Lifecore Biomedical Inc.

11/06/2025 | Press release | Distributed by Public on 11/06/2025 15:30

Quarterly Report for Quarter Ending September 30, 2025 (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 Annual Report on Form 10-K for the fiscal year ended May 25, 2025 (the "2025 Annual 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 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 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; and
•the outcome and cost of existing and any new litigation or regulatory proceedings.
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 this report.
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 Annual 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 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.
Lifecore continues to make impactful improvements to operations, resulting in reduced operational expenses and improved productivity. Through active management and targeted initiatives, the Company has improved workforce productivity by more than 20% over approximately the past year. This achievement reflects the performance-driven culture at Lifecore and underscores the Company's commitment to continuous improvement. Lifecore plans to further maximize efficiencies and productivity via aggressive procurement and operational strategies. The Company believes that a key catalyst in this effort will be the launch of its new enterprise resource planning ("ERP") system, which is expected to go live in Q1 2026. Lifecore expects this system to strengthen inventory control, support sharper financial management, and help reduce costs as the company grows. To further advance the Company's efficiency objectives, Lifecore recently hired a seasoned industry executive in the role of head of business transformation. This newly created position will champion the Company's efforts to improve its cost structure, to drive productivity, and gain efficiencies.
On August 1, 2025, the Company's Board of Directors approved a change in the Company's fiscal year that ends on the last Sunday of May to a fiscal year that corresponds with the calendar year, ending on December 31, effective for the fiscal year beginning May 26, 2025 and ending December 31, 2025. The Fiscal Year Change is applied on a prospective basis and does not adjust operating results for prior periods.
As a result of the Fiscal Year Change, commencing with this Quarterly Report on Form 10-Q, the Company will be filing Quarterly Reports on Form 10-Q covering quarterly periods on a calendar year basis. Also as a result of the Fiscal Year Change, the Company will file a Form 10-KT covering the "transition period" beginning May 26, 2025 and ending December 31, 2025, which will include separate reporting of the approximately one-month period from May 26 to June 30, 2025. For periodic reports covering periods through and including June 30, 2026 (including this Quarterly Report on Form 10-Q), the Company will select comparative financial information in accordance with SEC rules that are applicable to the Fiscal Year Change. Specifically, for balance sheet information, the Company will present information from the latest audited date, which for this Quarterly Report on Form 10-Q is May 25, 2025; and for period-based information, the Company will present the most closely-comparable previously reported three-month period, which for this Quarterly Report on Form 10-Q is the three months ended August 25, 2024. This comparative information is selected to provide meaningful context for evaluating the Company's performance through and including June 30, 2026. It is not practicable or cost-justifiable for the Company to prepare equivalent calendar-based comparative periods because the Company's previous fiscal calendar does not align to the new calendar periods. Accordingly, readers should consider the differences in calendar timing when comparing results between periods.
The discussion and analysis that follows focuses on the Company's financial condition, results of operations, and cash flows for the calendar quarter ended September 30, 2025, compared to the three-month period ended August 25, 2024. Where applicable, management has highlighted material variances and provided commentary on key drivers of performance, including the impact of the fiscal year change.
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 goods sold: 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 for 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, is a set of embedded derivatives recorded at fair value each period. The derivatives represent certain call and put premiums contained in the credit facility that can be exercised upon qualifying events of default or changes in control. Changes in the fair value are recorded as non-operating income or expense.
Three months ended September 30, 2025
Revenues and gross profit
Three months ended Change
September 30,
2025 		August 25,
2024 		Amount %
Revenues:
CDMO
$ 21,749 $ 20,180 $ 1,569 8 %
HA manufacturing
9,360 4,525 4,835 107 %
Total revenues
31,109 24,705 6,404 26 %
Cost of goods sold 23,318 19,318 4,000 21 %
Gross profit 7,791 5,387 2,404 45 %
Gross profit percentage 25.0 % 21.8 % 3.2 %
The increase in revenues of $6.4 millionwas primarily due to a $4.8 millionincrease in HA manufacturing revenues primarily from increased demand from a customer due to its supply chain initiatives. In addition, CDMO revenues increased $1.6 million, which was primarily from$2.6 million of higher sales volumes and $0.3 million of pricing and other revenue. These gains were partially offset by $1.3 million of lower development revenue due to completion of a discrete development project in the prior comparable period and timing of customer project lifecycles.
The increaseof $2.4 millionin gross profit is due a $4.3 million increase in HA manufacturing gross profit due to increased sales volume and manufacturing absorption, partially offset by a $1.9 million decrease in CDMO gross profit. The CDMO decline was due to lower development revenue of $1.4 million and a decrease in aseptic gross profit of $1.9 million due to product mix and costing, partially offset by favorable manufacturing absorption of $1.4 million.
Operating expenses
Three months ended Change
September 30,
2025 		August 25,
2024 		Amount %
Research and development $ 1,963 $ 2,186 $ (223) (10) %
Selling, general and administrative 8,895 14,785 (5,890) (40) %
Total operating expenses $ 10,858 $ 16,971 $ (6,113) (36) %
Research and development ("R&D")
R&D expenses modestly declined reflecting a relatively consistent level of product development and commercialization activities.
Selling, general, and administrative ("SG&A")
The $5.9 million decrease in SG&A expenses includes a reduction of $2.2 million in recurring accounting, legal and consulting expenses and a net $3.7 million reduction in non-recurring expenses primarily related to legacy matters. Included in SG&A for the current period is$1.6 million of non-recurring costs primarily related to legal expenses related to legacy matters and excess audit fees. The prior period included $3.6 million of non-recurring expenses primarily related to incremental audit and consulting fees for the legacy financial restatement and legal expenses related to legacy matters, $1.2 million related to the stockholder activist settlement and $0.5 million of restructuring costs.
