avocado-soybean unsaponifiable extract (ASU)

Company Announces Intention to Explore Strategic AlternativesSigns Term Sheet with Key Customer to Materially Expand Commercial RelationshipExpands Development Pipeline from 24 to 25 Active Projects as of Fiscal Second Quarter-endSubsequently Transitioned Three Projects to Commercialization with FDA Approval in Fiscal Third Quarter, Expanding Commercial Products from 26 to 29 with 14 CustomersFiscal Second Quarter Earnings Call Scheduled for March 17th, 2023 at 8:30 am Eastern Time CHASKA, Minn., March 16, 2023 (GLOBE NEWSWIRE) -- Lifecore Biomedical, Inc. (“Lifecore” or the “Company”), a fully integrated contract development and manufacturing organization (“CDMO”), reported results for the fiscal 2023 second quarter ended November 27, 2022. ANNOUNCEMENT OF INTENTION TO EXPLORE STRATEGIC ALTERNATIVES: Concurrently with the issuance of this press release, Lifecore also announced its intention to explore the Company’s potential strategic alternatives to maximize value for stockholders, which may include an evaluation of a potential sale of the Company, potential debt or equity financing transactions, or other possible strategic transactions. CEO COMMENTS:James G. Hall, President and Chief Executive Officer of Lifecore, commented, "We continue to make important progress toward unlocking the potential of Lifecore as a CDMO business and today announced that we intend to explore the Company’s strategic alternatives to maximize value for our stockholders. Today, we also announced the entry into a term sheet with an existing customer that contemplates a meaningful expansion of our relationship with this customer and includes substantial up-front payments, demonstrating the quality of our development portfolio as well as the benefits of our significant capacity investment strategy we have executed over the past several years. During the second quarter, our revenues and adjusted EBITDA were negatively impacted by timing differences resulting from delayed customer orders and postponed onboarding of new development projects. Despite these issues and the near term challenges the Company faces with its current capital structure, we believe Lifecore remains an excellent business with attractive growth characteristics and a compelling development pipeline that we intend to convert into stockholder value." LIFECORE FISCAL SECOND QUARTER 2023 BUSINESS HIGHLIGHTS:As previously reported, on December 13, 2021, the Company closed on the sale of its Curation Foods' fresh packaged salads and vegetables business (the “Eat Smart Disposition”), and as such, those results are reflected as discontinued operations in all periods presented within the Company’s financial statements reported herein. The operations associated with the Company's remaining Curation Foods assets are reflected as part of the Curation Foods segment in all periods presented within the Company’s financial statements reported herein. Consolidated revenues of $38.8 million, a decrease of (10.7)% year-over-year.Consolidated gross profit of $7.1 million, a decrease of $7.6 million, or 51.7% year-over-year, primarily due to a $5.0 million decline in the Lifecore segment due to decreased revenue and unfavorable sales mix, and a $2.6 million decline in Curation Foods due to the impact from lower sales volume in combination with higher fruit costs.Consolidated net loss from continuing operations of $12.4 million, which includes a non-cash intangibles impairment charge of $1.3 million related to the avocado products business and $4.1 million of restructuring and other non-recurring charges such as legal expenses, both net of tax.Consolidated adjusted EBITDA of $(0.4) million, compared to $8.2 million in the prior year period.Lifecore segment EBITDA of $3.0 million, compared to $9.1 million in the prior year period, reflecting timing of sales and unfavorable mix versus the prior year period. CONSOLIDATED FISCAL SECOND QUARTER 2023 RESULTS:Fiscal second quarter 2023 results compared to fiscal second quarter 2022 are as follows: (Unaudited and in thousands, except per-share data) Three Months Ended Change November 27, 2022 November 28, 2021 Amount %Revenues $38,802 $43,452 $(4,650) (11)%Gross profit 7,108 14,715 (7,607) (52)%Net income (loss) (12,449) 4,229 (16,678) N/MAdjusted net income (loss)* (7,005) 5,497 (12,502) N/MDiluted net income (loss) per share (0.42) 0.14 (0.56) N/MAdjusted diluted net income (loss) per share* (0.24) 0.19 (0.43) N/MEBITDA* (5,800) (35,866) 30,066 84 %Adjusted EBITDA* (357) 8,204 (8,561) N/M * See “Non-GAAP Financial Information” at the end of this release as to how the Company defines these non-GAAP financial measures and for a reconciliation thereof. Revenues decreased $4.7 million year-over-year, which was primarily a result of a $3.3 million decrease in