ImmuCell Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 15, 2024

There are 4 speakers on the call.

Operator

Good morning, and welcome to the ImmuCell Corporation Reports First Quarter Ended March 31, 2024 Unaudited Financial Results Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference call over to Joe Diaz of Lytham Partners.

Operator

Please go ahead.

Speaker 1

Thank you, Nick. Good morning and welcome to all. As Nick indicated, my name is Joe Diaz and I'm with Lytham Partners. We're the Investor Relations consulting firm for ImmuCell. I thank all of you for joining us today to discuss the unaudited financial results for the quarter ended March 31, 2024.

Speaker 1

Listeners are reminded and cautioned that statements made by management during the course of this call include forward looking statements, which include any statement that refers to future events or expected future results or predictions about steps the company plans to take in the future. These statements are not guarantees of performance and are subject to risks and uncertainties that could cause actual results, outcomes or events to differ materially from those discussed today. Additional information regarding forward looking statements and the risks and uncertainties that could impact future results, outcomes or events is available under the cautionary note regarding forward looking statements or Safe Harbor statement provided with the press release and the Form 10 ks that the company filed last night, along with the company's other periodic filings with the SEC. Information discussed on today's call speaks only as of today, Wednesday, May 15, 2024. The company undertakes no obligation to update any information discussed on today's call.

Speaker 1

Please note that references to certain non GAAP financial measures may be made during today's call. The company included definitions of these terms as well as reconciliations of these figures to the most comparable GAAP financial measures in last night's press release in order to better assist you in understanding its financial performance. With that said, let me turn the call over to Michael Brigham, President and CEO of ImmuCell Corporation, after which we will open the call for your questions. Michael?

Speaker 2

Thanks, Joe, and good morning, everyone. This is the story of the really good and a bit of the frustrating. With regards to the Q1, I would like to speak about 2 financial disclosures that I think help demonstrate what we believe could be a critical turning point for our business. First, product sales were up 111% during the Q1 of 2024 compared to the Q1 of 2023 and sales were up 33% during the trailing 12 month period ended March 31, 2024 compared to the year the trailing 12 month period ended March 31, 2023. So again, 111% quarter over quarter, 33% trailing 12 over trailing 12.

Speaker 2

This improvement is largely the result of increased production output. By implementing and optimizing a multiyear investment to increase our production capacity, we achieved $7,200,000 worth of production during the Q1 of 2024, which annualizes to $28,700,000 or about 96% of our $30,000,000 full capacity estimate. This level of production remains our aspirational goal, but we do not expect that it can be repeated or exceeded on a regular basis. The $7,300,000 in sales recorded during the Q1 of 2024 represents an all time quarterly sales record for us. The next highest quarter was $6,000,000 recorded during the Q1 of 2022.

Speaker 2

2nd, with those strong sales, we were able to turn earnings before interest, taxes, depreciation and amortization or EBITDA of negative one point $6,000,000 during the quarter ended March 31, 2023 to positive EBITDA of $377,000 during the quarter ended March 31, 2024. Our gross margin as a percentage of product sales improved from 9% during the quarter ended March 31, 'twenty three to 32% during the quarter ended March 31, 'twenty four, but this is still well short of our 45% target. Cash is tight. In response, we have frozen certain capital expenditure investments for the time being, but we have no draw outstanding on our $1,000,000 line of credit that is available to us until September of 2025. So that is the big picture.

Speaker 2

With regards to the other financial results, the press release provides us the full unaudited P and L results and some unaudited summary balance sheet data. Further, our Form 10Q provides all the unaudited financial details and management's discussion and analysis. I will now take our time on this call to review all that in detail. I would like to add that we have been driven by data as we remediate the contamination events that have plagued us recently. Improvements made throughout our production process are allowing us to come back into full production.

Speaker 2

We believe that the operational improvements implemented are allowing us to run more effectively at a higher output level going forward. To be successful, we must avoid future significant contamination events and equipment breakdowns and operate with good production yields. So we remain focused on the commercial opportunity we have with First Defense, but as is often the case in the regulatory approval process, we are frustrated by yet another regulatory delay in our effort to bring retained to market. The FDA recently issued a CNC technical section incomplete letter in response to our 3rd submission of the CNC technical section for retain. Pursuant to the incomplete letter, the FDA has provided some minor questions about our submission requiring a 4th submission of the CMC technical section, which is typically subject to a 6 month review.

Speaker 2

However, the FDA has indicated that this resubmission potentially could be handled through a shortened review period because the open items are not complex. Most critical to the timeline however is that the FDA has also required that we not resubmit the CMC technical section until the inspectional observations at the facilities of our drug product contract are resolved. Given the unique facts and circumstances, we are working with the FDA and our drug product contract manufacturer to obtain an expedited review. This is part of the process and we are continuing to move forward. Regardless, we remain poised and excited to revolutionize the way that subclinical mastitis is treated in today's dairy market with a novel alternative to traditional antibiotics without FDA required milk discard or meat withhold claims.

