Lifecore Biomedical Inc.

11/04/2026 | Press release | Distributed by Public on 11/04/2026 06:15

Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

Management's discussion and analysis of financial condition and results of operations
The following discussion should be read in conjunction with the unaudited consolidated financial statements and accompanying notes included in Part I, Item 1, of this Quarterly Report on Form 10-Q and the audited consolidated financial statements and accompanying notes and Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's Transition Report on Form 10-KT for the transition period ended December 31, 2025 (the "2025 Transition Report").
This Quarterly Report on Form 10-Q, including "Management's Discussion and Analysis of Financial Condition and Results of Operations," contains forward-looking statements regarding future events and our future results that are subject to the safe harbor created under the Private Securities Litigation Reform Act of 1995 and other safe harbors under the Securities Act of 1933, as amended, and the Exchange Act. Words such as "anticipate," "estimate," "expect," "project," "aim," "designed to," "plan," "intend," "believe," "may," "might," "will," "should," "can have," "likely" and similar expressions are used to identify forward-looking statements. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected. Potential risks and uncertainties include, without limitation:
•the timing and amount of future expenses, revenue, cash flow and capital requirements, and timing and availability of and the need for additional financing;
•our ability to maintain or expand our relationships with our current customers, including the impact of changes in consumer demand or prices for the products we manufacture for our customers;
•our ability to grow and diversify our business with new customers, including the potential loss of development customers if they do not receive required funding or regulatory approvals or for other reasons;
•our ability to comply with covenants under our credit agreements and to pay required interest and principal payments when due;
•our ability to fund redemptions of shares of the outstanding Series A Preferred Stock in accordance with their terms;
•our ability to raise additional capital for ongoing needs, including through equity financing, debt financing, collaborations, strategic alliances or licensing arrangements;
•the impact of macroeconomic events or circumstances on our operations and financial performance, including inflation, tariffs, interest rates, social unrest and global instability;
•the performance of our third-party suppliers;
•pharmaceutical industry market forces that may impact our customers' success and continued demand for the products we produce for those customers;
•our ability to recruit or retain key scientific, technical, business development, and management personnel and our executive officers;
•our ability to comply with stringent U.S. and foreign government regulation in the manufacture of pharmaceutical products, including current Good Manufacturing Practice, or cGMP;
•the outcome and cost of existing and any new litigation or regulatory proceedings; and
•the risk factors relating to the Merger Agreement and the Merger set forth in Part II, Item 1A. Risk Factors of this Quarterly Report on Form 10-Q.
We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. Accordingly, our actual results could differ materially from those projected in the forward-looking statements for many reasons, including the risk factors referenced in Item 1A. "Risk Factors" of the 2025 Transition Report and Part II, Item 1A. Risk Factors of this Quarterly Report on Form 10-Q.
All forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary statements as well as others made in this report, the 2025 Transition Report, and hereafter in our other SEC filings and public communications.
You should evaluate all forward-looking statements made by us in the context of all risks and uncertainties described with respect to our business. We caution you that the risks and uncertainties identified by us may not be all of the factors that are important to you. Furthermore, the forward-looking statements included in this report are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
Overview
Lifecore is a fully integrated CDMO that offers highly differentiated clinical and commercial capabilities in the development, cGMP manufacturing and aseptic filling of complex formulations and highly viscous sterile injectable pharmaceutical drug or medical device products in syringes, vials and cartridges, across a wide variety of modalities. We manufacture pharmaceutical-grade, non-animal-sourced hyaluronic acid ("HA") in bulk form as well as for use in formulated and filled syringes and vials for our customers' injectable products used in treating a broad spectrum of medical conditions and procedures, including ophthalmic and orthopedic applications. We also offer product development service capabilities to our customers that include analytical method development and validation, formulation development, sterile filtration, process scale-up, pilot studies, stability studies, process validation and production of materials for clinical studies.
