ImmuCell - Q1 2024
May 15, 2024
Transcript
Operator (participant)
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. Please go ahead.
Joe Diaz (Managing Partner)
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. 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-K 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. 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?
Michael F. Brigham (President and CEO)
Thanks, Joe, and good morning, everyone. This is the story of the really good and a bit of the frustrating. With regards to the first quarter, I would like to speak about two 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 first quarter of 2024 compared to the first quarter of 2023, and sales were up 33% during the trailing twelve-month period ended March 31, 2024, compared to the trailing twelve-month period ended March 31, 2023. So again, 111% quarter over quarter, 33% trailing twelve over trailing twelve. This improvement is largely the result of increased production output.
By implementing and optimizing a multi-year investment to increase our production capacity, we achieved $7.2 million worth of production during the first quarter of 2024, which annualizes to $28.7 million, or about 96% of our $30 million 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 $7.3 million in sales recorded during the first quarter of 2024 represents an all-time quarterly sales record for us. The next highest quarter was $6 million, recorded during the first quarter of 2022.
Second, with those strong sales, we were able to turn earnings before interest, taxes, depreciation, and amortization, or EBITDA, of negative $1.6 million 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, 2023, to 32% during the quarter ended March 31, 2024, 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 million line of credit that is available to us until September of 2025. So that is the big picture.
With regards to the other financial results, the press release provides the full unaudited P&L results and some unaudited summary balance sheet data. Further, our 10-Q, Form 10-Q provides all the unaudited financial details and management's discussion and analysis. I will not 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. We believe that the operational improvements implemented are allowing us, 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 will remain focused on the commercial opportunity we have with First Defense, but as is often the case in a regulatory approval process, we are frustrated by yet another regulatory delay in our effort to bring Re-Tain to market. The FDA recently issued a CMC technical section incomplete letter in response to our third submission of the CMC technical section for Re-Tain. Pursuant to the incomplete letter, the FDA has provided some minor questions about our submission, requiring a fourth submission of the CMC technical section, which is typically subject to a six-month review. 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 manufacturer 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. 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. With that said, I'll be happy to take your questions. Let's have the operator open up the lines, please.
Operator (participant)
Thank you.
Michael F. Brigham (President and CEO)
Next.
Operator (participant)
We will now begin the question-and-answer session. To ask a question, you may press star, then one on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Again, if you have a question, please press star, then one. Please hold while we queue for questions. The first question comes from Frank Gasker, private investor. Please go ahead.
Frank Gasker (Founder)
First of all, Mike, it's sure a relief having kind of sales for the quarter. Keep it up.
Michael F. Brigham (President and CEO)
Yeah, I share that sentiment. Very, very exciting. Thank you.
Frank Gasker (Founder)
My question deals with the shelf and the offering. Could you clarify that in regards to at the market and your-how you go about designating or allowing a certain quantity at a per time?
Michael F. Brigham (President and CEO)
Yeah, 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 a more traditional offering is the traditional offering would have gone out at hopefully a 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.
So we kind of looked at that real hard around year-end and going into the first quarter, 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 is, it's a management discretion, board discretion, really on a day-to-day basis.
Frank Gasker (Founder)
Okay. So some shares have in fact been authorized and sold?
Michael F. Brigham (President and CEO)
Yeah. 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&A. Really, the three places repeat the same information. About $300,000 has been raised, gross, gross proceeds.
Frank Gasker (Founder)
Okay, I did see that. As far as you do not disclose, or do you, when in fact you are selling or not selling?
Michael F. Brigham (President and CEO)
Well, the board, you know, through me, the board communicates to the banker and sets thresholds of both volume and price.
Frank Gasker (Founder)
Okay.
Michael F. Brigham (President and CEO)
I think I know through our quarterly reports, we would re-report the results of that interaction and that activity.
Frank Gasker (Founder)
Okay. You've, you've answered all my questions. Thank you very much.
Michael F. Brigham (President and CEO)
All right. Thank you, Frank.
Operator (participant)
The next question comes from Michael Potter with Monarch Capital Group. Please go ahead.
Michael Potter (Chairman and CEO)
Hey, Michael. How are you doing?
Michael F. Brigham (President and CEO)
Hey, very well. Thank you.
Michael Potter (Chairman and CEO)
So certainly a mixed quarter, on the newsfront. Congratulations operationally, obviously, kind of scratching my head on, in regards to Re-Tain. Can you walk us through the inspectional observation? What is the process here and the timeline to get through this process?
Michael F. Brigham (President and CEO)
Yeah, honestly, it is live, it is active, it is undetermined. There's gonna be a lot of back and forth that we're not gonna be party to. It's directly between the FDA and Norbrook. But Norbrook does communicate very well with us, so we'll get, you know, status reports. But their ability to respond is at their discretion. I would add, they're a big company. They have other products. They're motivated beyond just Re-Tain to get it right. And then once they do that, it will be up to the FDA to determine how quick they review and how quick they, and what the results of that review is. So it's frustrating not to have a more definitive answer, but we just don't have that at this point.
It's just very, very fresh.
Michael Potter (Chairman and CEO)
Okay. And when were we notified by the FDA that they were not moving forward with the approval?
Michael F. Brigham (President and CEO)
Yeah, it was right on the, as expected, right, right on the 180 point, and that was well, I think we'd even disclosed it. It was May tenth.
