Good day, and welcome to the Lifecore Biomedical Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this call is being recorded. I would now like to turn the call over to Stephanie Diaz, Manager of Investor Relations. Please go ahead.

Good morning, and thank you for joining us. Today, Lifecore Biomedical will provide its earnings results for the fourth quarter and transition period ended December 31, 2025, and a corporate update. As the company has recently changed its fiscal year-end to align with the calendar year, we will be comparing our 2025 results to the closest comparable period in the prior year. Today, we will be comparing our fourth quarter ended December 31, 2025, with the previously reported quarter ended November 24, 2024. We will be comparing our 7-month transition period ended December 31, 2025, with the unaudited 7-month period ended December 31, 2024. Hosting the call today from Lifecore are Paul Josephs, President and Chief Executive Officer; and Ryan Lake, Chief Financial Officer. Before we begin, we'd like to remind everyone that today's conference call will contain forward-looking statements. It is important to note that the forward-looking statements made during this call reflect management's judgment and analysis only as of today, March 16, 2026, and the company's actual results could differ materially from those projected in such forward-looking statements. For a more thorough discussion of the risks and uncertainties associated with any forward-looking statements, please see the disclaimer regarding forward-looking statements that is included in our earnings press release, which was furnished to the Securities and Exchange Commission this morning on Form 8-K and is available on our corporate website at lifecore.com as well as our other filings with the Securities and Exchange Commission, including, but not limited to, the company's Form 10-KT for the transition period ended December 31, 2025, which was filed with the SEC this morning and is also available on our website. In addition, our earnings press release includes a discussion of and during this call, we will reference certain non-GAAP financial information. You can find relevant non-GAAP reconciliations in our earnings press release. With that, I'd like to turn the call over to Paul Josephs, President and Chief Executive Officer.

Thank you, Stephanie. Good morning, everyone, and thank you for joining us today. 2025 was a highly productive year for Lifecore Biomedical, during which we strengthened our pipeline, capabilities, leadership and our standing as a differentiated CDMO. During the year, we continued to successfully execute against our strategy to position Lifecore for sustained growth through which we aim to achieve a 12% revenue CAGR and improved EBITDA margins to above 25% in the midterm. Our many achievements during the year included maximizing our existing commercial business, advancing our development portfolio towards commercialization, adding multiple new programs to our pipeline through our revamped business development strategy and implementing key initiatives throughout the organization that have improved our margins and will continue to drive improvement towards our EBITDA goal. Our financial performance was also strong during the transition period. During the fourth quarter of 2025, we recorded revenues of $35.7 million, a 10% increase as compared to the most comparable prior year quarter. And for the approximately 7-month transition period from May 26, 2025, through December 31, 2025, we recorded revenues of $75.5 million, an increase of 20% compared to the prior year comparable period. Gross margin and adjusted EBITDA also improved during the 2025 fourth quarter and transition period as compared to the prior year comparable periods in 2024, reflecting the growth in our fermentation business as well as the benefit of the many efficiencies incorporated throughout our organization in 2025. Ryan will elaborate on these financial results as well as guidance for 2026 following my overview of our 2025 achievements, beginning with the successful expansion of our commercial business. As noted previously, our company is preparing for it to support a significant increase in aseptic fill/finish demand from our largest customer that is expected to begin in 2027. In 2025,…