Since May 2024, Lifecore has continued to make impactful improvements to its operations and financial position:
•We have improved operations by expanding our revenue-generating capacity, increasing our focus on manufacturing efficiency and cost management, and investing in systems and processes to support more effective execution. In September 2024, the Company expanded its aseptic filling capabilities through the installation of a fully automated high-speed, multi-purpose 5-head aseptic isolator filler. In January 2026, Lifecore implemented a new enterprise resource planning ("ERP") system designed to enhance inventory control, data visibility, and financial management. Through these and other initiatives, the Company believes that it has improved workforce productivity, reflecting the performance-driven culture at Lifecore and underscoring the Company's commitment to continuous improvement.
•We have strengthened our financial position through, among other actions, (i) raising $24.3 million in a private placement of Lifecore common stock in October 2024, (ii) a three-year term extension of our existing asset-based lending revolving credit facility with BMO in November 2024, (iii) the sale of certain excess capital equipment for $17 million in January 2025, (iv) the repayment of $19.7 million of borrowings on our outstanding revolving credit facility, (v) reduced obligations with the payment of an aggregate amount of $4.7 million to the holders of the Series A Preferred Stock in full satisfaction of outstanding registration delay fees in November 2025, (vi) the implementation of operational cost reductions, including overhead costs and professional fees associated with legal, accounting and consulting spend; and (vii) in October 2024 we regained compliance with SEC reporting requirements and have been maintaining those requirements.
•We enhanced our business development strategy, increased our investment in sales and marketing to support brand visibility, and expanded our business development team with sales talent who will focus on key drug development geographies in the United States and internationally.
Lifecore expects to further improve efficiencies and productivity through additional procurement and operational strategies that will build upon the new capabilities and information available from our ERP system. Lifecore expects this system to strengthen inventory control, support sharper financial management, and help reduce costs as the company grows.
On August 1, 2025, our Board of Directors approved changing our fiscal year from a fiscal year ending on the last Sunday of May to a calendar year ending on December 31, and the Company has reported on a calendar-year basis since September 30, 2025. The accompanying consolidated financial statements are the first to present comparative results on a consistent calendar-year reporting basis following the Fiscal Year Change. The results for the three months ended September 30, 2025 were previously reported. The results for the nine months ended September 30, 2025 have not previously been reported on a standalone basis.
On September 27, 2026, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with affiliates of Webster Equity Partners. See "Part I, Item 1. Note 1 - Organization, basis of presentation and summary of significant accounting policies" in this Quarterly Report on Form 10-Q for more information about the Merger Agreement and the proposed Merger.
Financial overview
Lifecore generates revenues from two activities within a single, integrated segment: CDMO and HA manufacturing. CDMO includes aseptic formulation and filling of syringes, vials and cartridges for injectable products used for medical purposes and product development services to assist its customers in obtaining regulatory approval for the commercial sale of their device or drug product. HA manufacturing includes the production and sale of pharmaceutical-grade, non-animal-sourced HA using our proprietary, fermentation-based HA process in bulk form.
The following costs are included in cost of sales: raw materials (including packaging, syringes, fermentation supplies and purification supplies), direct labor, overhead (including indirect labor, depreciation, and facility-related costs), and shipping and shipping-related costs.
Numerous factors can influence gross profit, including product mix, customer mix, manufacturing costs, timing of production, production yields, volume, sales discounts, contractual provisions, and charges to state inventories at their net realizable value, including as that relates to excess or obsolete inventory, among others. Many of these factors influence or are interrelated with other factors.
R&D expenses consist primarily of product development and commercialization initiatives.
SG&A expenses consist of salaries and related costs for administrative, public company and business development functions as well as legal fees, and consulting fees. Public company costs include compliance, audit, tax, insurance and investor relations.
The debt derivative liability, related party, represents the fair value of various features in the credit facility that require bifurcation and accounting as a derivative instrument. Changes in the fair value are recorded as non-operating income or expense.
