis points due to a shift towards more commercial revenues and increased appreciation costs for new equipment purchases. Additionally, we expect operating expenses after excluding restructuring and reorganization costs and stock-based compensation costs in both fiscal years 25 and 24 to decrease by approximately 200 to 250 basis points. This decrease is primarily due to cost savings from reduction in force. As previously reported in early July, we implemented a strategic reduction in our workforce affecting 46 employees or 9% of our employee base.

John Morberg: From a total compensation perspective, the reduction resulted in approximately 4.7 million in annual salary and benefit savings of which approximately 65% is indirect and indirect labor, which we expect to provide a benefit to gross margin in future periods as the lower cost inventories are sold through. The balance of the estimated savings or 35% is expected to be reflected in selling general and administrative expenses. With respect to quarterly cadence, we expect fiscal year 25 revenues to follow the seasonal trends observed in fiscal year 24.

John Morberg: From a total compensation perspective, the reduction resulted in approximately 4.7 million in annual salary and benefit savings of which approximately 65% is indirect and indirect labor, which we expect to provide a benefit to gross margin in future periods as the lower cost inventories are sold through. The balance of the estimated savings or 35% is expected to be reflected in selling general and administrative expenses.

John Morberg: With respect to quarterly cadence, we expect fiscal year 25 revenues to follow the seasonal trends observed in fiscal year 24. Specifically, Q1 is projected to be in our lowest revenue quarter of the year at about 17 to 19% of our annual revenues, which is customary given the scheduled downtime to recertify our cleanrooms. This results in an overall revenue split of approximately 42% in the first half and 58% in the second half of the fiscal year.

John Morberg: Specifically, Q1 is projected to be in our lowest revenue quarter of the year at about 17 to 19% of our annual revenues, which is customary given the scheduled downtime to recertify our clean rooms. This results in an overall revenue split of approximately 42% in the first half and 58% in the second half of the fiscal year. Adjusted EBITDA is also expected to follow the fiscal year 24 seasonal trends with 85 to 90% of our adjusted EBITDA occurring in the back half of the fiscal year.

John Morberg: Adjusted EBITDA is also expected to follow the fiscal year 24 seasonal trends with 85 to 90% of adjusted EBITDA occurring in the back half of the fiscal year. Now turning to our balance sheet, net term and revolver debt on a reported basis for fiscal year 24 was 175.2 million, including 8.5 million of cash, which compares to net bank debt at the end of fiscal 23 of 147.9 million. The 27.7 million increase in net debt is due to 14.8 million and non-cash pick interest on the term debt, 2.9 million additional borrowings under the revolver, 600,000 payments under the sale lease back, and a cash balance decrease of 10.6 million.

John Morberg: Now, turning to our balance sheet, net term and revolver debt on a reported basis for fiscal year 24 was 175.2 million, including 8.5 million of cash, which compares to net bank debt at the end of fiscal 23 of 147.9 million. The 27.7 million increase in net debt is due to 14.8 million and non-cash pick interest on the term debt, 2.9 million additional borrowings under the revolver, 600,000 payments under the sale lease back, and a cash balance decrease of 10.6 million.

John Morberg: The debt derivative liability recorded at the commencement of the term debt declined by 42.1 million to 22.8 million due to the completion of the strategic alternatives review process where probabilities of a change in control embedded derivative significantly declined resulting in a non-cash other income in the statement of operations.

John Morberg: The debt derivative liability recorded at the commencement of the term debt declined by 42.1 million to 22.8 million due to the completion of the strategic alternatives review process where probabilities of a change in control embedded derivative significantly declined resulting in a non-cash other income in the statement of operations. Moving to CAPEX, cashed use for capital expenditures totaled 17.9 million for fiscal year 24 as compared to 21.5 million in fiscal 23 focused on supporting lifecore's long-term growth initiatives primarily related to the new isolator fillers in the associated formulation and process support equipment.

John Morberg: Moving to CAPEX, cashed use for capital expenditures totaled 17.9 million for fiscal year 24 as compared to 21.5 million in fiscal 23 focused on supporting lifecore's long-term growth initiatives primarily related to the new isolator fillers in the associated formulation and process support equipment. For fiscal 25 we expect capital expenditures to decline to approximately 10 to 14 million depending on the timing of payments as compared to capital expenditures of 17.9 million during fiscal year 2024.