Non-operating income or expense
Three months ended Change
September 30,
2025 		August 25,
2024 		Amount %
Interest expense, net $ (6,384) $ (5,383) $ (1,001) 19 %
Change in fair value of debt derivative liability, related party (375) 900 (1,275) n/m
Other expense, net 110 (203) 313 n/m
Income tax (expense) benefit (333) 25 (358) n/m
Interest expense, net
The increase in interest expense, net of interest income, included an increase of $1.3 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, partially offset by a $0.4 million decrease due to lower outstanding borrowings under the revolving credit facility.
Change in fair value of debt derivative liability, related party
The $1.3 million change from income to expense was primarily due to a decrease in discount rates in the 2024 period and the passage of time in the 2025 period.
Other expense, net
The change from expense to income was primarily caused by the absence of $0.3 million of estimated expense accrued for monetary penalties to the preferred stockholders following the filing of registration statements in October 2024.
Income tax benefit or expense
The change from income to expense of $0.4 million was primarily caused by the passage of new Federal tax laws in the 2025 period that resulted in higher deferred tax expense. The new tax laws caused a one-time acceleration of various tax deductions which did not result in income due to the establishment of valuation allowances on all deferred tax assets. At the same time, that acceleration reduced deductions available to offset future deferred tax liabilities, causing an increase to deferred tax expense.
Liquidity and capital resources
As of September 30, 2025, the Company had cash of $18.9 million. In June 2025, the Company received $10.0 million cash from the early payment of principal under its note receivable from the sale of equipment in fiscal year 2025.In June 2025, the Company repaid $2.5 million of borrowings on the outstanding revolving credit facility.
Based on the borrowing base at September 30, 2025, the Company had approximately $23.6 million available for borrowing under the Revolving Credit Facility of the $40.0 million maximum committed amount. Under the Revolving Credit Facility, the Company is subject to a springing fixed charge ratio covenant of 1:1 generally in the event that the Company's available liquidity under the Revolving Credit Facility falls below $2.5 million. As of September 30, 2025, 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.
Cash flow improved by $1.6 million in the three months ended September 30, 2025 compared to the three months ended August 25, 2024 period for the following reasons:
•Operating cash flows improved $2.4 million. In the 2024 period, earnings as adjusted for non-cash items used cash of $8.1 million, which was partially funded by $7.5 million of favorable working capital changes primarily related to net receivable collections and extension of accounts payable. In contrast, in the 2025 period, earnings as adjusted for non-cash items generated $1.1 million of cash, and changes in working capital of $0.6 million;
•Investing cash outflows decreased by $1.7 million from lower capital spending in the 2025 period compared to the 2024 period; and
•Financing cash flows decreased $2.5 million as a result of the absence of $1.9 million of net proceeds under the revolving credit facility in the 2024 period and due to higher cash payments of $0.6 million under employee stock plans.
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; demand for redemption of the Redeemable Convertible Preferred Stock and payment of the accrued and unpaid liquidation preference on shares of the Convertible Preferred Stock, if required; payments required under the Term Loan Credit Facility and Revolving Credit Facility; 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 Company's principal sources of liquidity consist of its existing cash, cash generated by operations (if any), proceeds from the sale of certain excess equipment, 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.
There is no assurance that our cash, cash generated from operations, if any, and available borrowing under the Revolving Credit Facility will be sufficient to fund our anticipated capital needs and operating expenses, particularly if we do not generate revenues in the amounts currently anticipated or if our operating costs are greater than anticipated.
Cash obligations relating to Series A Redeemable Convertible Preferred Stock
On January 9, 2023, the Company issued 38,750 shares of Series A Convertible Preferred Stock, par value $0.001 per share, that accrues dividends and that is, in certain cases, redeemable at the option of the holder as discussed further below.
The holders of Redeemable Convertible 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, 2025, there were $0.9 million of dividends in arrears that had not yet been paid-in-kind in the form of additional shares of Redeemable Convertible Preferred Stock, representing $12.50 per preferred share.
The Redeemable Convertible Preferred Stock is redeemable by the holders after the earlier of June 29, 2026 or the termination or waiver of the restriction on cash dividends and/or redemptions that is set forth in the Company's credit agreements. The redemption price for each share of Redeemable Convertible Preferred Stock is an amount equal to its liquidation preference. As of September 30, 2025 and May 25, 2025, the aggregate liquidation preference of the Redeemable Convertible Preferred Stock was $47.5 million and $46.3 million, respectively.
Lifecore's internally generated cash is not expected to be sufficient to fund all or any significant portion of the Series A liquidation preference and Lifecore is considering its financing alternatives, which would be dependent upon the amount of any redemptions and may include supplementing any cash generated from operations or borrowing under its existing credit facilities with other financing transactions such as equity financing, debt financing, collaborations, strategic alliances or licensing arrangements, or other means.
In November 2025, the Company paid an aggregate amount of $4.7 million to the holders of the Redeemable Convertible Preferred Stock in full satisfaction of the outstanding registration delay fees. See "Part I, Item 1. Note 10 - Equity " in this Quarterly Report on Form 10-Q for a description of this obligation.
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, 2025 the Company had $179.6 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 is 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 three months ended September 30, 2025 was $4.4 million.
As of September 30, 2025, the Company had no borrowings outstanding under the Revolving Credit Facility. The Company repaid $2.5 million of borrowings in June 2025, and this repayment was a condition to the Company being able to access any other 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 three months ended September 30, 2025 was negligible.
Critical accounting estimates
There have been no material changes to the Company's critical accounting estimates from those disclosed in the Company's 2025 Annual Report. For a discussion of our critical accounting estimates, refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Use of Estimates" in Part II, Item 7 of the Company's 2025 Annual Report.
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