Release Date: August 27, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Lifecore Biomedical Inc (LFCR, Financial) reported a 24.2% increase in revenues for fiscal 2024, reaching $128.3 million.
- The company achieved a significant improvement in gross profit, which increased by 49.5% to $41.9 million.
- Adjusted EBITDA for the full year of 2024 increased by 82%, reaching $20.2 million.
- Lifecore Biomedical Inc (LFCR) is now current with all its SEC filings, resolving previous delays.
- The company has a strong outlook for its commercial business and is actively engaging with multinational pharmaceutical companies for new opportunities.
Negative Points
- Lifecore Biomedical Inc (LFCR) faced significant delays in public filings due to divestitures and restatements.
- The company expects flat revenue growth for fiscal year 2025, influenced by a key customer's inventory rebalancing and the loss of a small commercial customer.
- Gross margins are expected to decline by approximately 225 to 275 basis points in fiscal year 2025 due to a mix shift towards more commercial revenues and increased depreciation costs.
- The company continues to incur restructuring and reorganization costs, which are expected to be between $5.5 million to $6.5 million in fiscal year 2025.
- Lifecore Biomedical Inc (LFCR) implemented a strategic reduction in workforce, affecting 46 employees or 9% of its employee base.
Q & A Highlights
Q: Did you mention the current projects that you have ongoing, as has been the historical way you talk about the development stuff?
A: We discussed our development pipeline and the number of programs we anticipate commercializing over the next few years. We did remove a handful of programs from our forward-looking projections, but the pipeline remains strong and robust.
Q: Given the headwinds with a key customer rebalancing inventory and another customer moving production in-house, what are the assumptions for new customer wins or deeper engagements with existing customers to achieve flat revenue for the year?
A: Despite losing one specific customer, our commercial revenue outlook remains strong. We have confidence in our FY25 projections, with a small component of anticipated contributions from new programs by our BD team.
Q: How are you thinking about the medium-term outlook beyond FY24? Is double-digit growth a reasonable expectation beyond FY25, given the fill-finish assets and demand in the injectable market?
A: While we are only providing guidance for FY25, we feel very strongly about our future and our ability to participate favorably in the growing injectable market. We have the capability to produce GLP-1s and are well-positioned to compete in this space.
Q: EBITDA margins were roughly 15.7% in FY24, and you're guiding to flattish EBITDA margins for FY25. How much of a benefit does the reduction in force include, and how should we think about incremental margins as Lifecore returns to growth?
A: We expect EBITDA margins to improve over time through significant volume additions and operational improvements. For FY25, we anticipate a reduction in gross profit margin due to the mix between commercial and development revenues, but we expect to pick up savings on the operating expense side, leaving overall flat margins.
Q: Can you provide more details on the strategic reduction in workforce and its expected impact on future periods?
A: The reduction in workforce affected 46 employees, resulting in approximately $4.7 million in annual salary and benefits savings. About 65% of these savings are in direct and indirect labor, which we expect to benefit gross margin in future periods as lower-cost inventories are sold through. The remaining 35% will be reflected in selling, general, and administrative expenses.
Q: What are the key areas of focus for growth moving forward?
A: Our growth strategy focuses on three key areas: maximizing our base business and customers, advancing our development portfolio towards commercialization, and aggressively adding new programs to our pipeline. We are also increasing our commercial presence and marketing spend to drive market awareness of Lifecore.
Q: How do you plan to leverage the new five-head isolator filling capabilities?
A: The new five-head isolator filling capabilities position us favorably in the market for viscous and hard-to-handle programs. We have engaged with significant multinational pharmaceutical companies regarding dedicated capacity for a range of products, and we believe multiple impactful opportunities may emerge from these discussions.
Q: What is the expected impact of the new sales representatives on the company's growth?
A: We have recently expanded our commercial team with new sales representatives focusing on key drug development geographies in the United States. These representatives joined in Q1 2025, and we look forward to their contributions in driving growth.
Q: Can you provide more details on the anticipated restructuring and reorganization costs for FY25?
A: For FY25, we expect to incur $5.5 million to $6.5 million in restructuring and reorganization costs, primarily in the first half of the fiscal year. These costs are associated with elevated accounting fees, legal costs related to a shareholder activism settlement, and severance costs from the reduction in workforce.
Q: What is the company's outlook for capital expenditures in FY25?
A: We expect capital expenditures to decline to approximately $10 million to $14 million in FY25, compared to $17.9 million in FY24. The FY25 CapEx spend is primarily related to finalizing payments on the new fillers and maintenance CapEx.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