John Morberg: For fiscal 25 we expect capital expenditures to decline to approximately 10 to 14 million depending on the timing of payments as compared to capital expenditures of 17.9 million during fiscal year 2024. The fiscal 25 CAPEX spend is primarily related to finalizing payments on the new fillers including final installation costs of the five-head filler and maintenance CAPEX.

John Morberg: The fiscal 25 CAPEX spend is primarily related to finalizing payments on the new fillers including final installation costs of the five-head filler and maintenance CAPEX. From a cash flow's perspective we expect to generate slightly negative free cash flow for fiscal year 25 with our guidance announced today including our CAPEX spend an estimated restructuring and reorganization costs.

John Morberg: From a cash flow's perspective we expect to generate slightly negative free cash flow for fiscal year 25 with our guidance announced today including our CAPEX spend an estimated restructuring and reorganization costs.

John Morberg: That concludes my financial review.

John Morberg: That concludes my financial review.

Paul Joseph: I'll now turn the call back over to Paul for an overview of operations for the period. Thank you, John. To reiterate, I am pleased to report our accounting issues are resolved and we are now current with all our SEC filings.

Paul Josephs: I'll now turn the call back over to Paul for an overview of operations for the period. Thank you, John. Period or eight, I am pleased to report our accounting issues are resolved and we are now current with all our SEC filings.

Paul Joseph: I would like to say my sincere thank you to our dedicated accounting, finance and support teams that work tirelessly with our auditors and legal groups to complete this formidable task. With this immediate administrative matters behind us, we are fully focused on the business ahead. As I mentioned in my opening comments, I believe the growth opportunity at LIFE CORE is substantial. To capitalize on this growth opportunity, we must execute our strategic plan with precision and conviction.

Paul Josephs: I would like to say my sincere thank you to our dedicated accounting, finance and support teams that work tirelessly with our auditors and legal groups to complete this formidable task. With this immediate administrative matters behind us, we are fully focused on the business ahead. As I mentioned in my opening comments, I believe the growth opportunity at LIFECORE is substantial. To capitalize on this growth opportunity, we must execute our strategic plan with precision and conviction.

Paul Josephs: This work is already underway as we are conducting a comprehensive review of LIFECORE's operations, procedures, capabilities and facilities. I will now provide an update on our progress in each of these areas, beginning with operations. One of my first acts of CEO was to conduct a comprehensive review of all aspects of the company's operations, including head count. As part of this process, it became clear to me that our company's head count was oversized for our current business. While such decisions are never easy, a reduction in force was necessary to align the organization with our current business needs.

Paul Joseph: This work is already underway as we are conducting a comprehensive review of LIFE CORE's operations, procedures, capabilities and facilities. I will now provide an update on our progress in each of these areas beginning with operations. One of my first acts of CEO was to conduct a comprehensive review of all aspects of the company's operations including Ed Kemp. As part of this process, it became clear to me that our company's head count was oversized for our current business.

Paul Joseph: While such decisions are never easy, a reduction in force was necessary to align the organization with our current business needs. While unfortunate, I believe this decision was key as a first step to achieving our goal of improved efficiencies and creating a more agile, responsive and competitive organization.

Paul Josephs: While unfortunate, I believe this decision was key as a first step to achieving our goal of improved efficiencies and creating a more agile, responsive and competitive organization. With these adjustments made, our focus now shifts to driving impactful growth through three key areas. The first is maximization of our based business and customers. I've spent considerable time with our current commercial customers to better understand their business and long-term needs. Based on these discussions, I believe that our current commercial business represents a strong opportunity for growth in the next few years.

Paul Joseph: With these adjustments made, our focus now shifts to driving impactful growth through three key areas. The first is maximization of our based business and customers. I've spent considerable time with our current commercial customers to better understand their business and long-term needs. Based on these discussions, I believe that our current commercial business represents strong opportunity for growth in the next few years. In addition, based on our team's excellent track record of service and the trust we've earned with our existing customers, we are an active discussion with a number of our partners to add new programs to our site, both development and commercial site transfers that would expand our share of these existing customers' production budgets. Finally, from a commercial excellence perspective, we are focusing on standardizing our approach to ensure that we are appropriately and equitably compensated for the work we do on behalf of our customers.

Paul Josephs: In addition, based on our team's excellent track record of service and the trust we've earned with our existing customers, we are an active discussion with a number of our partners to add new programs to our site, both development and commercial site transfers that would expand our share of these existing customers' production budgets. Finally, from a commercial excellence perspective, we are focused in on standardizing our approach to ensure that we are appropriately and equitably compensated for the work we do on behalf of our customers.

