Lifecore Biomedical, Inc. (LFCR) Earnings Call Transcript & Summary

Good morning, and thank you for joining Lifecore earnings call for the second quarter and 6 months ended June 30, 2026. [Operator Instructions] Now I'd like to turn the call over to Stephanie Diaz, Manager of Investor Relations for Lifecore.

Good morning, and thank you for joining us. Today, Lifecore Biomedical will provide its earnings results for the second quarter and 6 months ended June 30, 2026, and a corporate update. As the company has recently changed its fiscal year end to align with the calendar year, we will be comparing our results for the second quarter ended June 30, 2026, with the comparable prior year quarter ended May 25, 2025. For the 6-month period, we will be comparing our results from January 1 through June 30, 2026, with the prior year period from November 24, 2024, through May 25, 2025. Hosting the call today from Lifecore are Paul Josephs, President and Chief Executive Officer; and Ryan Lake, Chief Financial Officer. Before we begin, I'd like to remind everyone that today's conference call will contain forward-looking statements. It is important to note that the forward-looking statements made during this call reflect management's judgment and analysis only as of today, August 5, 2026, and the company's actual results could differ materially from those projected in such forward-looking statements. For a more thorough discussion of the risks and uncertainties associated with any forward-looking statements, please see the disclaimer regarding forward-looking statements that is included in our earnings press release, which was furnished to the Securities and Exchange Commission this morning on Form 8-K and is available on our corporate website at lifecore.com as well as our other filings with the Securities and Exchange Commission, including, but not limited, to the company's Form 10-Q for Q2 2026, which was filed with the SEC this morning and is also available on our website. In addition, our earnings press release includes a discussion of and during this call, we will reference certain non-GAAP financial information. You can find relevant non-GAAP reconciliations in our press release. With that, I'd like to turn the call over to Paul Josephs, President and Chief Executive Officer.