Lifecore segment revenues. Gross profit decreased $7.6 million year-over-year. Results were driven by a $5.0 million decrease in the Lifecore segment and a $2.6 million decrease in the Curation Foods segment. Net loss from continuing operations decreased $16.7 million to a loss of $12.4 million for fiscal second quarter 2023, which includes a non-cash intangibles impairment charge of $1.3 million related to the avocado products business and $4.1 million of restructuring and non-recurring charges, net of taxes, related to consolidating and optimizing operations associated with Project SWIFT. This compares to net income of $4.2 million in the prior year period, which includes $1.3 million of restructuring and non-recurring charges, net of tax, related to consolidating and optimizing operations associated with Project SWIFT. SEGMENT RESULTS:Lifecore Segment: (Unaudited and in thousands) Three Months Ended Change Six Months Ended Change November 27,2022 November 28,2021 Amount % November 27,2022 November 28,2021 Amount %Revenue: CDMO $16,032 $21,363 $(5,331) (25)% $34,279 $39,152 $(4,873) (12)%Fermentation 5,659 3,583 2,076 58% 11,114 7,746 3,368 43%Total revenue $21,691 $24,946 $(3,255) (13)% $45,393 $46,898 $(1,505) (3)% Lifecore is the Company’s CDMO business focused on product development and manufacturing of sterile injectable products. Lifecore continues to expand its presence in the robust CDMO marketplace by utilizing its specialized capabilities to partner with and provide value-added services to biopharmaceutical and medical device companies. Lifecore continues to seek to drive growth with a focus on building its business development pipeline, maximizing capacity and advancing product commercialization for innovative new therapies that improve patients’ lives. In the fiscal second quarter 2023, Lifecore realized total revenues of $21.7 million, representing a decline of (13.0)% as compared to the prior year period, primarily driven by a 25.0% decrease in its CDMO business, which was partially offset by a 57.9% increase in its Hyaluronic Acid (HA) raw material manufacturing (fermentation) business. The decrease in CDMO revenue was primarily due to a shift in the timing of shipments to customers, and lower development revenue associated with a delay in onboarding new customers. The increase in HA raw material manufacturing revenue was primarily due to a deviation in shipment timing in the prior year period, which was influenced by excess channel inventory as a result of the global pandemic’s negative impact on elective procedures. Lifecore's development pipeline increased to 25 active development programs under contract as of the end of fiscal 2023 second quarter. These projects are delineated as follows: early phase or proof of concept (7), Phase 1 and Phase 2 clinical development (9), and Phase 3 clinical development or scale-up/commercial validation activity (9). Lifecore currently manufactures 26 commercial products for 13 clients, which remains unchanged from fiscal first quarter 2023. Curation Foods Segment: (Unaudited and in thousands) Three Months Ended Change Six Months Ended Change November 27,2022 November 28,2021 Amount % November 27,2022 November 28,2021 Amount %Revenue: Olive oil and vinegars $2,196 $2,508 $(312) (12)% $4,755 $4,848 $(93) (2)%Avocado products 14,915 15,381 (466) (3)% 32,009 32,343 (334) (1)%Technology — 617 (617) (100)% — 995 (995) (100)%Total revenue $17,111 $18,506 $(1,395) (8)% $36,764 $38,186 $(1,422) (4)% Curation Foods is the Company’s natural food business consisting of avocado products, olive oil and vinegars. The Company continues to focus on divesting its remaining assets in support of its previously announced decision to focus the Company's Lifecore Biomedical segment. On December 13, 2021 the Company closed on the Eat Smart Disposition for $73.5 million in cash, subject to certain adjustments; those results have been reclassified as discontinued operations within the Company’s financial statements. On June 2, 2022 the Company sold its BreatheWay business for $3.2 million in cash. BreatheWay was previously represented as the "Technology" category within the Curation Foods segment and prior year's results will remain classified in continuing operations. Additionally, subsequent to fiscal second quarter end, on February 7, 2023, the Company sold its avocado products business for $17.5 million, subject to certain adjustments. Curation Foods realized total revenues from continuing operations of $17.1 million for the fiscal second quarter, representing a decrease of 8.0% as compared to the prior year period. The decrease was primarily driven by a (12.4)% decline in sales from O Olive, and a (3.0)% decrease in Avocado Products sales, and a 100% decline in Technology revenue as a result of the sale of the BreatheWay business. GOING