Michael Potter (Chairman and CEO)
It was May tenth. This is all fresh, so we're just getting our arms around this, the go forward process.
Michael F. Brigham (President and CEO)
Exactly right. It's like going. That's what I meant by the good and the frustrating. The good, you pointed out the sales. You know, the frustrating is just, wow, we thought, you know, this was end stage, late, late in the game, and we didn't get to complete. So yeah, over the weekend, over the week so far and over the coming weeks, there'll just be a lot of back and forth. How quickly can Norbrook respond? How effectively can Norbrook respond, and how quickly can the FDA concur?
Michael Potter (Chairman and CEO)
Got it. Okay. Thanks, Mike. We look forward to more information as you get it.
Michael F. Brigham (President and CEO)
For sure. Thanks, Michael. Yep.
Operator (participant)
The next question comes from Maynard Fernandez with MacDill Columbus. Please go ahead.
Maynard Fernandez (Director)
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? That's the first question. The second question is, when do you project to produce a profit? Thank you.
Michael F. Brigham (President and CEO)
Yeah, that's a fair question, Maynard. The best answer I have is, you know, our first, the first thing I turn to is statement of cash flows, and I just look at the depreciation. So while 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 in the... While the depreciation expense is in our GAAP reports, the EBITDA figure is just in our press release. So I think that's step one in a transition from this, you know, product development, Re-Tain driven loss to cash flow and then to PNL next. But I didn't put a projection on the date for that.
It really, it really is a transition here, that we're looking at 2024 as to how, how strong we can keep the sales, how quickly we can reduce some expenses as this Re-Tain project that drives almost all of our product development expense, as that moves from development to commercial. So, a lot of events in 2024 to answer that question.
Maynard Fernandez (Director)
Thank you for your answers.
Michael F. Brigham (President and CEO)
Thank you, Maynard. Yep.
Operator (participant)
The next question comes from Sean Kirkwood with SRK Capital. Please go ahead.
Sean Kirkwood (Founder and Managing Principal)
Hi, Mike. Good morning.
Michael F. Brigham (President and CEO)
Hey there, Sean. How are you?
Sean Kirkwood (Founder and Managing Principal)
Good.
Michael F. Brigham (President and CEO)
Good.
Sean Kirkwood (Founder and Managing Principal)
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?
Michael F. Brigham (President and CEO)
Yeah, yield is always a big one, and it is variable. I mean, just a biological process. We try and manage it as tight as possible, but they do go up and down. It just milk is our source, raw material, cows that produce it. You know, not to digress too far, but one of our marketing positions that we take is that don't vaccinate your cows, use First Defense, so you don't have to be subject to the variability that is inevitable with a vaccine, of the commercial vaccine response. So what our customers see on the commercial side, we see every day in our production plant. So it is variable. The other factor I would add to that is these contaminations are expensive. They did drag down the margin.
Moving forward with better yields and moving forward with lesser or limited contaminations would certainly improve the margin. That's definitely the goal. 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, you know, back before Tri-Shield, we were a 10-million-dollar company, $10 million 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. 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.
Sean Kirkwood (Founder and Managing Principal)
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 do you improve margins from here to your target of 45%?
Michael F. Brigham (President and CEO)
Yeah, we're gonna push all those buttons. You know, there are things we can do to influence yield and control the process. Controlling the process eliminates some. It hopefully eliminates or at least mitigates those contamination challenges. And then volume, you know, just we have a lot of fixed costs. Higher volume over those fixed costs is always gonna work in our favor. And yeah, it's certainly a priority, but you know, I respect the question, and it is a management goal to get that percentage, but I also have to balance that with the dollars.
We don't pay the bills with percentages, we pay it with dollars, and, you know, we need more gross margin dollars to pay the bills and to get back to Maynard's question, get back to profitability. You know, 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 million.
Sean Kirkwood (Founder and Managing Principal)
Okay. I mean, so, like, 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, what should we expect, you know, going forward in Q2 and the remainder of the year? Is, is this the new normal of 33% margin?
Michael F. Brigham (President and CEO)
Well, yeah, the improvement, the first step, as I mentioned, both in the call and in the filings, is moving off that disastrous 9%-32%. So now the huge focus is how quickly and how close can we move from 32%-45%? You know, we do always talk about the gross margin gap 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. So, you know, it's a future-looking thing.
It'll 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, you know, before depreciation?
Sean Kirkwood (Founder and Managing Principal)
Right. I mean, is there any improvement as of, as of today from the first quarter or, or we're still looking at 32%?
Michael F. Brigham (President and CEO)
Yeah. This answer may not satisfy you, Sean, but it is the truth. We really... The costing, the production process is so complex. We get an overview with our auditors quarterly. There's really not a weekly or monthly way to accurately measure that. We can watch certain metrics and expect and anticipate certain trends, but I mean, this is a six-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.
Sean Kirkwood (Founder and Managing Principal)
Okay, that's fair. I appreciate the details. Thank you.
Michael F. Brigham (President and CEO)
Cool, Sean. Thank you.
Operator (participant)
This concludes our question and answer session. I would like to turn the conference back over to Mr. Joe Diaz for any closing remarks.
Joe Diaz (Managing Partner)
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 second quarter, which ends on June 30, 2024, and that'll be sometime during the week of August 12. So thank you for your time. Have a great day.
Operator (participant)
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.