ImmuCell Corporation (ICCC) Earnings Call Transcript & Summary

Thanks, Betsy. Hello, everyone, and welcome. My name is Joe Diaz, as Betsy mentioned. Lytham Partners is the investor relations consulting firm working with ImmuCell, and I'm part of that team. We appreciate each of you taking the time today to go over the unaudited financial results for the third quarter of 2021. Before we get into it, I want to start with a caution about forward-looking statements. Those listening should keep in mind that remarks made by management on this call contain forward-looking statements, which carry risks and uncertainty that might lead actual results to differ materially from what we talk about today. More details on these risks and uncertainties can be found in the cautionary note on forward-looking statements — also referred to as the safe harbor statement — included in last night's press release as well as the company's quarterly report on Form 10-Q. Now I'll hand things over to Michael Brigham, President and CEO of ImmuCell Corporation, and once he's finished, we'll take your questions. Michael.

Thanks, Joe, and good morning to all of you. I'm glad to have this chance to share a few updates about what's happening at ImmuCell. All the financial specifics are in the press release and the Form 10-Q quarterly report we put out last night. Because you already have those materials, I won't spend your time here walking through every line item, but I'd like to go over some highlights, and afterward I'll offer a few strategic remarks about how I view our business right now. First Defense keeps producing strong cash flow; we're thankful that our customers want to protect their newborn calves with our antibody technology instead of scours vaccines. Among veterinary biologics, the First Defense product line is the only one with our breadth of claims, and it can eliminate the unpredictability in scours protection that comes from a variable vaccine response. Customers are seeing this benefit in the field, and we intend to keep gaining market share through more excellent work by our production and sales teams. Earnings before interest, taxes, depreciation, and amortization rose to $852,000 for the three-month period that ended September 30, 2021, versus $354,000 in the third quarter of 2020. Over the nine-month period ending September 30, 2021, EBITDA climbed to just under $2 million, compared with approximately $1 million for the nine-month period ending September 30, 2020. You should view these non-GAAP financial measures of our cash flow alongside our statement of cash flows, which appears in the financial statements in our quarterly report. We are finishing our latest investment in First Defense production capacity, which will lift our yearly production capacity from roughly 16.5 million to about 23 million. The output needed to hit our third quarter First Defense sales, if annualized, equals roughly 20.1 million of production each year; that speaks to how well our production team maximized throughput throughout the expansion process. We aren't stopping at 23 million. We've begun another investment meant to raise this annual capacity to 3 million or more by the third quarter of next year. Meanwhile, we're putting a significant portion of the cash First Defense generates into finishing the marketing and regulatory work needed to launch Re-Tain. Our goal is to show that our bacteriocin, Nisin A, can serve a productive role in treating subclinical mastitis in the dairy industry of today. Since label requirements for every intramammary drug currently on the market mandate that milk be discarded and that meat be withheld during treatment and for some time afterward, the dairy industry today commonly chooses not to treat sick cows that are still producing salable milk. Re-Tain delivers an animal welfare advantage by eliminating that financial barrier against addressing subclinical mastitis, letting ailing cows receive treatment free from penalties involving discarded milk and withheld meat. Beyond better welfare for animals, Re-Tain boosts food safety plus sustainability through a bacteriocin not employed in human medicine. It's believed that excessive use of conventional antibiotics leads to antibiotic resistance, a continuing public health worry. We remain on schedule to file a second submission with the FDA before the year ends, covering the fifth and last major technical section needed to secure approval of our new animal drug application. The following decision point arrives 6 months following submission, when the FDA will either grant approval for our NADA or request additional information that would require yet another submission. As you're likely aware, we put out a press release on October 6th detailing our preliminary top-line sales figures. These voluntary announcements have been our way of giving investors a highly current glimpse at what I consider the single most important gauge of our operations and financial results, namely product sales early in the reporting period. I have nothing to alter regarding that very robust earlier disclosure. To repeat, product sales climbed 38% in the third quarter of 2021 and rose 19% across the first 9 months of the year versus the corresponding periods a year earlier. Gross margin expressed as a percentage of sales rose to 47% in the third quarter of 2021, up from 46% in the third quarter of 2020. We opened the year with a 16% decline in first quarter sales, which pulled our gross margin down to 39% for the 3-month period ending March 31, 2021; we've bounced back from that first quarter sales decline and remain on track to deliver positive sales growth for the entire year of 2021 compared with 2020, as we projected. Our gross margin percentage of sales increased to 44% for the 9-month period ending September 30, 2021; this greater sales level and better gross margin assisted us in reporting net income of $148,000 in the third quarter of 2021, versus a net loss of $323,000 in the third quarter of 2020. Helped us lower our net loss to $152,000 for the 9-month period ending September 30, 2021, compared with a net loss of $1.2 million for the 9-month period ending September 30, 2020. Out of the $10.5 million in cash we held as of September 30, we anticipate spending roughly $4.4 or $5 million to finish certain capital expenditure projects. That would leave us with approximately $6 million in cash available for general working capital needs, including planned inventory builds for both First Defense and Re-Tain. Complete information on the capital expenditure investments we're pursuing appears in our quarterly report within the MD&A section under Liquidity and Capital Resources; to wrap up, I urge you to look over the press release and the quarterly report on Form 10-Q that we submitted last night. In addition, I'd encourage you to check out the slide deck for our corporate presentation. We just put a November update up on our site yesterday evening. In my view, it offers a solid overview of both our business strategy and objectives, along with where our financial results currently stand. Go to the investor section of our website and select Corporate Presentation. Having said all that, I'm glad to answer whatever you'd like to ask. Operator, please go ahead and open the lines.

Well, I appreciate you fielding my question. I was just, you know, curious—as you add that new capacity for First Defense, since, you know, there was a slight decline the previous time—are there any problems when you bring that capacity online? I believe you said that by the third quarter of next year, or entering Q3, you'll have, you know, as much as $30 million in capacity.

Perhaps, you know, regarding how that gets phased in, will it ramp up or— Michael Brigham: Right.

Perhaps you could provide some clarity on that point.

Of course. Hello, Scott, and thank you. I can't say which downturn—or any downturn—you have in mind, but I'll try to address what you're asking. Before we expanded, our capacity stood at roughly 16.5 million. The initial capital outlay was meant to raise that figure to 23. As things stand today, essentially all of our output is going out the door. In effect, revenue roughly mirrors what we produce.

Yeah.

If I take the third quarter and put it on an annual basis, we come out at $20.1. As you can tell, we're moving along that range between $16.5 and $23, sitting right at $20. My expectation is that during the fourth quarter we'll wrap that up. The final components of this project are getting connected, which brings us to $23. Regarding the following stage you mentioned, our approach was to begin that spending as part of phase one. At that point we created room for the equipment, so the construction portion is finished. However, we held off on purchasing the equipment since we first wanted to observe how the phase one equipment performed and confirm we felt good about it. Roughly a month to six weeks back — perhaps close to two months at this point — we went ahead and placed the order for that equipment. It has a lengthy lead time, it's a complicated piece of machinery, and installing it is a major job, and that's the unit that will be up and running in the third quarter of next year. The order has been submitted, and fabrication began in the third quarter. That's the piece that lifts us to that $30 million mark. Does that?

Right.

Answer the question, Scott? Yeah.

Yeah, it does. Great. Thanks.

Okay.

At this stage, would you say the backlog has mostly been cleared? Are customers continuing to place orders ahead of time, or could you share some perspective on that?

Yes.

That would be excellent.