Paul Josephs: My second area of focus for growth is advancement of our development portfolio towards commercialization. With our project management, business development, operations and finance teams, we have conducted a rigorous review of our current programs and their status of development. This is a resulted in us removing a small number of programs from our forward-looking projections. We then probably weighted the remaining programs based on timing of commercial launch and projected volume over time. The result is we have an exciting collection of programs which span the development spectrum, phase 1 to phase 3, along with medical device programs, which we believe will drive growth over a multi-year period.

Paul Joseph: My second area of focus for growth is advancement of our development portfolio towards commercialization. With our project management, business development, operations and finance teams, we have conducted a rigorous review of our current programs in the status of development. This has resulted in us removing a small number of programs from our forward-looking projections. We then probably waited the remaining programs based on timing of commercial launch and projected volume over time. The result is we have an exciting collection of programs, which span the development spectrum, phase 1 to phase 3, along with medical device programs, which we will believe will drive growth over a multi-year period.

Paul Joseph: The third and final area of our growth strategy that I will focus on today is the targeting of aggressive addition of new programs to the company's pipeline. LifeHoncore has a strong and undesirable legacy of manufacturing viscous and hard to handle programs. Through the addition of our new five-head isolated affiliate capabilities, we believe we are well-positioned to favorably compete in this large and growing market space. Despite the aforementioned reduction in force, we have increased our commercial presence and our marketing spend to drive market awareness of life core.

Paul Josephs: The third and final area of our growth strategy that I will focus on today is the targeting of aggressive addition of new programs to the company's pipeline. LifeHoncore has a strong and undeniable legacy of manufacturing, viscous and hard-to-harned programs. Through the addition of our new five-head isolated affiliate capabilities, we believe we are well positioned to favorably compete in this large and growing market space. Despite the aforementioned reduction in force, we have increased our commercial presence in our marketing spend to drive market awareness of lifeclaw.

Paul Josephs: In fact, we have recently expanded our commercial team with the addition of new sales representatives who will focus on key drug development geographies in the United States. These new representatives join the organization in Q1 2025 and we look forward to their contributions. From an initial targeting perspective, over the last 60 days, we have engaged with significant multinational pharmaceutical companies on our new filler capabilities. The investment in these new fillers has opened the door to partnering type discussions with multiple leading multinational pharmaceutical companies regarding dedicated capacity for a range of products. We are pleased with the interest we have seen with this dedicated capacity model, and while nothing is imminent, we believe that multiple and powerful opportunities may emerge from these discussions.

Paul Joseph: In fact, we have recently expanded our commercial team with the addition of new sales representatives who will focus on key drug development geographies in the United States. These new representatives join the organization in Q1 2025 and we look forward to their contributions. From an initial targeting perspective, over the last 60 days we have engaged with significant multinational pharmaceutical companies on our new filler capabilities. The investment in these new fillers has opened the door to partnering type discussions with multiple leading multinational pharmaceutical companies regarding dedicated capacity for a range of products. We are pleased with the interest we have seen with this dedicated capacity model. And while nothing is imminent, we believe that multiple and powerful opportunities may emerge from these discussions.

Paul Joseph: In conclusion, I'm honored to lead Lifecore during this exciting time. We are working diligently to leverage our operational foundation and refine commercial strategy to elevate Lifecore in the future. By incorporating efficiencies and delivering exceptional value to our customers, we believe Lifecore is well positioned to emerge as a leader in the CDMO sector.

Paul Josephs: In conclusion, I'm honored to lead Lifecore during this exciting time. We are working diligently to leverage our operational foundation and refine commercial strategy to elevate Lifecore in the future. By incorporating efficiencies and delivering exceptional value to our customers, we believe Lifecore is well positioned to emerge as a leader in the CDMO sector.

Paul Joseph: We look forward to sharing our progress in future earnings calls, and on our investor day on November 21st, where we will provide a comprehensive overview of our advancement and future plans. We hope that you will join us. This concludes our prepared remarks for today.

Paul Josephs: We look forward to sharing our progress in future goals and on our investor day on November 21st, where we will provide a comprehensive overview of our advancement and future plans. We hope that you will join us.

Unknown Executive: This concludes our prepared remarks for today.

Operator: Operator, you may now open the call for questions. Thank you.

Unknown Executive: Operator, you may now open the call for questions. Thank you. When I'll be conducting a question and answer session, if you'd like to be placed into question Q, please press star one under telephone keypad. A confirmation tone will indicate your line is in the question Q. You may press star two if you'd like to remove a question from the Q. Prefer participants using speaker equipment, be necessary to pick up your handset before pressing star one. Once again, that star ones be placed into question Q.