The income tax benefit or expense primarily consists of current state income tax obligations and a schedule of net deferred federal tax attributes that are substantially offset by valuation allowances and net operating loss carryforwards. Changes in the income tax benefit or expense are generally driven by the mix of these various items and are generally not material.
Results of operations - three months ended September 30, 2026
Revenues and gross profit
Three months ended
September 30, 		Change
(dollars in thousands) 2026 2025 Amount %
Revenues:
CDMO
$ 17,777 $ 21,749 $ (3,972) (18) %
HA manufacturing
7,545 9,360 (1,815) (19) %
Total revenues
25,322 31,109 (5,787) (19) %
Cost of sales 18,496 23,318 (4,822) (21) %
Gross profit 6,826 7,791 (965) (12) %
Gross profit percentage 27.0 % 25.0 % 2.0 %
The decrease in revenues of $5.8 million was primarily due to a $4.0 million decrease in CDMO revenue, which was primarily from $3.7 million of lower sales volume and $2.3 million of lower pricing primarily due to a price concession to a customer in exchange for a multi-year extension of its commercial agreement, partially offset by $1.7 million of higher development revenue primarily due to new programs. In addition, HA manufacturing revenue decreased $1.8 million primarily due to timing of revenues from Lifecore's largest customer's supply chain initiatives.
The decrease of $1.0 million in gross profit is primarily due to the decrease in sales, partially offset by a mix improvement due to the growth in development revenues.
Operating expenses
Three months ended
September 30, 		Change
(dollars in thousands) 2026 2025 Amount %
Research and development $ 1,421 $ 1,963 $ (542) (28) %
Selling, general and administrative 6,299 8,895 (2,596) (29) %
Total operating expenses $ 7,720 $ 10,858 $ (3,138) (29) %
Research and development ("R&D")
R&D expenses declined primarily due to increased utilization of R&D personnel on revenue-generating development projects.
Selling, general, and administrative ("SG&A")
The $2.6 million decrease in SG&A expenses includes $0.8 million reduction of stock-based compensation and $1.0 million of lower recurring expense primarily related to reduced accounting fees and employee compensation. Additionally, there was a $0.8 million net reduction in non-recurring expenses, driven by the absence of prior period spending for legacy legal matters and reorganization, which was partially offset by current period spending relating to the proposed Merger.
Non-operating income or expense
Three months ended
September 30, 		Change
(dollars in thousands) 2026 2025 Amount %
Interest expense, net $ (7,868) $ (6,326) $ (1,542) 24 %
Change in fair value of debt derivative liability, related party (31,270) (375) (30,895) n/m
Other (expense) income, net
(1) 110 (111) n/m
Income tax expense (51) (333) 282 n/m
Interest expense, net
The increase in interest expense, net of interest income, included an increase of $1.4 million related to the Alcon term loans, which will continue to grow due to accumulating interest paid-in-kind and amortization of the debt discount.
Change in fair value of debt derivative liability, related party
The $30.9 million increase in expense was primarily attributable to the signing of the Merger Agreement, which supported management's decision to increase the probability and accelerate the assumed timing of a change in control event. These factors resulted in a debt derivative liability valuation of $62.2 million at September 30, 2026, comprising (i) a change in control payment of approximately $30.0 million assumed to occur at the end of 2026 given that the Merger is expected to close at the end of 2026 and (ii) a remainder representing the accounting cost of the early payment, caused by the difference between the 20.7% discount rate and the 10% stated rate of the term loan taken over the remaining term to maturity on May 22, 2029.
Other non-operating income or expense
None of the other income or expense categories changed materially period over period.