Speaker 2

So lastly, I encourage you to review the press release and the quarterly report on Form 10 Q that we filed last night. Also, please have a look at our corporate presentation slide deck. I believe it provides a very good summary of our business strategy and objectives, as well as our current financial results. A May update was just posted to our website last night. See the Investors section of our website and click on Corporate Presentation or Contact Us for a copy.

Speaker 2

With that said, I'll be happy to take your questions. Let's have the operator open up the lines, please.

Operator

Thank you. We will now begin the question and answer The first question comes from Frank Gasker, Private Investor. Please go ahead.

Speaker 2

First of all, Mike,

Speaker 3

sure, relief having kind of sales for the quarter. Keep it up?

Speaker 2

Yes, I share that sentiment, very exciting. Thank you.

Speaker 3

My question deals with the shelf and the offering, could

Speaker 2

you clarify that in regards

Operator

to at the market and your how you go about designating or allowing a certain quantity at per time?

Speaker 2

Yes, Frank, I think one of the big benefits of the ATM is its flexibility. So the answer to your question can change day to day, week to week, month to month. I think the biggest distinction between the ATM instrument versus the more traditional offering is the traditional offering would have gone out at frankly significant discount to market. And with this vehicle, we can just sort of watch the market and make adjustments as appropriate. The downside is it takes a lot longer to raise some money because you're just sort of nibbling at the market.

Speaker 2

So we kind of looked at that real hard around year end and going into the Q1 and pros and cons and kind of decided this was a good opportunity to raise a little bit of money without the anticipated more significant discount. But I guess the short answer to your question is it's a management discretion, Board discretion really on a day to day basis. Okay.

Speaker 3

So, some shares have in fact been authorized and sold?

Speaker 2

Yes. So perhaps I should have included that in my comments, but it is in our disclosures. You can see that in both the financial footnotes, there's an equity section footnote, then there's a subsequent event footnote. And then in the very beginning of the MD and A, really the 3 places repeat the same information about $300,000 has been raised, gross proceeds.

Speaker 3

Okay. I did see that. And as far as you do not disclose or do you when in fact you are selling or not selling?

Speaker 2

Well, the Board through me, the Board communicates to the banker and sets thresholds of both volume and price. And I think through our quarterly I know through our quarterly reports, we would report the results of that interaction and that activity. Okay.

Speaker 3

You've answered all my questions. Thank you very much.

Speaker 2

All right. Thank you, Frank.

Operator

The next question comes from Michael Potter with Monarch Capital Group. Please go ahead.

Speaker 3

Hey, Michael. How are you doing?

Speaker 2

Hey, very well. Thank you.

Speaker 3

Good. So certainly a mixed quarter on the news front. Congratulations operationally, obviously, kind of scratching my head on in regards to retain. Can you walk us through the inspectional observation? What is the process here and the timeline to get through this process?

Speaker 2

Yes. Honestly, it is live. It is active. It is undetermined. There's going to be a lot of back and forth that we're not going to be party to.

Speaker 2

It's directly between the FDA and Norbrook. But Norbrook does communicate very well with us. So we'll get status reports. But their ability to respond is that their discretion, I would add, they're a big company. They have other products.

Speaker 2

They're motivated beyond just retain to get it right. And then once they do that, it will be up to the FDA to determine how quickly review and how quickly or and what the results of that review is. So it is it's frustrating not to have a more definitive answer to, but we just don't have that at this point. It's just very fresh.

Speaker 3

Okay. And when will we notified by the FDA that they were not moving forward with the approval?

Speaker 2

Yes, it was right on the as expected, right on the 180 point and that was that well, I think we've even disclosed it. It's May 10.

Speaker 3

It's May 10. So this is all fresh. So we're just getting our

Operator

arms around this, the go forward process.

Speaker 2

Exactly right. It's like going that's what I meant by the good and the frustrating. The good you pointed out the sales, the frustrating is just wow, end stage late in the game and didn't get we didn't get to complete. So yes, over the weekend, over the week so far and over the coming weeks, there will just be a lot of back and forth, How quickly can Norbop respond? How effectively can Norbop respond?

Speaker 2

And how quickly can the FDA concur?

Speaker 3

Got it. Okay. Thanks, Mike. We look forward to more information as you get it.

Speaker 2

For sure. Thanks, Michael.

Operator

The next question comes from Maynard Fernandez with MacDill Columbus. Please go ahead. Good morning. ICC has now achieved 95% of maximum production volume, but still has not turned a profit for the quarter. How can ICC turn a profit if not with 95% of production volume?

Operator

That's the first question. The second question is, when do you project to produce a profit? Thank you.

Speaker 2

Yes, that's a fair question Maynard. The best answer I have is, our first the first thing I turn to is statement of cash flows and I just look at the depreciation. So it's not a bottom line profit, it is cash flow positive when you look at EBITDA and that's obviously not a GAAP measure. So that's not while the depreciation expense is in our GAAP reports, the EBITDA figure is just in our press release. So I think that's step 1 in a transition from this product development retain driven loss to cash flow and then P and L next, but I didn't put a projection on the date for that.

Speaker 2

It really is a transition here that we're looking at 2024 as how strong we can keep the sales, how quickly we can reduce some expenses as this retained project that drives almost all of our product development expenses as that moves from development to commercial. So a lot of events in 'twenty four to answer that question.