CONCERN As further described in our Quarterly Report on Form 10-Q the three months ended November 27, 2022 (the “Current 10-Q”), the Company has evaluated its financial condition, and, based on this evaluation, the Company has determined that the existence of certain conditions and events raise substantial doubt about the Company’s ability to continue as a going concern within one year following the date the Current 10-Q was filed. As a result of this determination, all outstanding borrowings under the Company’s existing credit agreements are classified as short term on the consolidated balance sheets as of November 27, 2022 and May 29, 2022 contained in this earnings release and in the Current 10-Q. CASH FLOW & BALANCE SHEETCash used in operations was $4.5 million for the six-month period ended November 27, 2022 compared to $4.3 million of cash used in the prior year period. Cash provided by investing activities decreased $36.2 million versus the prior year period primarily due to the timing of asset sales. Capital expenditures were $6.2 million for the six-month period ended November 27, 2022 primarily focused on supporting Lifecore’s long-term growth initiatives. Cash provided by financing activities was $12.7 million for the six-month period ended November 27, 2022, driven by borrowings under the Company’s line of credit and the sale of common stock. The Company had cash and cash equivalents of $6.8 million as of November 27, 2022. Total bank debt, net of cash, at fiscal 2023 second quarter end was $140.1 million, consisting of its line of credit and term debt, compared to $136.5 million at fiscal 2022 year end. Subsequent to fiscal second quarter end, on January 9, 2023, the Company announced the closing of a $38.75 million private placement (“PIPE”) of newly designated Series A convertible preferred stock. Simultaneously, the Company also amended its credit agreements to provide for, among other things, relief from certain financial covenants at that time. RESTATED FISCAL 2022 FORM 10-K/A, AND FISCAL 2023 FIRST QUARTER 10-Q/A FILINGS, FISCAL 2023 SECOND QUARTER FORM 10-QThe Company filed its restated Fiscal 2022 Form 10-K/A and Fiscal 2023 First Quarter Form 10-Q/A with the SEC today. These restatements were related to certain non-cash impairment charges related to the Company’s Curation Foods business contained in the Company’s previously issued (i) audited consolidated financial statements as of and for the year ended May 29, 2022 and (ii) unaudited consolidated financial statements as of and for the three months ended August 28, 2022. As previously announced, the Company sold its packaged salad and fresh vegetable business on December 13, 2021 and its avocado products business on February 7, 2023. The Company’s only remaining Curation Food’s asset is O Olive Oil & Vinegar. WITHDRAWAL OF FISCAL 2023 GUIDANCEDue to the Company's announcement of its intention to explore strategic alternatives, the Company is withdrawing its previously announced full year fiscal 2023 guidance. CONFERENCE CALLThe live webcast can be accessed via Lifecore's website on the Investor Events & Presentations page. The webcast will be available for 30 days. Date: Friday, March 17, 2023Time: 8:30 a.m. Eastern timeWebcast link: http://ir.lifecore.com/events-presentations To participate in the conference call via telephone, dial toll-free: (877) 407-3982 or (201) 493-6780. Please call the conference telephone number 5-10 minutes prior to the start time so the operator can register your name and organization. A replay of the call will be available through Friday, March 24, 2023 by calling toll-free: (844) 512-2921 or direct (412) 317-6671, and entering code 13737061. About Lifecore BiomedicalLifecore Biomedical, Inc. is a fully integrated contract development and manufacturing organization (CDMO) that offers highly differentiated capabilities in the development, fill and finish of complex sterile injectable pharmaceutical products in syringes and vials. As a leading manufacturer of premium, injectable grade Hyaluronic Acid, Lifecore brings more than 40 years of expertise as a partner for global and emerging biopharmaceutical and biotechnology companies across multiple therapeutic categories to bring their innovations to market. For more information about the Company, visit Lifecore’s website at www.lifecore.com. Non-GAAP Financial InformationThis press release contains non-GAAP financial information, including with respects to EBITDA, adjusted EBITDA, Lifecore segment adjusted EBITDA, Curation Foods segment adjusted EBITDA, and Other segment adjusted EBITDA. The Company has included reconciliations of these non-GAAP financial measures to their respective most directly comparable financial measures calculated in accordance with GAAP. See the section entitled “Non-GAAP Financial Information