Thank you, Stephanie. Good morning, everyone, and thank you for joining us today. During the second quarter, Lifecore continued to execute with focus and discipline against the strategic objectives we implemented over the last 24 months. We are energized by the success and progress we are making in achieving the 3 pillars of our growth strategy. As a reminder, these pillars are maximizing our existing commercial business, advancing our development pipeline towards commercialization and adding high-quality new programs to our pipeline through business development. This is a thoughtful and deliberate strategy that is designed to drive durable growth over the medium to long term and create value for our shareholders as well as our employees, customers and other key stakeholders. Building on our successful quarter and our visibility into the months ahead, we remain confident in our full year expectations and reaffirm our 2026 guidance. Ryan will provide additional details on our financial results following my overview of our Q2 achievements. I'll begin with an update on the progress we have made across all 3 pillars of our growth strategy. During the second quarter, we achieved important milestones in each of these areas. With respect to maximizing existing commercial business, we continue to work closely with our largest customer to support a significant increase in demand. Contractually committed fill/finish demand is expected to double beginning in 2027 with committed demand increasing by more than 200% in 2028 as compared to 2026. We now have clear understanding of how this inflection point in demand with our partner will be effectuated, and we are in the process of ensuring that we are operationally ready to successfully execute this important milestone. As part of this growth in demand, we will be entering new markets in partnership with this customer. In particular, I'd like to highlight the Japanese market and the inspection conducted by the Japanese Pharmaceuticals and Medical Devices Agency, or PMDA. This agency is known for its rigorous technical assessment and high-quality standards. This inspection was successful, and we are pleased with the results, marking a critical step in opening a future new market for our hyaluronic acid and aseptic fill/finish products for this customer. For the quarter, we hosted 7 separate audits and inspections, representing one of the highest numbers performed in a single quarter for Lifecore. Five of these were with existing and new customer audits, and 2 were regulatory agency inspections. It is important to note that the time associated with these activities by teams across our organization made this a uniquely demanding period at Lifecore. We are very pleased to report that we successfully completed each of these inspections and audits with no material issues reported, all while meeting the development and manufacturing needs of our current customers. During the quarter, we also made progress with regard to the second arm of our growth strategy, advancing our development pipeline towards commercialization. We believe that 11 existing development programs have the potential to commercialize by the end of 2028, and we continue to work to advance each of these programs daily. A highlight of the second quarter was Lifecore's successful completion of several process performance qualification, or PPQ, batches for a customer approaching commercialization in 2027. While PPQ programs are particularly impactful as they are a pre-commercialization requirement, we caution that the execution of a PPQ campaign is the beginning of a 1- to 2-year journey towards a potential regulatory approval and subsequent recurring commercial revenue. We have a diverse and exciting late-stage pipeline with the potential to significantly impact future revenues, capacity utilization and improved margins. We continue to execute this important work and to support each of our development programs as they move closer towards commercialization. Recognizing the importance of the late-stage programs to our mid- and long-term growth objectives, we recently added a seasoned industry veteran with more than 15 years of experience with multiple CDMOs to lead our project management efforts. She leads a team of highly talented experts who are responsible for driving our development programs towards commercialization in a professional and efficient manner. Complementing our project management efforts, our manufacturing science and technology, or MS&T, team is charged with transitioning our development stage programs towards commercialization as efficiently and as effectively as possible. This team includes experienced professionals in pharmaceutical development, and their combined focus on this important objective has improved our processes and productivity. As our development programs continue to mature towards late stage, we believe this pipeline will be an important driver of our mid- and long-term success, and we intend to continue to invest in this team and capabilities required to successfully execute this transition. We were extremely productive with the first 2 arms of our growth strategy. However, our greatest success during the period was the addition of high-quality new programs to our pipeline by our business development team, the third pillar of our growth strategy. Since I joined Lifecore in 2024, we have reorganized our commercial team with new leadership and proven business development professionals to complement our talented marketing team. We have successfully rebuilt this team with an aggressive hunter-like approach to our sales and marketing efforts, and we are building strong momentum. During the second quarter, we added 6 new programs to our pipeline, 2 of which are expected to generate commercial revenue in the 2028 to 2029 time frame. These agreements are with a combination of existing and new customers ranging in scope from preclinical to the commercial transfer of 2 currently marketed products. Three of these programs were signed during the month of June alone, reflecting the momentum of our business development team's efforts. Since the end of the quarter, we have closed another late-stage injectable program with a specialty biopharmaceutical company. This program is in addition to our 9 year-to-date new business wins through June 30 and 13 new business wins over the last 12 months. Importantly, many of the leading indicators within our business development activity and pipeline continue to trend positively. As an example, since mid last year, more than 60% of the opportunities for which we have competed on have been late-stage programs or commercial site transfers. These late-stage programs and commercial site transfers are derisked from clinical approval and come with demonstrated commercial demand, reducing the market risk associated with new drug products. Based on our current proposal activities, we are optimistic that we will continue to close additional late-stage and commercial site transfer programs during the remainder of 2026. Adding to our confidence in our ability to close additional late-stage programs are 2 significant industry tailwinds. One, the increase in FDA enforcement actions that we have recently seen at other contract manufacturers; and two, the ongoing trend of regionalized drug manufacturing in the United States. These 2 discrete trends have led to an increase in the number of potential customers seeking high-quality, technically capable contract manufacturers like Lifecore. In summary, we believe that our revamped commercial strategy, combined with favorable market dynamics, we will continue to add new and impactful opportunities to our pipeline in 2026 and beyond, contributing to our 12% revenue CAGR by the end of 2029 and providing the next wave of growth into the long term. In addition to the successes with our growth strategy objectives, we continue to make important improvements and create value across our organization. With respect to SG&A, our leadership team remains focused on identifying opportunities for enhanced efficiencies, productivity, and cost reductions. We are currently progressing more than 40 projects, each intended to explore specific cost reductions or process and productivity improvements that we expect to positively impact margins and contribute to exceeding our 25% adjusted EBITDA margin targets by 2029. It's important to note that we are not only focused on cost reductions, but also how we continue to improve the operations of our business. Enhanced systems and processes will be critical as we look forward towards the inflection point in demand with our largest customer and the potential addition of up to 11 product approvals through 2028. That concludes my update. I will now turn the call over to Ryan Lake to provide an overview of our financial results for the second quarter and 6 months ended June 30, 2026. Ryan?