Operator

Thank you for your answers.

Speaker 2

Thank you, Maynard. The

Operator

next question comes from Sean Kirkwood with SRK Capital. Please go ahead. Hi, Mike. Good morning.

Speaker 2

Hi there, Sean. How are you?

Operator

Good. So I have a few questions about margins. From the 10 Q, it sounds like maybe it was yield that is causing margins to be lower than the 45% target. Can you just kind of speak a little bit more detail about what is affecting those margins?

Speaker 2

Yes. Yield is always a big one and it is variable. I mean, just a biological process And we try and manage it as tight as possible where they do go up and down. It's just milk is our source raw material, cows that produce it. Not to digress too far, but one of our marketing positions that we take is that don't vaccinate your cows, use First Defense, you don't have to be subject to the variability that is inevitable with the vaccine the commercial vaccine response.

Speaker 2

So what our customers see on the commercial side, we see every day in our production plant. So it is variable. And the other factor I would add to that is these contaminations are expensive. They did drag down the margin. And so moving forward with better yields and moving forward with less or limited contaminations would certainly improve the margin.

Speaker 2

That's definitely the goal. And I think we also need to accept the fact that this is a difficult product to make. It is expensive to make. I was looking at some numbers just last night back before Tri Shield, we were a $10,000,000 company, dollars 10,000,000 in sales. Tri Shield has really changed our top line, a lot of growth, a lot of customer demand coming from Tri Shield, but it is more expensive to make.

Speaker 2

So I'm not I'm well disappointed, not surprised by the stress on the margin when you consider those three factors. But I'd much rather be a multi format company with Tri Shield than a smaller company with just the relatively less expensive bolus offering.

Operator

Okay. So I mean, it looks like contamination was only about 1% of the margin in the quarter, if I read that correctly. But how does the how do you improve margins from here to your target of 45%?

Speaker 2

Yes, we're going to push all those buttons. There are things we can do to influence yield and control the process. Controlling the process eliminates some of it hopefully eliminates or at least mitigates those contamination challenges. And then volume, just we had a lot of fixed costs, higher volume over those fixed costs is always going to work in our favor. And yes, it's certainly a priority, but I respect the question and it is a management goal to get that percentage, but I also have to balance that with the dollars.

Speaker 2

We don't pay the bills with percentages. We pay with dollars and we need more gross margin dollars to pay the bills and to get back to, Maynard's question, get back to profitability. It's total dollars. And even if that comes with a slightly less margin, that may I think that's a better alternative than being that bolus company at $10,000,000

Operator

Okay. I mean, so like these are these margins are historically much lower than, say, what you even did in your highest quarter of 2022. Do you see any improvement moving forward? What should we expect going forward in Q2 and the remainder of the year? Is this the new normal of 33% margin?

Speaker 2

Well, yes, the improvement, the first step as I mentioned both in the call and in the filings is moving off that disastrous ninetwo 32. So now the huge focus is how quickly and how close can we move from 32 to 45. We do always talk about the gross margin GAAP percentage, but the other thing I do look at is again cash and depreciation is a component of our cost of goods. I'd be happy with a near 45% margin that could be 45% when you remove the non cash depreciation. So we're looking at that measure, the cash flow measure and all those buttons to increase that yield.

Speaker 2

So it is a future looking thing. It will be subject to performance and subject to future disclosures, how quickly and how close can we move from 32, 33 to 45, at least 45 before depreciation?

Operator

Right. I mean, is there any improvement as of today from the Q1 or we're still looking at 32%?

Speaker 2

Yes. This answer may not satisfy you, Sean, but it is the truth. We really the costing, the production process is so complex. We get a view as with our auditors quarterly. There's really not a weekly or monthly way to accurately measure that.

Speaker 2

We can watch certain metrics expect and anticipate certain trends. But I mean this is a 6 month production process. So the best answer to that is quarterly to quarterly and interim views are not disclosed because they're just not accurate. Cool, Sean. Thank you.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Mr. Joe Diaz for any closing remarks.

Speaker 1

Thanks, Nick, and thank all of you for joining on today's call. We look forward to talking with you again to review the results of the Q2, which ends on June 30, 2024, and that will be sometime during the week of August 12. So thank you for your time. Have a great day.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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Key Takeaways

  • ImmuCell delivered record quarterly sales of $7.3 million, up 111% year-over-year and 33% on a trailing-12-month basis, driven by increased production capacity.
  • Q1 production output reached $7.2 million (96% of the $30 million estimated full-capacity annualized), though management cautions that level may not be sustainably repeatable.
  • The company swung to positive EBITDA of $0.4 million in Q1 (from a $1.6 million loss a year earlier) and improved gross margin from 9% to 32%, but remains below its 45% margin target and faces tight cash constraints.
  • A recent FDA “incomplete” letter on the CMC section for Retain requires a fourth submission and resolution of facility inspection observations, creating an uncertain approval timeline despite expedited review efforts.
  • Operational focus remains on reducing contamination events and equipment breakdowns to improve production yields and support future profitability.
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Earnings Conference Call
ImmuCell Q1 2024
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