ImmuCell Corporation (ICCC) Earnings Call Transcript & Summary

Thanks, Jamie. Hello everyone, and good morning to you all. As Jamie mentioned, I'm Joe Diaz from Lytham Partners. Our firm serves as the Investor Relations consultant for ImmuCell. Once more, we appreciate everyone being here today as we go over the unaudited financial results covering the first quarter of 2021. Before we get into it, I'd like to start with a warning about forward-looking statements. Those listening should be aware that remarks made by management throughout this call contain forward-looking statements, which carry risks and uncertainties that might lead actual results to vary materially from what we talk about today. You can find more details about such risks and uncertainties in the cautionary note about forward-looking statements that is not part of the Safe Harbor statement included in last night's press release as well as the company's quarterly report on Form 10-Q. Having said that, I'll now hand things over to Michael Brigham, President and CEO of ImmuCell Corporation, and afterward we'll open up the call for your questions. Michael?

Alright, thank you, Joe. I’m glad to have this chance to share a few updates about what’s happening at ImmuCell. All the important financial points and specifics are laid out in the press release and the Form 10-Q quarterly report we released yesterday evening. As you probably know, on April 7, we put out a press release with our preliminary top line sales figures; we’ve been making these optional announcements so investors get a very prompt view of what I consider the most essential gauge of our operations and financial performance, which is product sales early in the reporting period. Once again, product sales have fallen 16% versus the first quarter of 2020. One thing I want to flag: the sales we saw in Q1 2020 were helped by leftover inventory we still had on hand when that quarter began, specifically stock that was there as of December 31, 2019. Then in the first quarter of 2021, we ran manufacturing at about 100% of the production capacity we have today, and even that wasn't enough. Demand was so strong that we ended up with a backlog of roughly $3.1 million as of March 31, 2021, compared with around $1.8 million as of December 31, 2020. As for the money we're putting into lifting our yearly production capacity from about $16.5 million to $23 million, that project is still on track to wrap up by the close of June. As a result, we anticipate bouncing back from the sales drop in Q1 and delivering an increase in sales for the entire 2021 compared to 2020. Our sales force has put in tremendous effort to manage the product scarcity with customers. At last, I can see the end of this 18-month ordeal approaching, and we should be able to start selling with stock available on the shelves at some point during the third quarter. The gross margin falling to 39% of sales in the first quarter of '21 is likewise connected to this capacity expansion. To demonstrate, I'll take you through some informal pro forma financials. Had we managed to trim $287,000 in expenses across Q1, we'd have posted a 46% gross margin instead of the 39% figure we actually reported. We've pinpointed at least that much in costs that, in my view, qualify as either upfront startup or one-time in nature — money we had to spend so we could eventually take advantage of added capacity, yet it wasn't required to hit our first-quarter production numbers. Setting aside the sales at the top line, the capacity build-out, and the gross margin figures we just went over, there are three additional items I'd like to address: first, how we're deploying the money from the equity raise in April; second, our cash flows; and third, where things stand on the path toward getting Re-Tain approved by regulators. To start, you're probably aware that last month we brought in $4,250,000 of fresh equity, priced at $8.25 a share. It was a plain common stock transaction — no warrants, no converts — and the costs to issue were quite low. With this money, plus other cash we can tap, we're in a position to go after four significant growth investments in a big way, adding up to roughly $5.4 million. We're putting money into scaling up and upgrading our vaccine manufacturing capacity, expanding and enhancing what we can do in the classroom collection area, and improving logistics, which together lift our yearly First Defense output from the fresh figure of $23 million up to roughly $30 million, and also to build inventory as we exit backlog and get ready for the peak selling season in the first quarter of 2022. You can find complete information on these investments along with other capital expenditure projects we have underway in our quarterly report, within the MD&A section, under liquidity and capital resources, near Pages 25 to 26. I'm grateful for the trust these new investors have placed in our company, and I think we're deploying this capital very productively to grow the business for the good of all stockholders. Now, second, our cash flows. Largely because of significant product development costs tied to bringing Re-Tain to market, we keep reporting a net loss. Still, my view is that at this point in our development we ought to pay more attention to cash flows than to our GAAP net loss. Page 4 of the press release from last night gives you a view of how certain non-cash expenses affect our financial results. So, as you can see, we're continuing to report positive EBITDA, and to me, that's the number that really counts when we're tracking how the bottom line is doing at this point. But the single most important metric of all is the cash flow statement, which you'll find on Page 4 of our quarterly report. And then third, the last item: the road to getting Re-Tain approved by regulators. That road has been a long one, and an expensive one too, but we're nearly done with everything required to obtain FDA clearance for this first-of-its-kind sub-clinical mastitis therapy for dairy cows that are lactating, and it involves no milk discard or meat withhold. In the first quarter, we filed the final five technical sections needed for FDA approval; a submission of this type gets a 6-month review from the FDA. That places us at a major fork in the road in the third quarter of this year. Should the FDA raise questions for us, we might have to answer via a further submission, which would get another 6-month review; we don't expect that an additional submission would be needed beyond that. So we are preparing for a mass market launch in the second quarter of 2022, while staying ready to shift to an initial limited launch plan near the end of this year, should approval arrive in response to our first submission. With Re-Tain, we now have another option in play as we pursue continued expansion of our overall product revenue. Before I finish, I'd encourage everyone to review last night's press release along with the Form 10-Q quarterly report we submitted; I'd also ask that you take a look at the corporate presentation slide deck, which received its May refresh and went up on our site yesterday evening. From my perspective, it offers a solid snapshot of where the company is headed and what we're aiming for, plus the current state of our financials. To locate it, simply visit the Investors Section of our website and click on Corporate Presentation. With that, I'm happy to take any questions you may have. Operator, please open the lines. Thank you, Jamie.