Thank you, Paul, and good morning, everyone. In conjunction with my comments, I'd like to recommend that participants refer to Lifecore's Form 10-KT for the transition period ended December 31, 2025, which we filed with the SEC earlier today. As a reminder, today, we will be comparing our fourth quarter, which ended on December 31, 2025, with the most comparable prior year quarter ending November 24, 2024. For the 7-month transition period ended December 31, 2025, we will be comparing to the unaudited 7-month period ended December 31, 2024. Before I jump into the numbers, I'd like to echo Paul's sentiment. We are very pleased with the company's 2025 performance, and I'm happy to share our financial results with you today. Revenues for the quarter ended December 31, 2025, were $35.7 million, an increase of 10% compared to $32.6 million for the most comparable prior quarter ended November 24, 2024. The increase in revenues of $3.1 million was due to a $5.6 million increase in HA manufacturing, primarily due to timing of revenues from Lifecore's largest customer supply chain initiatives. CDMO revenues decreased $2.4 million, which was primarily from the absence of take-or-pay revenue in the comparable period and lower aseptic sales volumes, partially offset by higher development revenue driven by timing of project work for two major customers. During the 7-month transition period ended December 2025, revenues were $75.5 million, an increase of 20% compared to $63 million in the comparable prior year period. This increase in revenues of $12.6 million was primarily due to a $10.1 million increase in HA manufacturing, primarily due to timing of revenues from Lifecore's largest customers' supply chain initiatives. In addition, CDMO revenues increased by $2.4 million, which was primarily from overall higher sales volumes. These increases were partially offset by the absence…

Thank you, Ryan. In closing, I would like to address our recent path as well as our roadmap we see ahead for the next several years. Since my start with the company in 2024 through calendar year 2026, Lifecore has been in a period of stabilization. From 2024 to present, we have brought in new leadership, improved efficiencies and productivity, significantly lowered expenses, including headcount, expanded our technical and service capabilities and reorganized our business development infrastructure, leading to multiple new customer wins last year, and we expect additional wins on the horizon. In the 2027 to 2028 time frame, we expect our growth to primarily be driven by an increase in commercial demand as well as the development revenues and the commercialization of late-stage portfolio projects. We believe that we are well positioned to achieve our midterm objectives in 2029. We look forward with confidence and optimism, supported by a clear strategy for a strong future. This concludes our prepared remarks for today. Operator, you may now open the call for questions.

[Operator Instructions] Our first question comes from Max Smock with William Blair.

It's Christine Rains on for Max. So hoping you can talk a little bit about your strategy for targeting customers in Asia. I think at recent conferences, you've talked about an increase in conversations from customers from the region given the trend in regionalization and manufacturing. And you also talked about today your steps that you've taken in terms of allowing the use of HA as well as finished product in the region. So wondering if these investments are due to Lifecore already being approached from potential promising customers or sort of a more proactive approach to go out and win clients in the region?

Christine, thanks for the question. I hope you're well. The majority of inquiries we get from Asia are in -- well, they are all inbound, taking advantage of the regionalization of manufacturing. As Lifecore's brand continues to create broader and broader knowledge across the market, we expect that trend to continue. But most of the -- again, all of the inquiries that we received to date from Asia have been inbound. We have no intent or plans of putting figuratively speaking, feet on the street in the Asian markets.

Great. That's super helpful context. And then in your outlining of the three factors impacting your 2026 guide, one of them you noticed the delay in the commercial launch that was targeted for 2026 due to funding challenges. So just hoping you can unpack this a bit in terms of the incremental revenue impact is expected to have for the year and just how confident you are that this program is just being pushed out to 2027 and not canceled?

It's a great question. So it is already a commercialized program in other markets, which gives us great confidence that it will move forward. This is a smaller company. It was, I would say, a small launch for us in 2026 that has now been moved to 2028. We expect to have more granularity and visibility to the customers' future plans in the summer time period.

Our next question comes from Matt Hewitt with Craig-Hallum Capital Group.

Maybe first up, so obviously, last year and since you guys joined, there's been some pretty heavy lifting on the operational side of things to drive efficiencies to increase margins. Is there still some lifting to do there? Or at this point, is it large -- is the margin expansion largely going to come from volume growth?

Matt, thanks for your question. So as we've previously stated, we still believe expenses will be the first mover. We've seen that now, and we expect to see continued improvements in adjusted EBITDA due to all those efficiencies and cost-cutting measures that we've implemented over the past 18 months. But yes, there are further opportunities, in particular, in procurement, in our strategic investments and organizational efficiencies as well as systems and processes that will help us achieve those further reductions.

Got it. And then regarding the commercial tech transfers, I think today, you mentioned 28 to 30 months for those to kind of flip over. And pardon me, I mean, I feel like historically, it's 18 to 24 months. Is there something unique about these specific candidates? Is it the regulatory environment that things are just taking a little bit longer? Maybe walk us or provide a little bit of color on these specific targets.