Operator: We're now conducting a question and answer session. If you'd like to be placed in the question, Q, please press star one under telephone keypad. A confirmation tone will indicate your line is in the question, Q. You may press star two if you'd like to remove your question from the Q. Participants using speaker equipment may be necessary to pick up your handset before pressing star one. Once again, that star one is the place in the question, Q.

Michael Batuski: Our first question today is coming from Michael Batuski from Barrington Research Relight. Is that live?

Michael Batuski: Our first question today is coming from Michael Batuski from Barriets and Researcher Line.

Paul Joseph: Good morning. Part of the call was sort of going out, and I'm just curious. Did you guys mention the current projects that you have ongoing has been sort of the historical way you guys sort of talk about development stuff? Michael, thanks for the question, this is Paul. We talked about with regard to our development pipeline, a number of programs that we anticipate commercializing over the next few years. I did articulate that during that review in my first 90 days, we did call out a handful of programs from our forward looking projections, but the pipeline itself, commercial projections remain strong and robust, and we're very excited about the potential future of the commercial revenue associated with those programs.

Paul Josephs: Good morning. Part of the call was sort of going out and I'm just curious. Did you guys mention the sort of the current projects that you have ongoing has been sort of the historical way you guys sort of talk about development stuff? Michael, thanks for the question. This is Paul. We talked about with regard to our development pipeline, the number of programs that we anticipate commercializing over the next few years. I did articulate that during that review in my first 90 days we did call out a handful of programs from our forward looking projections. But the pipeline itself, commercial projections remain strong and robust. And we're very excited about the potential future of the commercial revenue associated with those programs. Oh, I'm sorry.

Paul Joseph: Paul, I'm sorry, maybe it could just be my song, but I missed about half of that. Did you guys talk about, given the headwinds that you have with the key customer rebalancing inventory and the one customer that I guess will be sort of a negative 3.4 million or so headwind? Did you talk about essentially what are the assumptions in terms of new customer wins or going deeper with customers? How do you make up sort of the gap between the headwinds you're facing and sort of getting to flat revs for the year?

Paul Josephs: Maybe it just be my song, but I missed about half of that. Did you guys talk, did you guys talk about given the headwinds that you have with the key customer rebalancing inventory? The one customer that I guess will be sort of a negative 3.4 million or so headwind? Did you talk about essentially what are the assumptions in terms of new customer wins or going deeper with customers? How do you make up sort of the gap between the headwinds you're facing and sort of getting the flat revs for the year?

Paul Josephs: Yeah, that is so with regard to the flat revenues, as you stated, we did lose one specific customer who won't be recurring. They have moved their production internal. The balance of our commercial revenue remains very strong. We have a strong outlook with regard to the forward looking demand for those programs and have great significant confidence in our 2025 projection. That's how the revenue is made up. On the development side, there's a small component that we are anticipating contributions from our BD team from new programs. But for the most part, our revenue is known to us and we have great confidence in that for FY25.

Paul Joseph: Yeah, so with regard to the flat revenues, as you stated, we did lose one specific customer who won't be recurring, they have moved their production internal. The balance of our commercial revenue remains very strong, we have a strong outlook with regard to the forward looking demand for those programs and have great significant confidence in our 2025 projection. That's how the revenue is made up. On the development side, there's a small component that we are anticipating contributions from our BD team from new programs, but for the most part, our revenue is known to us and we have great confidence in that for FY25.

Unknown Executive: Okay. All right.

Michael Batuski: Okay, all right. Thank you very much. Thank you.

Unknown Executive: Thank you very much. Thank you.

Operator: As a reminder, that's our one to be placed into question Q.

Unknown Executive: As a reminder, that's our one to be placed into question Q.

Jacob Johnson: Our next question is coming from Jacob Johnson from Steven's Reline is our life.

Jacob Johnson: Our next question is coming from Jacob Johnson from Steven's Reline is our life.

Matt: Good morning. This is Mack on for Jacob. Just a few questions from a poll. Now that you're in the CEO's seat, how are you thinking about the median term outlook beyond FY24? And are you just kind of touched on it? But is the double digit growth a reasonable expectation beyond FY25? And given the filth niche assets you have and some of the family are seeing in the injectable market, are there any opportunities for you to support GOP ones?

Mack: Good morning. This is Mack on for Jacob. Just a few questions from A. Paul.

