ImmuCell - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 marked a strong inflection: revenue rose to $7.75M, gross margin improved to 37%, and the company returned to profitability with $0.06 diluted EPS and ~$1.33M EBITDA, driven by higher output and better yields after resolving contamination issues since April 2024.
• Full-year 2024 product sales grew 52% to ~$26.5M, while Q4 sales annualized indicate ~$30M+ production capacity now achievable; order backlog was worked down materially entering 2025.
• Management reiterated focus on margin recovery (targeting 40%+ gross margin over time), yield improvement, and a 2025 price increase tailwind; contamination remediation and throughput gains are the core levers.
• Regulatory: Re-Tain moved forward with the Non-Administrative NADA submission in early January 2025 and pending FDA clearance of contract manufacturer observations; management is seeking expedited review and evaluating strategic options to support launch.
• Estimates: S&P Global/Capital IQ consensus for Q4 2024 was unavailable in our data pull; no beat/miss vs. Street provided. We show detailed sequential and YoY comparisons vs. prior periods and company commentary instead.

What Went Well and What Went Wrong

What Went Well

• Material re-acceleration and operating turn: Q4 revenue up to $7.75M (+52% YoY) with gross margin up to 37% (vs. 25% LY), flipping to net income of $0.515M ($0.06) and ~$1.33M EBITDA; full-year EBITDA also positive at ~$1.11M.
• Manufacturing remediation progress: No contamination events since April 2024; management believes processes now keep bioburden within spec, supporting sustainable throughput and yield improvements.
• Capacity and demand: Q4 sales suggest ~$30M+ annual production capacity; backlog reduced to ~$4.4M by 1/1/25 as distributors replenish inventories ahead of peak season.

What Went Wrong

• Gross margin remains below target: Despite progress to ~36.5–37% in Q4, management’s long-term goal is >40%; mix (Tri‑Shield is costlier), inflation and yield variability remain headwinds.
• Prior-period disruptions still echo: 2023–early 2024 contamination and remediation created scrap and constrained output, contributing to depressed margins and elevated WIP inventories that are still being managed down and repurposed.
• Regulatory timing uncertainty: Re-Tain approval timing depends on FDA disposition of contract manufacturer observations and review of the January 2025 NADA; management seeks expedited handling but cannot guide timing.

Transcript

Operator (participant)

Good morning and welcome to ImmuCell Corporation reports its Q4 and year ended, December 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 over to Joe Diaz of Lytham Partners. Please go ahead.

Joe Diaz (Managing Partner)

Thank you, Debbie. Good morning and welcome to all. As conference call operator indicated, my name is Joe Diaz. I'm with Lytham Partners. We're the investor relations consulting firm for ImmuCell. Thank all of you for joining us today to discuss the unaudited financial results for the fourth quarter and the year ended December 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 the 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 better known as Safe Harbor statement, provided with the press release 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, February 26, 2025. 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 Brigham (President and CEO)

Thanks, Joe. Good morning, everyone. The sales growth of 52% during both the Q4 of 2024 and during the full year of 2024, in comparison to the same periods of the prior year, is huge for us. It should be noted that our performance during 2023 and the first nine months of 2024 was limited by production contamination events that led to a reduction in manufacturing output and delayed effective implementation of our investment and capital expenditures necessary to double our production capacity. This led to a period of short product supply to market, as evidenced by our publicly reported backlog of orders. As a result, the 2024 results are compared to periods in 2023 when our production was limited. The absolute dollar value of the sales is more important to me than the period-to-period flux comparisons.

To that end, the $7.8 million in sales recorded during the fourth quarter of 2024 suggests that we have achieved our goal of increasing annual production capacity to 30 million or more per year. The results for the Q4 of 2024 put us in a much stronger track as we enter 2025. We have not incurred another contamination event since April of 2024. This is critical. It suggests that we have effectively remediated the problem and are keeping the bioburden within specification. When I look back, I see something that is now very understandable. After successfully running the same process for over 30 years, sudden growth is hard. We work with a high bioburden source material, that being farm milk. We needed to better control quality at the source of this growth. We are doing that now.

Similar challenges were incurred in our downstream processing as we pushed our well-established process and equipment harder. 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. We pay our bills and drive our cash flows with gross margin dollars. To that end, gross margin increased by 125%, or $1.6 million-$2.8 million during the Q4 of 2024 in comparison to the Q4 of 2023. It increased by 105%, or $4.1 million-$7.9 million during the year ended December 31, 2024, in comparison to the year ended December 31, 2023. We experienced some low gross margin percentages in prior periods as we dealt with low output and scrap costs related to the contaminations.