No. Great question, Matt. I can take that one. So we -- what I stated, I believe, was 24 to 30 months. These -- while these are products that Lifecore certainly has proven capability to manufacture, but the overall overriding environment is really focused around safety and reliability when it comes to sterile injectable programs. So we believe based on timing, discussions with our customers and the regulatory environment that it will take 24 months because it will require what they characterize as a pre-approval inspection. And by the time the customer files, we expect it would be a 9- to 12-month approval process of Lifecore. So that's what ultimately drives that 24- to 30-month time frame.

Our next question comes from Paul Knight with KeyBanc Capital.

Paul, could you talk about your sales force changes? And are you done with this change in what you've done for distribution?

Thanks, Paul. Thanks for the question. Yes, we're done, I would say, structurally. We've brought in a very experienced leader, Mark DaFonseca, to lead our business development efforts. He has over 20-plus years of sales leadership experience within the CDMO industry. We have a well-experienced marketing leader within the team and a very well-experienced business development team with a grounded in experience in sterile injectables. So we feel really good about the team we have in place, and it's all about continuing the momentum that we built within 2025 and that we expect to have more meaningful and impactful programs closed in 2026.

And then the other macro question I would have would be what's the status of the fill/finish capacity globally right now? Is it an advantage that it's tight? Or is it not that tight? If you could talk about where -- what's the status is of fill and finish? It seems like some firms are adding a lot of capacity, but where are we right now?

I would say that's a very good question, and we talk about this a lot. I would say on your traditional vials that you would go and get your flu vaccine from CVS or Walgreens on an annual basis. There is an adequate amount of capacity in the market for that dosage form or delivery system. But when it comes to prefilled syringes and cartridges, there's available, there is a dearth of capacity at this point. Ultimately, capacity will catch up, but Lifecore continues to differentiate itself based on our technical capability and quality. And I think that's what will sustain us and help us grow over the long haul.

And then last question would be regarding inshoring. I mean, there's a lot of numbers being thrown about. But does it make you reconsider that 12% long-term CAGR? Or is it just too much -- too early to tell?

I think too early to tell, Paul. I would say right now, the leading indicators are strong. Christine asked a question about Asian markets. We have Asian late-stage programs within our pipeline, programs from Europe. I've mentioned this in the past, programs from Israel as well and complex injectables from India. So I believe the regionalization trend is real and something that we're certainly working very hard to capitalize on, and I don't see it changing anytime soon.

Our next question comes from Mac Etoch with Stephens Inc.

Maybe just a couple for me. Maybe double-clicking on the 2026 guidance. The customer decision to build excess HA inventory in 2025. I think previously, you had mentioned that there's a customer moving away from an external third party and bringing manufacturing in-house. So I guess my question is, did you all see a benefit in 2025 from that stocking? And yes, I'll leave it there and follow up.

Mac, thanks for the question. Yes, from an HA perspective, it's really been a 2-year strategic initiative by our -- one of our customers as they look to bring more aseptic volume to Lifecore. And as they transitioned away from -- they've always been dual source with regard to HA, and they were moving away from one source and also building stock within their existing site, their other existing site as they transition volume to Lifecore, which went to -- led to a 24-month, I would say, increase with regard to our HA demand. You see a leveling out of that starting in 2026 with approximately a $10 million reduction, which Ryan articulated. And then you'll see a further leveling out as we move into 2027, and you can see that in our earnings presentation, our investor presentation. We see that leveling out moving forward from '27 forward.

I appreciate the color there. And then given the dynamics that you highlighted for 2026, how should we think about the revenue and margin cadence throughout the course of the next year?