and Reconciliations” in this release for definitions of EBITDA, adjusted EBITDA, Lifecore segment adjusted EBITDA, Curation Foods segment adjusted EBITDA, and Other segment adjusted EBITDA. The Company has disclosed these non-GAAP financial measures to supplement its consolidated financial statements presented in accordance with GAAP. These non-GAAP financial measures exclude/include certain items that are included in the Company’s results reported in accordance with GAAP. Management believes these non-GAAP financial measures provide useful additional information to investors about trends in the Company’s operations and are useful for period-over-period comparisons. These non-GAAP financial measures should not be considered in isolation or as a substitute for the comparable GAAP measures. In addition, these non-GAAP financial measures may not be the same as similar measures provided by other companies due to the potential differences in methods of calculation and items being excluded/included. These non-GAAP financial measures should be read in conjunction with the Company’s consolidated financial statements presented in accordance with GAAP. Important Cautions Regarding Forward-Looking StatementsThis press release 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 and the Securities Exchange Act of 1934. Words such as “anticipate”, “estimate”, “expect”, “project”, “plan”, “intend”, “believe”, “may”, “might”, “will”, “should”, “can have”, “likely” and similar expressions are used to identify forward-looking statements. All forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially, including such factors among others, as the outcome of any evaluation of the Company’s strategic alternatives or any discussions with any potential bidders related thereto, the Company’s ability to negotiate a favorable forbearance arrangement with the lenders, or at all, and the potential exercise by the lenders of their available remedies under our credit agreements, including the acceleration of all outstanding borrowings thereunder, the ability of the Company to continue as a going concern, the ability of the Company to conduct its strategic review process in a timely manner or at all, the Company’s ability to successfully complete the transition of the Company’s business and operations to focus on Lifecore, the timing and needs related to capital expenditures, the timing and expenses associated with operations, the ability to achieve acceptance of the Company’s new products in the market place, government regulations affecting our business, the timing of regulatory approvals, uncertainties related to COVID-19 and the impact of our responses to it, and the mix between domestic and international sales. For additional information about factors that could cause actual results to differ materially from those described in the forward-looking statements, please refer to our filings with the Securities and Exchange Commission, including the risk factors contained in our most recent Quarterly Report on Form 10-Q and Annual Report on Form 10-K/A. Forward-looking statements represent management’s current expectations and are inherently uncertain. Except as required by law, we do not undertake any obligation to update forward-looking statements made by us to reflect subsequent events or circumstances. LIFECORE BIOMEDICAL, INC.CONSOLIDATED CONDENSED BALANCE SHEETS(In thousands, except par value) November 27, 2022 May 29, 2022 (Unaudited) ASSETS Current Assets: Cash and cash equivalents$6,830 $1,643 Accounts receivable, less allowance for credit losses 35,689 48,172 Inventories 77,524 66,845 Prepaid expenses and other current assets 7,049 7,052 Total Current Assets 127,092 123,712 Property and equipment, net 118,852 118,531 Operating lease right-of-use assets 7,951 8,580 Goodwill 13,881 13,881 Trademarks/tradenames 7,400 8,700 Customer relationships 1,292 1,400 Other assets 2,605 3,002 Total Assets$279,073 $277,806 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Accounts payable$27,971 $15,802 Accrued compensation 4,602 9,238 Other accrued liabilities 10,426 7,647 Current portion of lease liabilities 5,013 5,026 Deferred revenue 731 919 Line of credit 48,000 40,000 Current portion of long-term debt, net 98,953 98,178 Total Current Liabilities 195,696 176,810 Long-term lease liabilities 8,999 9,983 Deferred taxes, net 10 126 Other non-current liabilities 201 190 Total Liabilities 204,906 187,109 Stockholders’ Equity: Common stock, $0.001 par value; 50,000 shares authorized; 30,297 and 29,513 shares issued and outstanding at November 27, 2022 and May 29, 2022, respectively 30 30 Additional paid-in capital 174,036 167,352 Accumulated deficit (99,899) (76,099)Accumulated other comprehensive loss — (586)Total Stockholders’ Equity 74,167 90,697 Total Liabilities and Stockholders’ Equity$279,073 $277,806 LIFECORE BIOMEDICAL, INC.CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME(Unaudited)(In thousands, except per share amounts) Three Months Ended Six Months Ended November 27, 2022 November 28, 2021 November 27, 2022 November 28, 2021Product sales$38,802 $43,452 $82,157 $85,084 Cost of product sales 31,694 28,737 68,797 59,934 Gross profit 7,108 14,715 13,360 25,150 Operating costs and expenses: Research and development 2,118 1,856 4,166 3,729 Selling, general and administrative 10,773 8,012 21,435 17,482 Impairment of indefinite-lived intangible assets 1,300 — 1,300 — Restructuring costs 823 707 1,870 2,541 Total operating costs and expenses 15,014 10,575 28,771 23,752 Operating (loss) income (7,906) 4,140 (15,411) 1,398 Interest income 16 19 31 46 Interest expense (4,219) (3,094) (7,897) (9,772)Other (expense) income, net (336) 79 (515) 188 Net (loss) income before tax (12,445) 1,144 (23,792) (8,140)Income tax benefit (expense) (4) 3,085 (8) 4,736 Net (loss) income from continuing operations$(12,449) $4,229 $(23,800) $(3,404) Discontinued operations: Loss from discontinued operations$— $(42,409) $— $(44,714)Income tax benefit (expense) — (261) — 200 Loss from discontinued operations, net of tax — (42,670) — (44,514)Net loss (12,449) (38,441) (23,800) (47,918) Diluted net loss per share (Loss) income from continuing operations$(0.42) $0.14 $(0.80) $(0.12)Loss from discontinued operations — (1.45) — (1.51)Total diluted net loss per share$(0.42) $(1.30) $(0.80) $(1.63) Shares used in diluted per share computation 29,634 29,471 29,605 29,448 LIFECORE BIOMEDICAL, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited and in thousands) Six Months Ended November 27, 2022 November 28, 2021Cash flows from operating activities: Net loss$(23,800) $(47,918)Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Impairment of indefinite-lived intangible assets and goodwill 1,300 32,057 Depreciation, amortization of intangibles, debt costs, and right-of-use assets 7,237 10,959 Gain on disposal of property and equipment related to restructuring, net — (92)Deferred taxes (13) (4,963)Stock-based compensation expense 1,893 1,306 Gain on sale of BreatheWay (2,108) — Net loss on disposal of property and equipment held and used 22 22 Provision (benefit) for expected credit losses — 196 Other, net 86 (111)Changes in current assets and current liabilities: Accounts receivable, net 12,483 4,541 Inventories (10,679) (9,770)Prepaid expenses and other current assets (585) (1,784)Accounts payable 11,730 15,148 Accrued compensation (4,636) (5,090)Other accrued liabilities 2,777 1,163 Deferred revenue (188) 30 Net cash used in operating activities (4,481) (4,306) Cash flows from investing activities: Proceeds from sale of BreatheWay, net 3,135 — Sale of investment in non-public company — 45,100 Purchases of property and equipment (6,182) (13,010)Proceeds from sales of property and equipment — 1,082 Net cash (used in) provided by investing activities (3,047) 33,172 Cash flows from financing activities: Payments on long-term debt (76) (41,426)Proceeds from lines of credit 8,800 26,000 Payments on lines of credit (800) (13,000)Payments for debt issuance costs — (132)Taxes paid by Company for employee stock plans (209) (512)Proceeds from sale of common stock 5,000 — Net cash provided by (used in) financing activities 12,715 (29,070) Net increase (decrease) in cash and cash equivalents 5,187 (204)Cash and cash equivalents, beginning of period 1,643 1,295 Cash and cash equivalents, end of period$6,830 $1,091 Supplemental disclosure of non-cash investing and financing activities: Purchases of property and equipment on trade vendor credit$2,700 $1,105 LIFECORE BIOMEDICAL, INC.SEGMENT RESULTS(Unaudited and in thousands) (Unaudited and in thousands) Three Months Ended Change Six Months Ended Change November 27,2022 November 28,2021 Amount % November 27,2022 November 28,2021 Amount %Revenues: Curation Foods $17,111 $18,506 $(1,395) (8)% $36,764 $38,186 $(1,422) (4)%Lifecore 21,691 24,946 (3,255) (13)% 45,393 46,898 (1,505) (3)%Total revenues $38,802 $43,452 $(4,650) (11)% $82,157 $85,084 $(2,927) (3)% Gross profit: Curation Foods $433 $3,000 $(2,567) (86)% $585 $7,671 $(7,086) (92)%Lifecore 6,675 11,715 (5,040) (43)% 12,775 17,479 (4,704) (27)%Total gross profit $7,108 $14,715 $(7,607) (52)% $13,360 $25,150 $(11,790) (47)% Net (loss) income from continuing operations: Curation Foods $(3,295) $(747) $(2,548) (341)% $(6,017) $(1,030) $(4,987) (484)%Lifecore 916 5,682 (4,766) (84)% 1,419 6,262 (4,843) (77)%Other (10,070) (706) (9,364) (1326)% (19,202) (8,636) (10,566) (122)%Total net (loss) income from continuing operations $(12,449) $4,229 $(16,678) N/M $(23,800) $(3,404) $(20,396) (599)%Loss from discontinued operations, net of tax: Curation Foods $— $(42,670) $42,670 (100)% $— $(44,514) $44,514 (100)%Net loss $(12,449) $(38,441) $25,992 68 % $(23,800) $(47,918) $24,118 50 % EBITDA: Curation Foods $(3,543) $(42,974) $39,431 92 % $(5,161) $(44,301) $39,140 88 %Lifecore 3,033 9,130 (6,097) (67)% 5,450 11,420 (5,970) (52)%Other (5,290) (2,022) (3,268) (162)% (9,824) (5,008) (4,816) (96)%Total EBITDA $(5,800) $(35,866) $30,066 84 % $(9,535) $(37,889) $28,354 75 % Non-GAAP Financial Information and Reconciliations EBITDA and adjusted EBITDA are non-GAAP financial measures. We define EBITDA as earnings before interest, income tax expense (benefit), and depreciation and amortization. We define adjusted EBITDA as EBITDA before certain restructuring and other non-recurring charges. See “Non-GAAP Financial Information” above for further information regarding the Company’s use of non-GAAP financial measures. (Unaudited and in thousands) Three Months Ended Six Months Ended November 27, 2022 November 28, 2021 November 27, 2022 November 28, 2021Net loss $(12,449) $(38,441) $(23,800) $(47,918)Interest expense, net of interest income 4,203 3,075 7,866 9,726 Income tax (benefit) expense 4 (3,085) 8 (4,736)Depreciation and amortization 2,442 2,585 6,391 5,039 Total EBITDA $(5,800) $(35,866) $(9,535) $(37,889)Restructuring and other non-recurring charges (1) 4,143 1,400 6,821 4,029 Impairment of indefinite-lived intangible assets 1,300 — 1,300 — Loss from discontinued operations, net of tax — 42,670 — 44,514 Total adjusted EBITDA $(357) $8,204 $(1,414) $10,654 (Unaudited and in thousands) Lifecore CurationFoods Other TotalThree months ended November 27, 2022 Net (loss) income $916 $(3,295) $(10,070) $(12,449)Interest expense, net of interest income (16) — 4,219 4,203 Income tax (benefit) expense 290 (836) 550 4 Depreciation and amortization 1,843 588 11 2,442 Total EBITDA 3,033 (3,543) (5,290) (5,800)Restructuring and other non-recurring charges (1) 65 633 3,445 4,143 Impairment of indefinite-lived intangible assets — 1,300 — 1,300 Total adjusted EBITDA $3,098 $(1,610) $(1,845) $(357) Six months ended November 27, 2022 Net (loss) income $1,419 $(6,017) $(19,202) $(23,800)Interest expense, net of interest income (31) 1 7,896 7,866 Income tax (benefit) expense 448 (1,901) 1,461 8 Depreciation and amortization 3,614 2,756 21 6,391 Total EBITDA 5,450 (5,161) (9,824) (9,535)Restructuring and other non-recurring charges (1) 125 568 6,128 6,821 Impairment of indefinite-lived intangible assets 1,300 1,300 Total adjusted EBITDA $5,575 $(3,293) $(3,696) $(1,414) Three Months Ended November 28, 2021 Net (loss) income $5,682 $(43,417) $(706) $(38,441)Interest expense and loss on debt refinancing, net of interest income (19) 136 2,958 3,075 Income tax (benefit) expense 1,794 (579) (4,300) (3,085)Depreciation and amortization 1,673 886 26 2,585 Total EBITDA 9,130 (42,974) (2,022) (35,866)Restructuring and other non-recurring charges (1) — (1) 1,401 1,400 Loss from discontinued operations, net of tax — 42,670 — 42,670 Total adjusted EBITDA $9,130 $(305) $(621) $8,204 Six Months Ended November 28, 2021 Net (loss) income $6,262 $(45,544) $(8,636) $(47,918)Interest expense and loss on debt refinancing, net of interest income (39) 273 9,492 9,726 Income tax (benefit) expense 1,977 (797) (5,916) (4,736)Depreciation and amortization 3,220 1,767 52 5,039 Total EBITDA 11,420 (44,301) (5,008) (37,889)Restructuring and other non-recurring charges (1) — 467 3,562 4,029 Loss from discontinued operations, net of tax — 44,514 — 44,514 Total adjusted EBITDA $11,420 $680 $(1,446) $10,654 (1) During fiscal year 2020, the Company announced a restructuring plan to drive enhanced profitability, focus the business on its strategic assets, and redesign the organization to be the appropriate size to compete and thrive. This included a reduction-in-force, a reduction in leased office spaces, and the sale of non-strategic assets. Related to these continued activities, in the second quarter of fiscal year 2023, the Company incurred (1) $0.8 million of restructuring charges, primarily related to legal costs, and $3.3 million of certain non-recurring charges primarily related to consolidating and optimizing operations associated with Project SWIFT. Investor RelationsJeff Sonnek(646) 277-1263jeff.sonnek@icrinc.com