The 36.5% gross margin as a percentage of sales that we recorded during the Q4 of 2024 is a step in the right direction, but we still have some work to do to return to our target of over 40%. The increase in sales and the improvement in gross margin are important. I take nothing away from those accomplishments, but I would like to talk for a moment about EBITDA because the impact of non-cash depreciation expense on our bottom line is significant. We created EBITDA of $1.3 million during the Q4 of 2024, in contrast to negative EBITDA of $311,000 during the fourth quarter of 2023. The Q4 results were strong enough to create EBITDA of $1.1 million during the year ended December 31, 2024, in contrast to negative EBITDA of $2.6 million during the year-ended December 31, 2023.

That is a swing in the right direction of approximately $3.7 million between the years. In order to improve our cash position, we effectively utilized our at-the-market offering, raising net proceeds of almost $4.4 million during 2024. This helped us increase our cash position to approximately $3.8 million as of December 31, 2024, from just $979,000 as of December 31, 2023. Switching topics a bit, I'd like to offer some comments about Re-Tain. 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 label restrictions. We are eager to find out what the market thinks of our new product. We can see the potential of achieving FDA approval of Re-Tain after all these years of investment.

The initiation of our previously disclosed controlled launch is pending FDA clearance of inspectional observations at the facilities of our contract manufacturer and the FDA's review of our non-administrative NADA submission, which we submitted during early January of 2025. This submission includes all other information and product labeling, as well as our fourth submission of the CMC technical section responding to the minor non-complex issues from the incomplete letter issued by the FDA in May of 2024. We have been in discussions with the FDA to seek an expedited review. After an investment of about 25 years and approximately $50 million in the development of this technology, we are committed to seeing Re-Tain through regulatory approval and initiation of our limited distribution controlled launch strategy. At the same time, we are reducing product development expenses as we await FDA approval of Re-Tain.

We are also in the very early stages of exploring potential strategic options that could offset some of the product development expenses and enhance a mass market launch of Re-Tain. As we work through what we see as the final stages of the regulatory approval process in our effort to bring Re-Tain to market, we will remain focused on the commercial opportunity that we have with First Defense. That is the big picture from my perspective. With regards to the other financial results, the press release provides the unaudited P&L results and some unaudited summary balance sheet data. We plan to file our Form 10-K around the end of March with all the audited financial details and management's discussion and analysis. Lastly, I encourage you to review 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 February 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)

We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. 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. The first question comes from George Melas with MKH Management. Please go ahead.

George Melas-Kyriazi (Analyst)

Great. Thank you. Hi, Michael. Good morning.

Michael Brigham (President and CEO)

Hey, good morning, George. How are you?

George Melas-Kyriazi (Analyst)

Very well, thanks. Congrats on very good results for the quarter. I want to ask a couple of questions, one on gross margin and the other one on inventory. On gross margin, you achieved 36.5%, which is the best result in eight quarters. Like you said, in previous years, from 17-22 to mid-22, you were consistently having gross margins in the mid to high 40%. Looking at the changes, there have been a few changes. Of course, product mix is different with a bigger share of Tri-Shield. Salary costs, I'm sure, have gone up, but so has pricing. I'm trying to see what else accounts for the difference in the gross margin. You're saying that your goal is 40%, sort of 40% plus. What would it take to get there?

Michael Brigham (President and CEO)

Yeah. Certainly a lot of factors, but I think the biggest one is, I do not want to rank them. I will comment on a couple. You mentioned product mix. I totally agree with that. Simply, Tri-Shield is more expensive to produce than the bolus. The bolus is a simple bivalent product, a single production train. The Tri-Shield is trivalent and involves two production trains. Tri-Shield product mix, but that is a negative. The positive is Tri-Shield is creating a heck of a lot of growth. The customers really love that broad spectrum coverage with the addition of rotavirus to our longstanding E. coli and corona. I sort of jump off to the 37 in the fourth quarter, and I kind of put that in a condition of work in progress.

Like you mentioned, way better than the past and still room to go. Thirty-seven percent is that 2024 pricing. We've got a 25 price increase to help us. The rest we've got to get from yield and throughput. Those bad periods that you referred to were burdened by contamination. They were burdened by a remediation process that slowed down our production. Lower volume, all the impacts there. That's what I see as I see that turn 24, 25, that we're coming out of that without contamination, with higher production, with a price increase off a Q4 base of 37%. Does that make sense?