Yes. Thanks for the question, Mac. So from a revenue perspective, we currently expect the revenue split to be roughly in the mid-40% range in the first half and the mid-50% range in the second half. From an operating expense or gross margin perspective, we expect margins to be in the 30% range with some variability between quarters based on the product mix, volume, timing of shipments, that's going to result in an anticipated split similar to revenue. R&D expenses, we expect R&D to remain at a similar run rate as Q4, so about in that $1.5 million to $2 million a quarter. And SG&A for calendar year '26, we expect to be in a range of approximately $28 million, and that will represent approximately a $6 million decrease compared to the prior year comparable period because of all those cost-saving initiatives, the legacy matters and efficiencies that we've realized. And we expect the cadence of the SG&A expenses to be split approximately a little over 50% in the first half and slightly south of 50% in the second half. So the goal, and as we've talked about too, it's currently expecting that, that run rate to be approximately $7 million a quarter exiting the year. And then just from an EBITDA margin perspective, in the $20.5 million to $25 million, that will be split about 40% or in the 40% range for the first half and 60% in the second half. And that really shows that continued progression of adjusted EBITDA margins, as we mentioned previously, from 15% to 17% to now between 17% and 20% or 18.5% at that midpoint.

Our next question comes from Michael Petusky with Barrington Research.

I guess, Paul, I just wanted to talk a little bit more about the site transfer success that you guys have had here recently. Just in terms of the impact, and I know you're not going to give like super specific guidance, but if you could look at each of these site transfers, I mean, how meaningful in terms of top line incremental contribution? Is it a few million? Is it north of $10 million? Like what are we actually talking about in terms of the upside of these site transfers?

Mike, thanks for the question. We've risk adjust these accordingly in our forward-looking projections. But if you look at our late-stage pipeline slide, both at, I would say, peak sales have the opportunity to be in, I would say, 8 figures of commercial revenue. So they're exciting and impactful programs for us. We think they'll be very sticky because of the technical nature of them and proud to win both of those programs with relatively new customers for Lifecore.

Okay. Terrific. And then Ryan, I guess in '27, I had assumed maybe a little bit more than the modest revenue growth you guys sort of put out there in the press release. I'm just curious, what sort of the puts and takes on that modest revenue growth or the biggest puts and takes on that modest revenue growth? And then I guess, in terms of just what that means, is that low single digits, is that mid-single digits? What does modest revenue growth in '27 actually mean in your view?

Yes. Thanks for the question, Michael. So I think as we talked about some of the puts and takes in revenue for calendar year '26 with the loss of the customer, that has an expected annualized impact of about $7 million. And then what Paul talked about with regard to HA and the impact to '26, there's about another $10 million impact to that in '27. So that mutes that growth a little bit, but also in '27 is when you have those contractual commitments beginning from our largest customer as well as some of those commercial launches that are anticipated.

Okay. All right. Great. And just in terms of when you talk about modest revenue growth, what are you guys actually envisioning, a range?

Yes. I mean those are just goals right now. We haven't provided that outlook for '27 yet.

Okay. And then just last question. You provided some historical information, which I really appreciate on the free cash generation, obviously. And I'm just curious, you didn't give formal guidance, I don't believe, around free cash and CapEx expectations. Is there anything you can sort of say on that just to be helpful in terms of our models?

Thanks, Michael. So beyond the operational expense improvements and continued reduction in the nonrecurring costs from legacy matters, those all have a real cash impact. So we expect cash flow to continue to improve. There are a number of puts and takes for our cash outlook for calendar year '26, but I expect our base case will be generating free cash flow in excess of $10 million. But that could be impacted and dependent on a number of items, including future expenses incurred related to legacy matters, timing of CapEx. And as I mentioned in my opening remarks, any potential redemptions of our convertible preferred stock or prepayments of our debt.

Is there a ballpark estimate around CapEx?

Yes, it's in the $8 million range.

Okay. I'm showing no further questions at this time. I'd like to turn the call back over to Paul Josephs for closing remarks.

Thank you, operator. I wish to thank all of Lifecore's stakeholders and supporters, including our investors, customers and collaborators for their ongoing support and partnership. I also wish to thank our dedicated employees for their commitment to our success as well as the successes of our customers and the patients they serve. We are pleased with the progress we made in 2025 and look forward to future growth ahead. That concludes our call today. Thank you for participating.

Thank you. You may now disconnect. Everyone, have a great day.