Continuous glucose monitors are available over-the-counter in Europe, so companies are betting that the FDA will approve them to be available on drugstore shelves in the U.S. I felt a special kind of awe, then panic, watching my glucose levels skyrocket for the first time after relishing a cold beer on a sweltering summer evening. It was a biological push notification from the fluid just beneath my skin that the carbohydrate-packed beverage was interfering with efforts to maintain my health and weight. For years, people with Type 1 diabetes have worn continuous glucose monitors, or CGMs, to track blood sugar spikes and make sure they’re getting enough insulin. CGMs are small patches with tiny needles for sensors that prick the skin and are generally worn on the stomach or back of the arm. Now, a wave of tech companies is selling CGMs to the public. That made me curious: Would this work for me? What would I learn? The devices, linked to apps with personalized analytics and meal planning advice, are being touted as a behavior-changing path to better health and athletic performance, consistent energy and overcoming the dreaded weight-loss-weight-gain cycle once and for all. For people without diabetes, tracking the glycemic response to meals can pinpoint which foods significantly spike blood sugar, leading to a subsequent blood sugar crash and then lethargy. That excess insulin and glucose in the blood stream can also signal to the body to put the surplus sugar in storage, causing weight gain. The new-age, health-monitoring ecosystem sprawls well beyond CGMs, leaving traditional step counters in the dust. A tracker in the form of a sleek, titanium ring made by Ultrahuman monitors movement and sleep—and can be paired with a glucose-monitoring patch. Whoop’s wearable technology, which tracks respiratory rate, blood oxygen and other health metrics, can embed in a sports bra. Another device, the Lumen, analyzes breath to determine whether the user is burning carbs or fat. The market for this technology is huge, from Olympic athletes to office workers looking to avoid the post-lunch lull. The nation has long been in the throes of what is often referred to as an obesity epidemic. From 2017 through 2021, 26% of Americans, on average, said they were “seriously trying to lose weight,” and more than half said they would like to, according to Gallup surveys. And about 96 million U.S. adults have prediabetes, increasing their risk of developing chronic diseases like Type 2 diabetes and heart disease, according to the Centers for Disease Control and Prevention. Prediabetes affects people who are both lean and overweight, though obesity does elevate diabetes risk. Investors are taking note. Nearly $3.5 billion poured into U.S. weight loss digital health startups from 2020 through the first half of 2022, according to an analysis by venture fund Rock Health for KHN. CGM startups Levels, NutriSense, Signos and January have raised more than $140 million in funding collectively, according to company funding database Crunchbase. There’s plenty of hype about all the data they deliver. Ads online and in podcasts often feature active 20-somethings. They promise unique insights into how individual bodies react to food, exercise and sleep in real time by homing in on metabolic health and how well users keep their glucose levels in check. “We’re taking on weight loss by giving every body a voice,” says CGM-based company Signos. A promo for Lumen shares: “You hold in your lungs the secret to sustainable weight loss.” But even as people in the field have seen “significant” results from incorporating these tools into weight loss programs, they acknowledge that no single approach seems able to do it all. For instance, Eric Kusher, a doctor of chiropractic who runs an intensive weight loss program at Compass Fat Loss, said he still relies on the human element, too, falling back on his staff’s dietary advice, not the meal guidance provided by apps. The reality layer is also important, said Nirav Shah, M.D., a senior scholar at Stanford University’s Clinical Excellence Research Center. “If you’re a harried mother trying to care for three kids and hold down a job, you’re not going to have time to monitor and create the perfect green shake,” he said. “You’re going to buy the dollar meal because that’s easier and cheaper for your kids—and then you’re going to eat whatever they don’t eat.” For weight loss and inflammation flare-ups, Sarah Schacht, a 42-year-old government innovation consultant from Seattle, has tried all kinds of health tech, including Levels and Lumen. The generalized “eat less, move more”—flawed advice for many—wasn’t working for her. The Levels app lets the user log meals, exercise and other notable events; combines the information with CGM data; and then offers insights and advice on how users can foster gentler glucose curves. Since starting Levels a year and a half ago, she has lost five pounds, her weight has stabilized, and the inflammatory responses have gone down. But her body has not dramatically changed, she said. “I get the feeling that the few success stories I’ve seen, people who have radically changed their bodies, spend a lot of time on their eating strategy,” Schacht said. “Not everyone has that mental capacity, time, or budget.” These devices aren’t covered by insurance, so, with related subscriptions for the data, costs can be hundreds of dollars annually. There is