Lifecore Biomedical Inc.

05/06/2026 | Press release | Distributed by Public on 05/06/2026 05:22

Quarterly Report for Quarter Ending March 31, 2026 (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 Transition Report on Form 10-KT for the transition period ended December 31, 2025 (the "2025 Transition 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 fund any redemptions of shares of the outstanding Series A Redeemable Convertible Preferred Stock if requested by holders in accordance with their terms;
•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 the 2025 Transition 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 Transition 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 pharmaceutical-grade, non-animal-sourced 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.
Since May 2024, Lifecore has continued to make impactful improvements to its operations and financial position:
•We have improved operations by expanding our revenue-generating capacity, increasing our focus on manufacturing efficiency and cost management, and investing in systems and processes to support more effective execution. In September 2024, the Company expanded its aseptic filling capabilities through the installation of a fully automated high-speed, multi-purpose 5-head aseptic isolator filler. In January 2026, Lifecore implemented a new enterprise resource planning ("ERP") system designed to enhance inventory control, data visibility, and financial management. Through these and other initiatives, the Company believes that it has improved workforce productivity, reflecting the performance-driven culture at Lifecore and underscoring the Company's commitment to continuous improvement.
•We have strengthened our financial position through, among other actions, (i) raising $24.3 million in a private placement of Lifecore common stock in October 2024, (ii) a three-year term extension of our existing asset-based lending revolving credit facility with BMO in November 2024, (iii) the sale of certain excess capital equipment for $17 million in January 2025, (iv) the repayment of $19.7 million of borrowings on our outstanding revolving credit facility over the past 18 months, (v) reduced obligations with the payment of an aggregate amount of $4.7 million to the holders of the Redeemable Convertible Preferred Stock in full satisfaction of outstanding registration delay fees in November 2025, and (vi) the implementation of operational cost reductions, including overhead costs and professional fees associated with legal, accounting and consulting spend.
Lifecore expects to further improve efficiencies and productivity through additional procurement and operational strategies that will build upon the new capabilities and information available from our ERP system. 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, our Board of Directors approved a change in the Company's fiscal year from a fiscal year ending on the last Sunday of May to a calendar year ending on December 31. Since September 30, 2025, the Company has been reporting calendar periods in its quarterly periodic reports. In accordance with SEC rules, the Company is presenting current period results compared to the most closely-comparable previously-reported three-month period through June 30, 2026. For this report, the most closely-comparable previously-reported period is the three-month period ended February 23, 2025. 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. Beginning September 30, 2026, the Company will provide calendar-based comparative periods.
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 sales: 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, represents the fair value of various features in the credit facility that require bifurcation and accounting as a derivative instrument. Changes in the fair value are recorded as non-operating income or expense.
Three months ended March 31, 2026
Revenues and gross profit
Three months ended Change
(dollars in thousands) March 31,
2026 		February 23,
2025 		Amount %
Revenues:
CDMO
$ 15,775 $ 20,789 $ (5,014) (24) %
HA manufacturing
7,418 14,365 (6,947) (48) %
Total revenues
23,193 35,154 (11,961) (34) %
Cost of goods sold 18,731 25,309 (6,578) (26) %
Gross profit 4,462 9,845 (5,383) (55) %
Gross profit percentage 19.2 % 28.0 % (8.8) %
The decrease in revenues of $12.0 million was primarily due to a $6.9 million decrease in HA manufacturing revenues primarily from the absence of increased demand in the prior period from a customer due to its supply chain initiatives. In addition, CDMO revenues decreased $5.0 million, which was primarily from $2.9 million of lower sales volumes, $1.3 million of lower development revenue due to completion of discrete development projects in the prior comparable period and timing of customer project lifecycles, and a $0.9 million contractual take-or-pay arrangement in the prior period.
The decrease of $5.4 million in gross profit is due a $5.7 million decrease in HA manufacturing gross profit due to decreased sales volume and manufacturing absorption, partially offset by a $0.2 million increase in CDMO gross profit. The CDMO increase was due to mix and costing and $0.9 million of higher prior year costs due to a customer termination resulting in write-off of inventory and equipment, partially offset by a $0.9 million contractual take-or-pay arrangement in the prior period.
Operating expenses
Three months ended Change
(dollars in thousands) March 31
2026 		February 23
2025 		Amount %
Research and development $ 1,217 $ 2,045 $ (828) (40) %
Selling, general and administrative 7,917 9,978 (2,061) (21) %
Loss on sale or disposal of assets, net of portion classified as cost of sales
- 6,851 (6,851) (100) %
Total operating expenses $ 9,134 $ 18,874 $ (9,740) (52) %
Research and development ("R&D")
R&D expenses declined primarily due to lower cost of sales allocations, as well as a reduction in stock-based compensation.
Selling, general, and administrative ("SG&A")
The $2.1 million decrease in SG&A expenses includes $1.6 million of lower recurring legal and accounting expenses, lower compensation and lower credit losses, as well as a $0.5 million net reduction in non-recurring expenses primarily related to legacy legal 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 business transformation expenses. The prior period included $2.1 million of non-recurring expenses primarily related to legal expenses related to legacy matters.
Loss on sale or disposal of assets
The $6.9 million loss on sale or disposal of assets in the prior period was primarily due to a $6.4 million loss on the sale of certain excess equipment that was primarily related to the write-off of historically capitalized interest costs, as well as $0.5 million related to capital projects that were abandoned.
