LFCR - NASDAQ

Good morning, and thank you for joining Lifecore's Fiscal 2023 Fourth Quarter Earnings Call. [Operator Instructions]. Now I'd like to turn the call over to Jeff Sonnek, Investor Relations at ICR.

Good morning, and thank you for joining us today to discuss Lifecore Biomedical's Fourth Quarter and Full Year Fiscal 2023 Earnings Results. Hosting the call today from the company are Jim Hall, President and Chief Executive Officer; and John Morberg, Chief Financial Officer. Before we begin today, I would like to remind everyone of the safe harbor statement. Certain statements made in the course of this conference call contain forward-looking statements. It's 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 SEC, including, but not limited to, the company's Form 10-K/A for fiscal year 2023 and their subsequent periodic reports. Finally, in light of the company's ongoing exploration of strategic alternatives, management will not be conducting a live Q&A session on today's call. With that, I'd like to turn the call over to Jim Hall, Chief Executive Officer. Jim?

Thank you, Jeff. Good morning, everyone, and thank you for joining us for our fiscal 2023 fourth quarter and year-end update. Today, I'll briefly touch on our fiscal 2023 fourth quarter and year-end results and provide an update on our development portfolio. Before I do so, I want to briefly address the outstanding strategic review process, which remains ongoing. We aren't in a position today to provide any updates but we remain focused on continuing to execute on our business plan and that the Board continues its evaluation of potential strategic alternatives so as to determine the best path forward to maximize value for our stockholders. As you recall from our last call, at the end of May, we took significant step forward with the execution of an expanded supply agreement with significant long-term customer outcome as well as completing a comprehensive restructuring of our debt arrangements in which Alcon became our primary lender. These transactions were significant in creating a more stable and sustainable capital structure for Lifecore. These transactions also brought some added complexity to our year-end reporting which is the primary reason for the delay in providing you with our full year fiscal 2023 update. In the fiscal '23 fourth quarter, Lifecore generated segment revenue of $31.5 million and segment adjusted EBITDA of $6.1 million, both of which were consistent with our expectations and the cadence that we disclosed during our third quarter call. We believe our business remains very well positioned as a fully integrated CDMO with highly differentiated capabilities for the development, fill and finish of complex sterile injectable grade pharmaceutical products. These technical capabilities have been honed from our more than 40 years of experience in building a premier pharmaceutical injectable grade hyaluronic acid manufacturing platform with a focus on complex and highly regulated products. We continue to believe that our unique expertise, coupled with ongoing industry trends towards outsourcing of new drug development and our 4 decades of experience in creating a world-class quality management system, positions Lifecore as a preferred partner to provide CDMO services for new injectable drug applications. In fact, Lifecore is the only major manufacturer of pharmaceutical injectable-grade HA, with injectable CDMO expertise in the market today. Approximately 55% of all new drug applications are injectables and prefilled syringe demand is growing at an estimated 13% compound annual rate according to pharma projects. Given the industry's limited specialized injectable drug manufacturing capacity, we intend to continue to take full advantage of this incredible opportunity and deliver much needed capacity that we've been investing in during the past few years. Overall, our development portfolio of active projects advanced nicely in the fourth quarter with the addition of several later-stage projects. In total, as of the end of our fiscal year in May, our active development projects increased by 5 to 29. These 5 new projects are also with 5 new customers, which brought our development customer count as of year-end up to 27. These projects are spread across early phase clinical development with 7 projects, Phase I and II clinical development with 8 projects and Phase III clinical development and scale up commercial validation activity with 14 projects. We continue to see an active project pipeline and continue work on the velocity at which we close our new project opportunities. As a result, we expect to add several new projects to our development portfolio by the end of our first quarter of fiscal '24. Our team is doing a great job ramping up commercial presence in the market. As we've discussed several times over the past year, we believe our investments in our business development team are paying dividends in terms of our project pipeline. Our 2 new isolator fillers remain on track which broaden our opportunity set in a significant way as a request for usage of that category of fillers for customers' projects are in particularly high demand. Our approach has shifted in response to that. We've continued to evaluate and target our prospective opportunities with the increased capacity represented by those fillers in mind as we look toward the future state with more optimized and balanced capacity. Our targeted and focused sales approach has highlighted and identified 44 prospective projects and our development opportunity pipeline as of the end of the fiscal fourth quarter that are as diverse and impactful as we've ever had at Lifecore. These opportunities span multiple end markets, classes of drugs and medical devices and with an assortment of companies, both large and small, which we believe speaks to the attractive CDMO capabilities within Lifecore's growing expertise that the pharma industry is actively seeking in a CDMO partner. This is especially exciting as we work on leveraging our expanded set of capabilities. We are seeing great interest from potential customers who are working on drug products which represents approximately half of our current development opportunity pipeline and includes the potential to expand our relationships with some of the larger pharma companies in the industry. But we also continue to see substantial interest from customers who want to utilize our HA expertise for highly viscous products. We are making progress on opening path to other segments of the market that we previously may not have had the ability to execute and refining our pipeline to focus on opportunities that we believe are uniquely situated to capitalize upon. When combined with our unique expertise working with difficult materials, we feel like we are in an extremely strong position. In terms of our growth and ability to meet customers' needs contemplated in our development portfolio, we continue to invest in capacity. Today, our theoretical filling capacity remains at 22 million units versus demand of 8 million to 10 million units that we expect will be fully utilized over the next few years with projects within our existing development portfolio. As such, we need to keep our eye on the near and long term, given lead times with installing new capacity and the necessary human capital that's required to operate these higher levels. We have invested in 2 new isolator fillers, a 5-head and a 10-head that have been manufactured and are going through the final stages of factory acceptance testing with anticipated delivery dates this fall. Our 5-head isolated filler and new fill room are planned to be GMP ready by Q1 of calendar 2024. We believe that these fillers will allow us to double our theoretical capacity to approximately 45 million units putting Lifecore in a great position to meet market needs and optimize our production across our manufacturing footprint. Another capacity investment is related to our fermentation production. We are in the process of moving from a single shift fermentation production staff to hiring a full 24/7 staff to increase our sterile HA capacity by 50% by June 2024 to address the increased HA volume requirements associated with our expanded supply agreement with Alcon. Along with capacity enhancements, we continue to build out our organizational capabilities to attract new talent and develop the team we already have in place. Our Lifecore University training program is a key element of that, as is our Lean certification program, which continues to elevate our team. We are proud of the 10 individuals who are granted their lean practitioner certification and having an additional lean certification training group stage to start November. Our operational excellence team continues to focus on creating metrics that matter, enhancing our training program and creating an efficient environment for enhanced cross-functional communication. With our portfolio of current development projects and the pipeline of opportunities we are seeing, the new fillers will be very timely to assist Lifecore and fulfilling our customers' forecasted commercial units which we see on the horizon. Once again, we believe Lifecore is well positioned to take advantage of the strong industry fundamentals and customers' projects as they progress through development and into commercialization. We believe this position will translate into significant revenue-generating potential in FY '24 and beyond. In summary, we are making important progress on preparing Lifecore for the growth that we see in our development portfolio. I'm extremely pleased with the resilience that our organization has demonstrated and thank each of our team members for their individual contributions. We operate in an exciting and rapidly growing industry, and I believe we are well positioned for significant growth ahead. With that, I'll pass the call to John to discuss Lifecore's financials.