Morning, Michael. Could you share your current headcount? Also, what number do you anticipate having by June, and where do things stand on that?

Correct, yes — the Q filing shows roughly 54 FTEs. We also have approximately 6 part-timers, so 53 to 54 at present. That figure will rise directly to 60 and then beyond, reaching about 70 once we're fully staffed and rolling out Re-Tain in the coming year. Therefore, I expect 54 to become 60 shortly, and 70 across the next year.

All right. Regarding June 30, do we feel confident about that date for being prepared to begin production, or is there something else we need to accomplish?

So, we're near the conclusion of this effort. As every goal gets met and finished, our confidence keeps growing; however, until the USDA gives its approval, it isn't complete; I believe I touched on this during the gross margin conversation — a portion of those expenses has already been paid; the new building exceeding 175, where we handle our finished packaging along with formulation and filling of product, is now operational. What remains is simply wrapping up the effort at 56 Evergreen, which involves putting in tanks. The tanks have been ordered. They've been fabricated. Installation is underway; therefore, I'm fairly optimistic about that schedule. It's a lovely space. Every renovation to the facility has been finished, the floor was just poured, the epoxy coating went down this week — it's a stunning space; so, it's < > USDA and I'm optimistic regarding June 30.

Okay, so regarding Re-Tain, that has been filed with the FDA. Do we have any signal yet about how the FDA is functioning during COVID? And is it 6 months, or what does the timeline look like?

Yes, the timeline, before COVID. From what we understand, under COVID it is 6 months. We have not seen anything suggesting that would shift. So we continue to anticipate 1Q to 3Q for that critical submission, that 6-month review. Only in the last few days, the FDA published some information about remote inspections. That is clearly pertinent for us; an inspection of our facility is something we expect. And it appears that could be remote. I have a full Zoom setup; and that is what they have advised the industry to be ready for. So, we are ready for Zoom.

Okay, then regarding that backlog — ideally, at what point, how should we think about bringing it down? It's June 30, and hopefully you'll have all systems operational. When will we — is that backlog still growing? And what actions are we taking to shrink it?

Yeah. Well, 3.1 is indeed an enormous figure. So the backlog fluctuates. Occasionally we observe orders getting cancelled. A few distributors simply prefer not to carry open POS on their records over a long stretch. Others submit additional orders hoping to secure a spot in line. So during the second quarter, what we're doing is leveraging every bit of capacity we're able to push through in that quarter ahead of the project being fully finished, and then as we move into the third quarter, simply run flat out. Will this run until we catch it. And that's what we're aiming for at some point in the third quarter. Return to a state where sales is out in the field, aware that inventory is ready to ship the moment the appeal is placed. Put this backlog pressure out and behind everyone.

Alright, that's really encouraging. Best of luck, Michael.

Thank you, Sam. That means a lot. It's great to hear from you.

All right, the line's getting longer now, Michael. I wanted to ask about the facility — its capacity, when it will be up and running, and how the FDA approval for that actual facility works. Could you shed some light on a few of those points?

Sure. As I said, Sam, I'm feeling quite confident about June 30. Things are coming together; this project has run 18 months since we kicked off at the start of 2020, and it has stuck to our schedule and our spending plan. So yes, the second copy of our cheese line — meaning we boost our liquids, reaching 100% processing — that's truly the final stage. Those tanks are being installed right now. There's a bit of wiggle room there, though we figure it takes 2 or 3 weeks. We're in close contact with the USDA. They're aware of what's ahead, but we must set aside roughly 2 to 3 weeks so they can review and confirm all is in order. On the First Defense front, I'm feeling good — it's almost here. Then Re-Tain, once more: that's, I believe, a '21 goal to finish the regulatory work, and '22 is our launch year. It simply depends on what occurs with this initial submission — whether they're satisfied and raise no issues. We proceed to the administrative review, the final stage, involving labeling and all that freedom of information labeling. Should they pose questions, at least we'll know what they're looking for, we respond and resubmit — that one takes another 6 months. So both of these goals, which matter enormously to our business, sit right before us: clear the backlog, secure approval, then launch Re-Tain. The coming 12 months, I believe, will be very thrilling.

Thanks, Michael.

Hello, good morning. From what I can see and hear, you're clearly moving forward quite well. Please be patient with me — I'm not fully up to speed on how the most recent characterization of the funding picture has been described, particularly regarding money going out across roughly the next 1 or 2 years. My assumption would be that the latest raise was largely seen as a bridge intended to carry you through what everyone hopes will be an FDA approval in the near term. But could I get you to spend a few words publicly describing what you've stated about how far this financing takes you, and what your strategic intentions are over a longer horizon?