also scant research on CGMs’ effectiveness in improving the health of people without diabetes, let alone prompting weight loss. Without firm results, many healthcare providers are skeptical. Some experts also worry that the constant stream of data could prompt disordered eating. Caroline Apovian, M.D., co-director of the Center for Weight Management and Wellness at Brigham and Women’s Hospital in Boston, said she does not see the use of an expensive CGM for someone who doesn’t have diabetes, especially with new weight loss drugs within reach. Those drugs, of course, will also carry a hefty price tag. “It’s hard work losing 10 pounds,” Apovian said. “A CGM is going to wipe out your money so you can’t join a gym.” Most of the people who have insulin resistance and metabolic disease tend to be lower income and minorities who can’t afford CGMs, said Logan Delgado, co-owner of BioCoach. BioCoach has FDA clearance for its glucose and ketone meter, which checks glucose levels and tests for ketones in the blood—a sign the body is burning fat for energy. Its more traditional finger-prick technology keeps the subscription price down to $30 a month while still letting people without diabetes learn about their metabolic health, though not with continuous data. The company has amassed a large following on TikTok, where Delgado and others raise awareness about sugary foods and diabetes. The CGM startups generally offer one of two CGMs: Abbott’s FreeStyle Libre, which is cheaper and requires a manual scan of the sensor by a smartphone, or the Bluetooth-connected Dexcom G6, which updates to a smartphone automatically. The monitors are provided to people without diabetes through “off-label” prescriptions because the FDA has not yet approved the tools for the general population. CGMs are available over-the-counter in Europe, so companies are betting that the FDA will approve them to be available on drugstore shelves in the U.S. That should drive down the prices of the sensors, which can cost hundreds of dollars. But already January says it can use artificial intelligence to predict a person’s glucose levels after a user wears a CGM for two weeks. The algorithm, backed by published research and a library of food nutrition data, can then predict the person’s glucose response to thousands of foods before the user decides what to eat, not after. This brings the cost down, essentially creating a virtual CGM, said Noosheen Hashemi, CEO of January. The company is rolling out a new version of its app this fall. Across the board, the startups are largely working through the kinks, some still conducting the research to back up their marketed claims and taking different approaches to using the technology. A common theme for the startups, though, is going direct-to-consumer first—aiming for people who can afford the concept—before eventually seeking coverage from insurers, said Bill Evans, founder and general partner of Rock Health Capital. The companies are also trying to add novel twists to how their apps use the data to reach health and weight-loss goals, each with libraries of informational blogs, lessons and activities. They range in cost from hundreds of dollars annually to more than a thousand, with charges covering the price of the hardware, the subscription for wraparound services and, in some cases, nutritionist support. The companies are banking on the idea that customers will sign on for the long term. Taking a more wraparound approach, NutriSense has leaned heavily into building out an 80-person nutrition team that works closely with customers, according to Kara Collier, the company’s vice president of health. Signos, which focuses on weight loss, uses artificial intelligence to set a “weight loss range” for customers depending on their general glucose ranges and level of fitness. Out of curiosity, this reporter stuck a CGM on the back of her arm for 10 days and signed up for the Levels app. At first, the metrics were jarring. As a person without diabetes, I had never reckoned with my glucose levels before. Then I started recognizing patterns that made sense: Drinking beer always spiked my glucose, but a bagel after a long morning walk kept my blood sugar relatively stable. Avocado toast or eggs for breakfast were better alternatives, though. And a salad with chickpeas, tomatoes and turkey for lunch earned top marks. Digesting data alongside every meal certainly made me think harder about what I ate and when I exercised. But it also felt like a lot of extra homework. KHN (Kaiser Health News) is a national newsroom that produces in-depth journalism about health issues. Together with Policy Analysis and Polling, KHN is one of the three major operating programs at KFF (Kaiser Family Foundation). KFF is an endowed nonprofit organization providing information on health issues to the nation.