Mack: Now that you're in the CEO's seat, how are you thinking about the median term outlook beyond FY 24? And are you just kind of touched on it? But is the double digit growth a reasonable expectation beyond FY 25? And given the Phil finish assets you have and some of the man we are seeing in the injectable market, are there any opportunities for you to support GOP ones?

Paul Joseph: Matt, thanks for the question. We're only providing guidance here for FY 25, but I would articulate to you that we feel very strongly about our future and how our ability to participate favorably with regard to the growing market specifically with regard to the injectable space. We certainly have the capability to produce GLP ones and you know the entire pre-filled syringe market is an exciting and growing market which we think we will favorably compete in.

Paul Josephs: Matt, thanks for the question. We're only providing guidance here for FY25, but I would articulate to you that we feel very strongly about our future and how our ability to participate favorably with regard to the growing market, specifically with regard to the injectable space. We certainly have the capability to produce GLP ones. And you know, the entire pre-filled syringe market is an exciting and growing market, which we think we will favorably compete to.

Paul Josephs: And quick follow up on EBIT margins. EBIT margins were roughly 15, 15, 15.7% FY24. You're guiding to flat issues in margins for FY25. How much of a benefit does the RIF include? You may have mentioned the prepared remarks, but I may have missed it. And looking ahead, how should we think about incremental margins as live core returns to growth? Oh, certainly from an EBIT down margins standpoint, we expect to for improvement over a period of time through significant volume being added to the site and then operational improvement.

Paul Joseph: Quick follow up on EBIT margins. EBIT margins were roughly 15, 15.5, 15.7% FY 24. You're guiding to flat issue of margins for FY 25. How much of a benefit does the RIF include? You may have mentioned the prepared remarks but I may have missed it. And looking ahead, how should we think about incremental margins as flat core returns to growth? Oh certainly from an EBIT margins standpoint we expect for improvement over a period of time through significant volume being added to the site and then operational improvement.

Paul Josephs: With regard to the impact this year, I'll let John speak further to that. I think I mentioned in the remarks as far as guidance goes for next year, we do have a reduction that we're expecting in the gross profit margins, primarily due to the mix between commercial and development revenues. But then with the RIF savings, everything that we've done, we see us picking that up in the operating expense side, leaving overall flat margins. But as Paul mentioned, we think those margins can certainly improve over time with a higher revenue base. We certainly expect to leverage margins, particularly in the operating expense side going forward.

John Morberg: With regard to the impact this year I'll let John speak further to that. Yeah, I think I'd mentioned in the remarks you know as far as guidance goes for next year you know we do have you know a reduction that we're expecting in the gross gross profit margins primarily due to the mix between you know commercial and development revenues but then with the RIF savings everything that we've done we see us picking that up in the operating expense side you know leaving overall you know flat margins but as Paul mentioned you know we think those margins can certainly improve over time with a higher revenue base you know we do certainly expect to you know leverage margins particularly in the operating expense side going forward.

Unknown Executive: Thank you, appreciate Bill. Thank you.

Mack: Thank you appreciate filler.

Operator: Thank you we resched in our question and answer session I could turn the floor back over to Paul putting further closing comments.

Unknown Executive: We reached end of our question and answer session.

Paul Josephs: I'd like to turn the floor back over to Paul for further closing comments. Thank you, operator.

Paul Joseph: Thank you operator. In closing I want to take a moment to express my sincere gratitude to our life core team for the warm welcome I've received. Your dedication and hard work or the life beat heartbeat of life core. I appreciate your openness to change and your efforts to make us stronger every day. To our customers thank you for your partnership and trust you place in us and to our shareholders your confidence in life core is a foundation upon which we build our future. Together we have an exciting future in front of us.

Paul Josephs: In closing, I want to take a moment to express my sincere gratitude to our life core team for the warm welcome I have received. Your dedication on hard work or the heartbeat of life core. I appreciate your openness to change and your efforts to make us stronger every day. To our customers, thank you for your partnership and trust you place in us. And to our shareholders, your confidence in life core is a foundation upon which we build our future.

Paul Josephs: Together, we have an exciting future, in front of us.

Operator: That concludes our call today. Thank you for participating. Thank you.

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

Operator: That does conclude today's teleconference webcast and we disconnect your line out this time and have a wonderful day.

Unknown Executive: That concludes today.

Unknown Executive: Tell our conference webcast and we just connect our line out this time and have a wonderful day. We thank you for your participation today.

Operator: We thank you for your participation today.