Thank you, Paul, and good morning, everyone. In conjunction with my comments, I'd like to recommend that participants refer to Lifecore's Form 10-Q filing, which we filed with the SEC this morning. As a reminder, we will be comparing our results for the second quarter ended June 30, 2026, with the comparable prior year quarter ended May 25, 2025. For the 6-month period, we will be comparing our results from January 1 through June 30, 2026, with the prior year period from November 24, 2024, through May 25, 2025. Before providing our financial results, I wish to reaffirm our 2026 guidance for revenue and adjusted EBITDA. As a reminder, for 2026, Lifecore expects total revenue to be in the range of $120 million to $125 million and adjusted EBITDA to be in the range of $20.5 million to $25 million. Turning now to the quarter. Revenues for the second quarter of 2026 were $34.2 million, a decrease of $2.3 million or 6.2% compared to $36.4 million for the comparable prior year quarter ended May 25, 2025. The decrease in revenues was primarily a result of the factors that we described during our fourth quarter earnings announcement as well as timing, mix and volume of other customers, including lower development revenue and a contractual take-or-pay arrangement in the prior year period, all of which were partially offset by increases in HA manufacturing revenue. We expect a step-up in CDMO revenues in the back half of the year, including higher aseptic and development revenues, and remain on track to deliver our stated revenue guidance by the end of 2026. Gross profit for the quarter was $12.1 million, a decrease of $1.9 million compared to $14 million for the comparable prior year quarter ended May 25, 2025. The decline in gross profit was primarily due to decreased revenues, unfavorable manufacturing costs and the contractual take-or-pay arrangement in the prior period, partially offset by favorable HA sales volume. Selling, general and administrative expenses for the second quarter were $8 million, a decrease of $1 million or 11.2% compared to $9 million for the comparable prior year quarter ended May 25, 2025. The decrease in SG&A expenses was primarily due to lower recurring legal and accounting expenses and lower compensation, in addition to less nonrecurring expenses primarily related to legacy legal matters. The company recorded a net loss of $6.2 million, or $0.19 of loss per diluted share, as compared to a net loss of $1.1 million and $0.06 of loss per diluted share for the comparable prior year quarter ended May 25, 2025. Adjusted EBITDA for the second quarter was $8.6 million, a decrease of $0.5 million compared to $9.1 million in the comparable prior year quarter ended May 25, 2025. I'll now review the results for the 6 months ended June 30, 2026. Revenues for the 6 months were $57.4 million, a decrease of $14.2 million, or 19.9%, compared to $71.6 million for the 6-month comparable prior year period ended May 25, 2025. The decrease in revenues was similar to the explanations provided for the 3-month period. Gross profit for the 6 months was $16.5 million, a decrease of $7.3 million compared to $23.8 million for the 6-month comparable prior year period ended May 25, 2025. The decline in gross profit was primarily due to decreased revenues, product mix, unfavorable manufacturing costs and the contractual take-or-pay arrangement in the prior period. Selling, general and administrative expenses for the 6 months were $15.9 million, a decrease of $3.2 million, or 16.7%, compared to $19.1 million for the 6-month comparable prior year period ended May 25, 2025. The decrease in SG&A expenses was primarily due to lower recurring legal and accounting expenses and lower compensation, in addition to a reduction in nonrecurring expenses primarily related to legacy legal matter. The company recorded a net loss of $21.1 million and $0.61 of loss per diluted share as compared to a net loss of $15.9 million and $0.48 of loss per diluted share for the 6-month comparable prior year period ended May 25, 2025. Adjusted EBITDA for the 6-month period was $9.6 million, a decrease of $5.1 million compared to $14.8 million for the 6-month comparable prior year period ended May 25, 2025. I'd like to expand upon Paul's comments regarding our cost reduction activities. We are pleased to share that the second quarter of 2026 represents the fifth consecutive quarter of period-over-period declines in SG&A and R&D expenses and a cumulative total of $16.2 million since we started these initiatives in late 2024. These include substantial reductions in accounting, consulting and legal expenses, which drove the incremental improvements we recorded in EBITDA margins during 2025, and as reflected in our 2026 guidance, we expect continued reductions to support that trend in the future. Finally, I'd like to note that liquidity has improved significantly since late 2024. We ended the second quarter of 2026 with approximately $38.8 million in liquidity, including cash of $17.2 million and revolving credit availability of $21.6 million. That concludes my financial overview. I'll now turn the call back over to Paul for his final comments. Paul?

Thank you, Ryan. To summarize, the second quarter was highly productive. We believe that many of our accomplishments during the period affirm the effectiveness of our new business development strategy, the growing value of our pipeline, our commitment to optimizing the transition of our development pipelines towards commercialization and our focus on maintaining our exceptional track record in quality and compliance. Furthermore, we now have line of sight to the doubling of the fill/finish demand with our largest customer beginning in 2027. In addition, Lifecore continues to invest in the talent, processes and improvements that we believe will support our growth in the midterm and allow us to achieve sustainable long-term profitability into the future. This concludes our prepared remarks for today. Operator, you may now open this call for questions.