Results of operations - nine months ended September 30, 2026
Revenues and gross profit
Nine months ended
September 30, 		Change
(dollars in thousands) 2026 2025 Amount %
Revenues:
CDMO
$ 49,104 $ 69,382 $ (20,278) (29) %
HA manufacturing
33,578 36,304 (2,726) (8) %
Total revenues
82,682 105,686 (23,004) (22) %
Cost of sales
59,319 70,981 (11,662) (16) %
Gross profit 23,363 34,705 (11,342) (33) %
Gross profit percentage 28.3 % 32.8 % (4.5) %
The decrease of $23.0 million in revenues was primarily due to a $20.3 million decrease in CDMO revenue, which was primarily from $15.6 million of overall lower sales volumes, $2.3 million of lower pricing primarily due to a price concession to a customer in exchange for a multi-year extension of its commercial agreement, a $1.7 million take-or-pay arrangement in the prior period, and $0.8 million of lower development revenue. In addition, HA manufacturing revenues decreased $2.7 million, $4.5 million of which was primarily due to timing of revenues from Lifecore's largest customer's supply chain initiatives, partially offset by $1.7 million of pricing and increased demand from other customers.
The decrease of $11.3 million in gross profit is primarily due to the decrease in sales, in addition to an incremental $2.9 million acceleration of inventory costs caused by the lower pricing discussed above and the mix effect from the absence of $1.7 million of 2025 take-or-pay revenue, which had no associated cost.
Operating expenses
Nine months ended
September 30, 		Change
(dollars in thousands) 2026 2025 Amount %
Research and development $ 4,175 $ 6,014 $ (1,839) (31) %
Selling, general and administrative 22,187 26,349 (4,162) (16) %
Restructuring recovery - (2,937) 2,937 n/m
Loss on sale or disposal of assets, net of portion classified as cost of sales
- 6,942 (6,942) n/m
Total operating expenses $ 26,362 $ 36,368 $ (10,006) (28) %
Research and development
R&D expenses declined primarily due to increased utilization of R&D personnel on revenue-generating development projects.
Selling, general, and administrative
The $4.2 million decrease in SG&A expenses includes a reduction of $1.9 million in recurring expenses primarily from reduced accounting and legal fees and lower compensation costs and a $0.8 million reduction in stock-based compensation. Additionally, there was a $1.5 million net reduction in non-recurring expenses, driven by the absence of prior period spending for legacy matters and reorganization, which was partially offset by current period spending relating to the proposed Merger.
Restructuring recovery
The nine months ended September 30, 2025 included a credit of $2.6 million for the favorable reversal of a historical lease obligation of the divested Curation Foods business.
Loss on sale or disposal of assets
The $6.9 million loss on sale or disposal of assets in the prior period was primarily due to the write-off of interest capitalized into the historical cost of certain excess equipment, as we recovered substantially all of the cash originally paid to purchase the equipment from the sale proceeds.
Non-operating income or expense
Nine months ended
September 30, 		Change
(dollars in thousands) 2026 2025 Amount %
Interest expense, net $ (22,695) $ (17,280) $ (5,415) 31 %
Change in fair value of debt derivative liability, related party (35,628) (1,991) (33,637) n/m
Other (expense) income, net
219 359 (140) n/m
Income tax expense (117) (359) 242 n/m
Interest expense, net
The increase in interest expense, net of interest income, of $5.4 million was primarily from $3.9 million more interest related to the Alcon term loans, which will continue to grow due to accumulating interest paid-in-kind and amortization of the debt discount and $2.1 million more interest expense caused by the completion of certain capital expenditure projects where interest was previously capitalized to property, plant and equipment. These increases were partially offset by the absence of interest on prior year registration delay fees to its Series A Preferred Stock holders.
Change in fair value of debt derivative liability, related party
The $33.6 million increase in expense was primarily attributable to the signing of the Merger Agreement, which supported management's decision to increase the probability and accelerate the assumed timing of a change in control event. These factors resulted in a debt derivative liability valuation of $62.2 million at September 30, 2026, comprising (i) a change in control payment of approximately $30.0 million assumed to occur at the end of 2026 given that the Merger is expected to close at the end of 2026 and (ii) a remainder representing the accounting cost of the early payment, caused by the difference between the 20.7% discount rate and the 10% stated rate of the term loan taken over the remaining term to maturity on May 22, 2029.
Other non-operating income or expense
None of the other income or expense categories changed materially period over period.
