Landec Corporation

Good morning, and thank you for joining Landec's fiscal 2023 first quarter earnings call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, I will provide instructions on how to ask a question. Now, I would like to turn the call over to Jeff Sonick, Investor Relations at ICR. Thank you. Please go ahead.

Good morning, and thank you for joining us today to discuss Landec Corporation's first quarter fiscal 2023 earnings results. On the call today from the company are Jim Hall, Chief Executive Officer and President of LifeCorps, and John Morberg, Chief Financial Officer. Before we begin today, you should have received a copy of our earnings release, which is also available on the company's website, where we also post our investors' presentation. In addition, we'd like to remind everyone of the Safe Harbor Statement. Certain statements made in the course of this conference call contain forward-looking statements. It is 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 for fiscal year 2022. Copies of those filings may be obtained from the company's website. And with that, I'd like to turn the call over to Jim Hall, Chief Executive Officer.

Thank you, Jeff. Good morning, everyone, and thank you for joining us. I'll begin today with a brief update on our strategic initiative that we unveiled just eight weeks ago to transform the focus of the company to a standalone LifeCorp business. In terms of the formal timing of the transition to the LifeCorp corporate branding and ticker switch, we are working through those legal processes and are targeting November for the formal change. When we have a greater precision, we will be sure to update the market accordingly so everyone is prepared. With respect to our efforts to monetize the remaining curation foods assets, those activities are well underway. However, we are not in a position yet to communicate any potential outcomes. That said, I want to continue to emphasize the importance of this work by our team and our commitment to getting this done as soon as possible. With that, I'll provide a summary of LifeCourse fiscal 23 first quarter performance, provide some additional updates on our business and commercial efforts, and then pass the call to John to discuss the financials in the fiscal 23 outlook, which we are reiterating today. In the fiscal 23 first quarter, Life Corps grew revenue by 8% to $23.7 million, generating an increase of 8.1% in adjusted EBITDA to $2.5 million, both of which were consistent with our plan and the cadence that we disclosed at the beginning of the fiscal year. As a reminder, the first quarter is our seasonally lowest quarter of the year in terms of revenues and EBITDA. Due to the idling of our manufacturing lines, for annual required clean room certification and facility maintenance. Nonetheless, we're off to a solid start for the year and remain excited about the business development activity that we are generating, which I'll cover in a moment. 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. Our unique expertise coupled with the ongoing industry trends towards outsourcing of new drug development means LifeCore is ideally positioned as a preferred partner to provide CDMO services for new injectable drug applications. In fact, LifeCore is the only manufacturer of pharmaceutical injectable-grade HA with injectable CDMO expertise in the market today. Approximately 55% of all new drug applications are injectables, and pre-filled syringe demand is growing at an estimated 13% compound annual rate. Given the industry's limited injectable drug manufacturing capacity, we will 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. On the development front, our project portfolio remains robust with 24 active projects from 21 different customers. These 24 projects are dispersed across various stages of our portfolio as follows. Early phase clinical development with five projects, phase one and two clinical development with 11 projects, and phase three clinical development and scale up commercial validation activity with eight projects. We continue to work closely with all of our customers in progressing their products through the various stages of development and eventual FDA approval. These efforts are now paying off. Three of the late phase projects are nearing FDA approval. One is a drug with a PDUFA date before the end of calendar 2022. And the other two are medical device programs, both of which have anticipated approvals within this calendar year. As I mentioned last quarter, we are preparing for pre-approval inspections to support these projects. and are working closely with these customers to support their product launch plans. As it pertains to the forecasted value of the projects in our active portfolio, we currently believe the revenue potential from the development activity is in the range of $50 to $80 million in development revenue over the lifecycle of the projects, which we expect will continue to grow as we expand our active development project portfolio. Looking at the potential commercial value for the eight late stage projects in our active portfolio, we believe that the commercial revenue opportunity is in the range of $45 to $120 million annually as these products receive FDA approval and are successfully transferred to contracted commercial supply agreements. CDMO activities represented nearly 80% of our revenue mix this past fiscal year 2022. with the balance of our revenue generated from HA raw material sales. HA remains a critical component of our business and is the foundation by which we've developed our CDMO expertise in complex and highly viscous products over the past 40 years. Approximately 50% of the revenue produced in our CDMO business is generated from products utilizing HA, and within our current active project portfolio, that mix is approximately 70%. HA is viewed as an ideal excipient for injectable therapies, and that it is a naturally occurring substance in the human body, and its highly viscous characteristics allow for optimized targeted drug development. Thus, we continue to see a meaningful activity among the biopharma community in utilizing and nearly 40% of our prospective project opportunities are utilizing HA, which is a good segue to updating you on our commercial strategy to convert new potential engagements. We now have the complete team in place that we set out to establish from our investments in people that we announced last year. Our team is doing an impressive job ramping up our commercial presence in the market, and we are seeing immediate returns on our investment in people which spans marketing, sales, business operations, and process development. In the fiscal first quarter, we added 14 new prospective opportunities to our development opportunity funnel for a total of 63 projects that are in various stages of diligence and discussion. 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. While the number of potential projects will shift over time as we convert some and dismiss others, we aren't seeing any slowdown in the number of opportunities. On the contrary, we continue to believe that our expanded commercial strategy will support an increasing trend well into the future. On the operational front, our company continues to prepare for a multi-year acceleration of growth. As I mentioned, it is imperative that we continue to push our organization forward with the implementation of best practices and new capabilities. Our team is in place and they are diligently working to raise our profile. We bolstered our marketing approach which is supported by enhanced branding, awareness, and greater reach to communicate Lifecore's differentiated capability to the market. Last fiscal year, we made great advancements in optimizing our facilities in anticipation of adding new capacity in the coming years. With this complete, we are now focused on creating operational efficiencies across the entire company. We are modernizing systems and automating wherever possible. For instance, our Laboratory Information Management System, or LIMS, has been integrated and we've qualified our first product on LIMS in late June with a series of other products transitioning to LIMS in the coming months. This platform provides rapid visibility to data and enhanced analytics that replaces manual and inefficient processes. We are also isolating additional areas of savings and efficiency through our focus on pharmaceutical elegance. These opportunities include enhancing our sustainability and energy management, our supply chain, and working capital requirements. Further, our team is laser focused on resource planning across our entire organization to prepare us to add new manufacturing lines and shifts and to do so with an efficient workforce as capacity and demand requires. In fact, we just recently added an additional weekend shift to support increased manufacturing activity across our organization. While there is always more to do, LifeCorps is very well prepared for our anticipated robust growth. Looking ahead, our future expansion continues to be driven by our strong development project portfolio expansion of our prospective development pipeline, and conversion of these projects into our active development portfolio. We remain focused on driving towards a multi-year acceleration of annual revenue growth into the mid to high teens based upon our current project portfolio characteristics and favorable industry tailwinds. While we continue to concentrate on maximizing the revenue generating capacity of our current infrastructure, We also must balance the known future capacity requirements within our project portfolio with the multi-year lead times on the specialized equipment that is manufactured to our specifications and must also undergo rigorous testing, customer acceptance, and regulatory approval. Our four decades of experience in creating a world-class quality management system provides us the confidence to directly meet these challenges as we plan to deliver this multi-year acceleration in our revenue growth trajectory, which is supported by known projects within our existing project portfolio and will be further enhanced by new opportunities with the prospective projects in our development pipeline. Now, I would like to turn the call to John for his financial review. Thank you, Jim.