[Operator Instructions] Our first question will be coming from the line of Matt Hewitt of Craig-Hallum.

Congratulations on all of the progress that you made this quarter. Maybe first question, with the Alcon ramp that's expected to start next year, does that start on day 1, January 2, will you see that inflection? Or is that going to ramp over the course of the year?

Thanks for the question. I would say that it is -- there's -- it starts earlier in '26, I would say, with a slightly heavier weighting on the back end of '27 -- excuse me. So starting early in '27 with a heavier weighting on the back end -- slightly heavier weighting on the back end.

Got it. And then obviously, you've had a lot of success over the past year with new wins. And I'm just curious, is this a function -- and I think you touched on this a little bit in your prepared remarks, but is this a function of reshoring? Is this a function of some of the excess capacity that you have that maybe others don't? Is it because of your ability to manufacture and implement special fill/finish capabilities? Like, what do you think is ultimately driving the wins that you've announced?

Yes, and is how I would answer that, Matt. It's the regionalization of manufacturing, but it's also FDA enforcement is up. I mentioned that in my prepared remarks. FDA warning letters are up approximately 50% year-on-year. So we're seeing the benefit of customers looking for high-quality sterile injectable suppliers with strong technical capabilities like Lifecore. And when you tag that along with the fact that 50% of the FDA or the drug development pipeline are injectables, there's strong tailwinds in our market, and we have a highly talented team that's taking advantage of that.

Our next question is coming from the line of Paul Knight from KeyBanc Capital Markets.

I know there was some press release regarding the preferred. Where are you with that particular instrument?

Thanks for the question. So a few items. Our liquidity position is the best it's been in years with the performance and operational improvements that we've made. I think as you think about the Series A preferred, any potential payment, first, would not be due until December 28. We believe that we would also need approval under our credit agreements to make any of those payments. And any outstanding amounts, if not paid, would accrue interest at 1% per month until resolved.

Okay. And then, Paul, on these wins, are you -- when you talk about fill/finish, is it vials? Is it cartridges for auto-injectors and pens? What type of fill/finish are you seeing?

Thanks for the question. I would say heavily weighted to the prefilled syringe.

And typically, of course, I guess, biologics is in?

Yes. We've had -- the nice thing for us, Paul, is -- or what we're seeing, I think, is evidence that our strategy is working. We see now a broader scope of modalities that we're working on, including biologics. I think we -- you'll see in our investor -- updated investor deck now 9 different modalities that we've won deals on over the past year or so. So the strategy is working, and we're taking advantage of the opportunities within the market.

Are you -- and lastly, are you seeing any interest due to the onshoring efforts that might be going on?

Absolutely. So a number of the programs, I don't have the exact number in front of me, but we've had -- we've won opportunities now that will come to us from Europe, Asia-Pacific, excuse me, Europe, Israel and India.

Our next question is coming from the line of Mac Etoch of Stephens.

Apologies if you addressed this in the prepared remarks, but the HA manufacturing pretty strong in the quarter. Given some of the timing aspects that you highlighted at the start of the year, was there any change in how those flowed through versus initial expectations?

Thanks for the question. So we are very excited about the performance in the quarter and all the new business momentum that we've seen over the past 12 months and even a higher accelerated level of adding new and impactful programs to our pipeline over the past 6 months. Based on our performance in the first half, revenue expectations in the second half at the midpoint of our guidance range is in the $65 million range and adjusted EBITDA is in the $13 million range. So HA demand was strong in the quarter, but really just timing first half versus second half and in line with our full year expectations. We do expect a strong performance in CDMO revenues in the back half of the year, including higher aseptic demand as well as higher development revenues, and remain on track to deliver both our revenue and EBITDA guidance by the end of 2026. And based on the timing of orders that we do have in hand, it will be a little bit more weighted toward Q4. I'd also say that just generally speaking, from an EBITDA and cost perspective, we're ahead of where we anticipated to be, both costs and timing in terms of improving our operating costs. And you will have seen SG&A slipped down below $8 million a quarter for the past couple of quarters, and we expect further improvements in the back half of the year and anticipate that SG&A, excluding any onetime items, would be in the $6 million a quarter range.

I appreciate that. And given the elevated level of new wins that you've been announcing over the last year or so, I guess I just want to understand how the utilization expectations for the midterm targets has evolved. Is there any incremental CapEx? Or could you move towards the Site 3 optionality? Could that -- essentially could that become more relevant quicker than expected?