Non-operating income or expense
Three months ended Change
(dollars in thousands) March 31,
2026 		February 23,
2025 		Amount %
Interest expense, net $ (7,220) $ (5,481) $ (1,739) 32 %
Change in fair value of debt derivative liability, related party (3,155) (600) (2,555) n/m
Other expense, net 110 333 (223) (67) %
Income tax (expense) benefit (43) 8 (51) n/m
Interest expense, net
The increase in interest expense, net of interest income, included an increase of $1.4 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.
Change in fair value of debt derivative liability, related party
The $2.6 million increase in expense was primarily attributable to changes in key valuation inputs during the period, including a higher discount rate caused by a decline in the Company's synthetic credit rating, as well as the passage of time.
Other expense, net
The decrease in other expense, net was immaterial.
Income tax benefit or expense
The income tax benefit or expense primarily consists of current state income tax obligations and a schedule of net deferred federal tax attributes that are substantially offset by valuation allowances and net operating loss carryforwards. Changes in the income tax benefit or expense are driven by the mix of these various items and were not significant for the periods presented.
Liquidity and capital resources
As of March 31, 2026, the Company had cash of $20.8 million and $17.3 million available for borrowing (together, "consolidated liquidity") under its $40.0 million Revolving Credit Facility, with no amounts outstanding as of March 31, 2026. As of March 31, 2026, the Company had approximately $194.2 million in total indebtedness with Alcon, with $188.6 million outstanding under the Term Loan Credit Facility. The Company is subject to minimum liquidity covenants under its credit agreements, the most restrictive of which requires the Company to maintain at least $4.0 million of consolidated liquidity, as adjusted for any excess payables, at the end of each fiscal quarter. As of March 31, 2026, 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.
The following table presents comparative summary cash flows for the three months ended March 31, 2026 and February 23, 2025:
Three months ended
Change
(in thousands)
March 31, 2026 February 23, 2025
Net cash provided by (used in):
Operating activities
$ 4,700 $ 1,199 $ 3,501
Investing activities
(1,118) 1,544 (2,662)
Financing activities
(256) (6,783) 6,527
Total
$ 3,326 $ (4,040) $ 7,366
Cash flow improved by $7.4 million in the three months ended March 31, 2026 compared to the three months ended February 23, 2025 for the following reasons:
•Operating cash flows improved $3.5 million. In the 2025 period, earnings as adjusted for non-cash items generated $3.6 million, which was partially offset by $2.4 million of net working capital changes. In contrast, in the 2026 period, earnings as adjusted for non-cash items used $0.8 million of cash, offset by changes in working capital of $5.5 million primarily related to receivable collections;
•Investing cash flows decreased by $2.7 million due to the absence of $7.0 million cash from the sale of certain excess equipment in the 2025 period, partially offset by lower capital spending in the 2026 period compared to the 2025 period; and
•Financing cash outflows decreased $6.5 million primarily from the absence of a net $6.0 million of repayments under the revolving credit facility in the 2025 period.
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; any redemptions 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, any additional cash generated by operations, 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.
Cash obligations relating to Redeemable Convertible Preferred Stock
On January 9, 2023, the Company issued 38,750 shares of Redeemable Convertible Preferred Stock for a purchase price of $1,000 per share (the stated value) and gross proceeds of $38.8 million. The Redeemable Convertible Preferred Stock accrues dividends and is 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 March 31, 2026, 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 $18.75 per preferred share.
Each holder of outstanding shares of Redeemable Convertible Preferred Stock has the right to require the Company to redeem all or part of such holder's outstanding Redeemable Convertible Preferred Stock beginning on June 29, 2026. To make such cash redemption payments the Company would be required to obtain a consent to such cash redemption payments or waiver of the restriction on cash dividends and/or redemptions set forth in each of the Company's credit agreements. To the extent consents or waivers are not obtained under each of the Company's credit agreements, the Company would be in breach thereof if such payments in cash were made. The redemption price for each share of Redeemable Convertible Preferred Stock is an amount equal to its liquidation preference. As of March 31, 2026 and December 31, 2025, the aggregate liquidation preference of the Redeemable Convertible Preferred Stock was $49.3 million and $48.4 million, respectively. The Company estimates that the accrued and unpaid liquidation preference for all such shares of Redeemable Convertible Preferred Stock, assuming no earlier conversions or redemptions, will be $50.2 million on June 29, 2026. If the Company does not redeem all shares of Redeemable Convertible Preferred Stock that are submitted for redemption, we must pay the holder cash interest at a rate of 1% per month (equivalent to 12% per annum) in respect of that holder's unredeemed shares of Redeemable Convertible Preferred Stock until paid in full.
Lifecore's internally generated cash is not expected to be sufficient to fund all or any significant redemptions of the Redeemable Convertible Preferred Stock. Lifecore's financing alternatives would be dependent upon the amount of any redemptions and may include supplementing any cash generated from operations and borrowing under its existing credit facilities with 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.
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 March 31, 2026 the Company had $188.6 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 March 31, 2026 was $4.5 million.
As of March 31, 2026, the Company had no outstanding 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 March 31, 2026 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 Transition 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 Transition Report.
Lifecore Biomedical Inc. published this content on May 06, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on May 06, 2026 at 11:25 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]