LIFECORE BIOMEDICAL, INC. annual report, FY2024

Lifecore Biomedical, Inc. — Fiscal 2024 Form 10-K Summary

Reporting period: Fiscal year ended May 26, 2024, compared primarily with the year ended May 28, 2023. The provided metadata references “2023 Q4,” but the filing is an annual Form 10-K for fiscal 2024. Lifecore operates as a single-segment contract development and manufacturing organization focused on sterile injectable products, pharmaceutical-grade hyaluronic acid and aseptic filling services.

Key Financial Metrics

Metric	FY2024	FY2023	Change
Total revenue	$128.3 million	$103.3 million	Up 24%
Gross profit	$41.9 million	$28.0 million	Up 50%
Gross margin	32.6%	27.1%	Up 553 bps
Operating loss	$(8.8) million	$(21.8) million	Improved $13.0 million
Net income	$12.0 million	$(99.6) million	Improved $111.6 million
Adjusted EBITDA	$20.2 million	$11.1 million	Up $9.1 million
Cash flow from operations	$(0.2) million	$(17.4) million	Improved $17.2 million
Capital expenditures	$17.9 million	$21.5 million	Down $3.6 million
Cash and cash equivalents	$8.5 million	$19.1 million	Down $10.6 million

Revenue growth reflected a $20.2 million increase in CDMO revenue, including $9.9 million from the launch of a new commercial product and $10.3 million from higher existing-customer volumes, plus a $4.8 million increase in fermentation revenue. CDMO revenue was $96.6 million and fermentation revenue was $31.6 million.

Gross profit benefited from higher volume, favorable product and customer mix, increased pricing and inventory net-realizable-value adjustments. Operating expenses totaled $50.7 million, including $40.5 million of selling, general and administrative expense, $8.6 million of research and development expense and $1.7 million of restructuring costs.

FY2024 net income included a $39.5 million non-cash gain from the change in fair value of the Alcon-related debt derivative liability. It also included $14.7 million of related-party interest expense, $3.5 million of registration-rights penalty fees and $2.7 million of income from discontinued operations. The filing does not provide a clear recurring earnings measure excluding all unusual items.

Liquidity, Debt and Capital Resources

Total principal debt was approximately $164.5 million at May 26, 2024, consisting primarily of $157.3 million under the Alcon term loan and $7.2 million of equipment-sale finance liability, before discounts.
The revolving credit facility had $19.7 million outstanding, approximately $12.3 million available for borrowing and a $40 million overall commitment, subject to borrowing-base limitations.
The Alcon term loan matures May 22, 2029, bears a stated interest rate of 10%, and generally pays interest in kind until the third anniversary of closing. Its reported effective annual interest rate was 22.5%.
The revolving facility matures December 31, 2025. The company stated that it was in compliance with financial covenants at fiscal year-end except for requirements to deliver certain historical financial statements; lender waivers and amendments were obtained.
Management stated that operating cash flow, existing cash and available borrowing capacity should fund operational and capital requirements for at least the next twelve months. However, the company also disclosed that it expects to need additional capital in the immediate future and may need to refinance the revolving facility at maturity.
Property and equipment was $148.6 million, including $61.4 million of construction in process. Estimated remaining costs for major capacity projects were approximately $10.4 million through fiscal 2027.

Material Changes Versus the Prior Comparable Period

Revenue increased 24%, while gross profit increased 50% and gross margin expanded 553 basis points.
The company moved from a $99.6 million net loss to $12.0 million of net income, substantially due to improved operating performance, discontinued-operation results and the non-cash debt-derivative gain.
Operating cash flow improved from $17.4 million of cash used to approximately $0.2 million of cash used, but remained slightly negative.
Capital expenditures declined to $17.9 million from $21.5 million as planned project spending decreased.
Cash declined by $10.6 million, while principal debt increased from approximately $150.2 million to $164.5 million.
Restructuring costs declined from $4.2 million to $1.7 million as the divestiture-related restructuring program neared completion.
Related-party revenue, primarily associated with Alcon, increased to $50.6 million from $4.0 million. Two customers accounted for at least 10% of revenue and together represented 39% of FY2024 sales.

Outlook, Commentary, Risks and Unusual Items

Management’s strategy is centered on managing the business-development pipeline, maximizing syringe, vial and cartridge capacity, and advancing customer products toward commercialization. The filing does not provide quantified revenue, earnings or margin guidance.

Financial reporting controls: Management and the independent auditor identified material weaknesses in internal control over financial reporting. The auditor issued an adverse opinion on internal control, although it issued an unqualified opinion on the consolidated financial statements.
Capital and leverage: High leverage, substantial interest obligations, restrictive covenants and the need for additional capital could limit operating flexibility. Failure to comply with covenants could permit acceleration of debt and enforcement against substantially all assets.
Customer and lender concentration: Alcon is both a major customer and the lender under the term loan. Material noncompliance with the Alcon supply agreement can constitute an event of default under the term loan.
Regulatory and manufacturing exposure: Products and facilities are subject to FDA and international regulation. Quality failures, supply interruptions, single-source suppliers, equipment failures or capacity constraints could delay shipments or cause recalls.
SEC, litigation and listing matters: The SEC issued a subpoena concerning the company’s restatement. A shareholder securities class action was filed after year-end. Nasdaq had initiated delisting proceedings related to late filings; the company stated that it regained filing compliance upon filing the 10-K but cannot assure continued compliance.
Subsequent workforce reduction: On July 8, 2024, the company announced a reduction of 46 full-time employees, approximately 9% of its workforce, with estimated severance costs of approximately $1.0 million.
Other subsequent costs: The company estimated approximately $1.5 million of additional costs related to shareholder cooperation agreements in the first quarter of fiscal 2025.
Preferred stock: Series A Convertible Preferred Stock had an aggregate liquidation preference of approximately $43.0 million, accrued a 7.5% paid-in-kind dividend and became redeemable by holders after June 29, 2026, subject to the governing agreements.

Most Important Facts for Investors to Verify

Whether revenue growth and the 32.6% gross margin are sustainable after the new commercial-product launch and inventory valuation adjustments.
The amount, timing and terms of any additional financing required, including refinancing of the revolving facility before or at its December 2025 maturity.
Compliance with all debt covenants, lender waivers and the minimum liquidity covenant, including the $4.5 million fourth-quarter requirement.
Progress in remediating the material weaknesses and whether future filings will be timely and reliable.
The effect of Alcon’s customer, lender and contractual-counterparty roles on revenue concentration, liquidity and default risk.
The outcome and potential financial exposure from the SEC subpoena, shareholder class action, former Curation-related matters and other contingencies.
Actual utilization and returns from the significant capacity-expansion projects, including the approximately $10.4 million of remaining committed costs.
Potential dilution and priority effects from the Convertible Preferred Stock, equity awards and any future capital raise.