Liquidity and capital resources
As of September 30, 2026, the Company had cash of $23.0 million and $15.0 million available for borrowing (together, "consolidated liquidity") under its $40.0 million Revolving Credit Facility, with no amounts outstanding as of September 30, 2026. As of September 30, 2026, the Company had approximately $201.3 million in total indebtedness with Alcon, with $196.1 million outstanding under the Term Loan Credit Facility. The Term Loan Credit Facility requires the Company to maintain at least $4.0 million of consolidated liquidity, as adjusted for any excess payables, at the end of each fiscal quarter. As of September 30, 2026, the Company was in compliance with all financial covenants under the Term Loan Credit Facility and Revolving Credit Facility. See "Part I, Item 1. Note 9 - Debt" in this Quarterly Report on Form 10-Q for a summary of the Term Loan Credit Facility and Revolving Credit Facility.
The following table presents comparative summary cash flows for the nine months ended September 30, 2026 and September 30, 2025:
Nine months ended
September 30,
Change
(in thousands)
2026 2025
Net cash provided by (used in):
Operating activities
$ 9,457 $ 12,506 $ (3,049)
Investing activities
(2,543) 7,208 (9,751)
Financing activities
(1,348) (4,775) 3,427
Total
$ 5,566 $ 14,939 $ (9,373)
Cash flow decreased by $9.4 million in the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025 for the following reasons:
•Operating cash flows decreased $3.0 million primarily due to the decline in profits period over period, partially offset by working capital recoveries. In the 2026 period, the combined effect of net loss and the non-working capital adjustments to reconcile net loss to operating cash flows generated $7.0 million of cash, as compared to $15.6 million in the 2025 period, an $8.6 million decline. This was partially offset by a $5.6 million working capital effect, driven by a $2.5 million improvement in the 2026 period and a $3.1 million decline in the 2025 period;
•Investing cash flows decreased by $9.8 million due to the absence of $17.0 million in cash proceeds from the sale of certain excess equipment in the 2025 period, partially offset by lower capital spending in the 2026 period compared to the 2025 period; and
•Financing cash outflows decreased $3.4 million primarily from the absence of $2.5 million of net repayments under the revolving credit facility in the 2025 period.
The Company's future capital requirements will depend on numerous factors, including our future capital expenditure requirements; development, production and manufacturing activities; administrative requirements (including salaries, insurance expenses and legal compliance costs); ability to establish and maintain new and existing customer arrangements; the costs associated with any legal proceedings and claims; any decision to pursue acquisition opportunities; the timing and amount of amounts payable or payments owed under customer agreements; the ability to comply with regulatory requirements; the emergence of competitive technology and market forces; the effectiveness of customers' activities and arrangements; the redemptions of the Series A Preferred Stock and any payment of the accrued and unpaid liquidation preference on shares of the Series A Preferred Stock, if required; payments required under the Term Loan Credit Facility and Revolving Credit Facility; expenses relating to the Merger; and other factors. If the Company's currently available funds, together with the internally generated cash flow from operations are not sufficient to satisfy its capital needs, the Company would be required to seek additional funding through various financing transactions or arrangements, including equity financing, debt financing, collaborations, strategic alliances or licensing arrangements, or other means. There can be no assurance that additional funds, if required, will be available to the Company on favorable terms, if at all. The Merger Agreement prohibits the Company from undertaking any equity or debt financing.
The Company's principal sources of liquidity consist of its existing cash, any additional cash generated by operations, and availability under its Revolving Credit Facility. The Company expects these sources will be sufficient to finance its current operational and capital requirements for at least the next twelve months.
Cash obligations relating to Series A Preferred Stock
On January 9, 2023, the Company issued 38,750 shares of Series A Preferred Stock for a purchase price of $1,000 per share (the stated value) and gross proceeds of $38.8 million. The Series A Preferred Stock accrues dividends and is redeemable at the option of the holder as discussed further below.