George Melas-Kyriazi (Analyst)

Yes, but can you provide a little bit more color on, okay, so you're talking about sort of really three factors, the mix, but that's not changing. The price increase, that's impacting the gross margin, and throughput. Throughput seems pretty optimal almost at this point. What can you do from an operational perspective, do you think? Is there much to do from an operational perspective?

Michael Brigham (President and CEO)

First off, more of the same. I mean, we just have to continue that kind of production. It's a six-month production cycle. We saw a turn here to the better in the fourth quarter. Now we're not projecting. Now we're managing a repeat. Do more of the same, do it better. I think the one factor we didn't talk about there, but it was related to contamination, is yield. One of our top priorities around here is same work for more doses, just simply increase production yield. Biological processing is subject to a huge amount of yield variance. I think we've made some steps, and there's always room for more improvement on yield improvement. I always say yield, George, I always say yield resumption. It's not like creating a new level of yield, doses per batch or whatever measure you use.

It's getting back to the old yields. It's really putting all of those factors into play in the second three months of this six-month period ended March 31.

George Melas-Kyriazi (Analyst)

Okay. Let me just ask a question on doses per batch. Is there much variation right now in doses per batch, or has that sort of improved and is it within a particular or very small range, or does it vary a great deal from batch to batch?

Michael Brigham (President and CEO)

Yeah, I would go with both. I mean, this is biological. This is cows. There's so many different factors. There's always going to be variance, but I think we've tried to knock off the bottom and try and get more repetition of the better batches. We're always going to be dealing with yield. I mean, that variance and just continual improvement. That's what we've been seeing. That's related to the 37%.

George Melas-Kyriazi (Analyst)

Okay. Okay. Great. Okay. You asked me just my second question on inventory. One of the stories of the last two and a half years is the big increase in inventory, and almost all of that is WIP. My understanding, and I'll just tell you my story, but you tell me whether it's right or wrong, is that as you guys expected growth, you contracted for a lot of milk deliveries, but then there were these unforeseen events, the syringe shortage in mid-22, the contamination events, and you could not take that. You could not use that milk, but you still had to take it. It kept arriving. You froze it, and that is basically most of the WIP. Is that kind of a correct story? How can you elaborate on that story?

Michael Brigham (President and CEO)

Yeah. I think, George, that's all fair. Certainly, growing your real estate or facilities and equipment, people growing the schedule doesn't do you any good if you don't have more raw material coming in to feed the process. Yes, we expanded farms. We expanded cows. We expanded colostrum collection. The slowdown meant that we didn't need it all at that time, but I wouldn't do it different. I wouldn't want to be short on colostrum. What I think one of the best, so if that's a negative, which I see your point, a little negative on the cash flow or where we invest the cash, I think the offsetting and more than offsetting positive is what our really creative sales team is doing with that inventory. We've talked about this a little, but it's in the development stage of basically a new format.

Everything we've been selling, everything we've been making has been freeze-dried and our intellectual property around our manufacturing process is to get a very purified, concentrated, and specific antibody. Spray drying is going to be more of a bulk product. This excess, I hesitate to call it excess, but this level of colostrum enables us to explore that path, a new product format, same concept, antibodies, same antibodies, same disease, but just a different market segment being bulk feed rather than a 4-6 gram dose. I hear your point on cash is king, and we watch it super tight. In this case, I think you can't grow without more incoming. I just credit the sales team for initiating this new format. Over the coming quarters, we'll be able to report on the success or failure of that initiative.

George Melas-Kyriazi (Analyst)

Okay. Great. Timeline, you think there might be some, the new format might be in beta with some customers, or you can give me?

Michael Brigham (President and CEO)

Yeah. It's a 25 thing that will inform our decisions for 26 and after. I think the nice thing here is we're not subject to a regulatory hurdle. This is going to be a no-claim product. It's not a USDA claim product. That allows us to get to market faster, and that's what we're working on.

George Melas-Kyriazi (Analyst)

Okay. Great. Okay. Thanks a lot. Congratulations again.

Michael Brigham (President and CEO)

All right. Hey, thanks, George. Appreciate it.

Operator (participant)

Again, if you have a question, please press star, then one. At this time, there are no further questions. This concludes the question and answer session. I would like to turn the conference back over to Joe Diaz for any closing remarks.

Joe Diaz (Managing Partner)

Thanks to all of you for participating on today's call. We look forward to talking with you again to review the results of the first quarter ending March 31, 2025, during the week of May 12, 2025. Have a great day. Again, thanks for participating.

Operator (participant)

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