The holders of Series A Preferred Stock are entitled to dividends at a rate of 7.5% per annum, or $75 per share, payable in-kind and compounding quarterly. The holders are also entitled to participate in dividends declared or paid on the Common Stock on an as-converted basis. At September 30, 2026, there were $0.9 million of dividends in arrears that had not yet been paid-in-kind in the form of additional shares of Series A Preferred Stock, representing $18.75 per preferred share.
Each holder of outstanding shares of Series A Preferred Stock had the right to request that the Company redeem all or part of such holder's outstanding Series A Preferred Stock beginning on June 29, 2026. To make such cash redemption payments the Company would be required to obtain a consent to such cash redemption payments or waiver of the restriction on cash dividends and/or redemptions set forth in each of the Company's credit agreements. To the extent consents or waivers are not obtained under each of the Company's credit agreements, the Company would be in breach thereof if such payments in cash were made. The redemption price for each share of Series A Preferred Stock is an amount equal to its liquidation preference of $1,000 per share of Series A Preferred Stock to be redeemed plus accrued and unpaid dividends on such shares through the date of redemption. As of September 30, 2026 and December 31, 2025, the aggregate liquidation preference of the Series A Preferred Stock was $51.1 million and $48.4 million, respectively. As of September 30, 2026, the Company had received notices of redemption for all 50,187 shares of Series A Preferred Stock. Pursuant to the terms of the Series A Preferred Stock, the redemption date and payment of the redemption price for all shares of the Series A Preferred Stock would occur on December 28, 2026. To the extent that the Company does not or cannot redeem all shares of Series A Preferred Stock that are submitted for redemption, we would be subject to interest on the unpaid balance at a rate of 1% per month in respect of that holder's unredeemed shares of Series A Preferred Stock from the redemption date until paid in full in addition to our continuing obligation to accrue dividends paid in kind at 7.5% per annum.
Lifecore's internally generated cash is not expected to be sufficient to fund all or any significant redemptions of the Series A Preferred Stock by December 28, 2026. The Merger, if closed, will satisfy the Company's obligation to the holders of Series A Preferred Stock. The Merger Agreement prohibits the Company from redeeming or paying any dividends in cash on the Series A Preferred Stock.
In November 2025, the Company paid an aggregate amount of $4.7 million to the holders of the Series A Preferred Stock in full satisfaction of the outstanding registration delay fees.
Contractual and other cash obligations
The Company's material contractual obligations for the next five years mainly relate to its debt and lease obligations.
Indebtedness
Refer to "Part I, Item 1. Note 9. - Debt" elsewhere in this Quarterly Report on Form 10-Q for a description of the terms of outstanding indebtedness, including the Term Loan Credit Facility and Revolving Credit Facility, which is incorporated herein by reference.
As of September 30, 2026, the Company had $196.1 million in borrowings outstanding under the Term Loan Credit Facility at an effective annual interest rate of 20.9%, which includes the amortization of the debt discount. The stated annual interest rate is 10%, which was payable-in-kind until May 2026, following which interest is payable at a fixed rate of 3% per annum in cash with the remainder payable-in-kind. The obligations under the Term Loan Credit Facility mature on May 22, 2029. Interest paid-in-kind under the Term Loan Credit Facility for the nine months ended September 30, 2026 was $12.0 million. Beginning in June 2026, the Company was required to make quarterly cash interest payments at a rate of 3.0% following the third anniversary of entering into the Term Loan Credit Facility. The Company paid $2.1 million of cash interest during the nine months ended September 30, 2026.
As of September 30, 2026, the Company had no outstanding borrowings under the Revolving Credit Facility. The obligations under the Revolving Credit Facility mature on November 26, 2027. Interest paid under the Revolving Credit Facility for the nine months ended September 30, 2026 was negligible.
Critical accounting policies and estimates
There have been no material changes to the disclosures about critical accounting policies and estimates provided in the Company's 2025 Transition Report. For a discussion of our critical accounting policies and estimates, refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates" in Part II, Item 7 of the Company's 2025 Transition Report.
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