ImmuCell Corporation (ICCC) Earnings Call Transcript & Summary

Hello, everyone, and thanks for being here this morning. Joe Diaz here, as our operator just mentioned. Lytham Partners is the investor relations consultancy representing ImmuCell. We appreciate each of you taking the time today to go over the unaudited financial results covering the second quarter that closed on June 30, 2022. Before we get into things, I want to start with a caution about forward-looking statements. Those listening should keep in mind that anything management says on this call includes forward-looking statements, and those carry risks and uncertainties that might make actual results come out materially different from what gets discussed today. You can find more details about such risks and uncertainties in the cautionary note on forward-looking statements — commonly called the safe harbor statement — that came with last night's press release, as well as in our quarterly report on Form 10-Q covering the 3-month period that ended June 30, 2022, and in the company's other periodic filings with the SEC. So with that out of the way, I'll hand things over to Michael Brigham, who serves as President and CEO of ImmuCell Corporation, and afterward we'll take your questions. Michael?

Appreciate that, Joe, and hello everyone. You can find a recap of our Q2 and year-to-date financial performance in the press release that went out last night, and the specifics are also in the Form 10-Q we filed yesterday evening. Since that material is already in your hands, I won't use this time to walk through every single line item, though there are a few points I'd like to call out. Many of you are likely aware that on July 7 we issued a press release addressing our preliminary top line sales results. We've used these voluntary releases as a means of providing investors with a prompt glimpse into product sales, which I consider the single most important gauge of how our business and financial results are doing early in a reporting period. Nothing about that earlier disclosure has changed. The road ahead will be somewhat uneven, since we're moving out of an extended stretch of limited availability into a new and still-developing situation marked by greater production capability that continues to grow; during Q2, this shift grew even more challenging because of a significant interruption in the availability of the plastic syringes required for our gel-based products. Without that interruption, product sales for the quarter would have come in at roughly the same level as the second quarter of 2021. Even with that supply problem, our top line grew 14% across the six months that closed June 30 and 27% across the twelve months that closed June 30, in each case measured against the equivalent stretch a year earlier. We track EBITDA closely as a non-GAAP metric because we carry a sizable amount of depreciation that doesn't involve cash; it rose to $1.5 million for the six months ending June 30, 2022, versus $1.1 million for the six months ending June 30, 2021. You should read that non-GAAP figure alongside the cash flow statement we present under GAAP. As I see it, our balance sheet is in pretty good shape. At the close of June 30, 2022, our cash stood at $11 million, up from $10.2 million on December 31, 2021. Net working capital rose as well, reaching $14.8 million at June 30, 2022, compared with $13.7 million at December 31, 2021. Stockholders' equity climbed to $32.8 million at June 30, 2022, versus $32.6 million at December 31, 2021. Here's something interesting: as of June 30, our current market cap comes in at just over double our stockholders' equity. Now I'd like to turn to our capital expenditure projects, which are quite significant and are laid out in greater detail in the Liquidity and Capital Resources section of Item 2, Management's Discussion and Analysis, in the Form 10-Q we filed yesterday evening. Between 2016 and 2021, we brought in $27 million through common equity. Following a number of bank debt financing arrangements, our outstanding bank debt stood at $9.8 million as of June 30, carrying a blended fixed interest rate of 3.52%; those funds, along with the gross margin we earn from product sales, are being used to transform this company. Prior to launching the latest member of the First Defense lineup — Tri-Shield First Defense — at the close of 2017, our yearly output capacity of about $16.5 million was enough to meet demand, and we shipped orders immediately without any backlog. Once Tri-Shield came along, that all changed. We've directed millions of dollars in capital expenditures toward increasing our production capacity. Directing funds of that magnitude toward real estate, staffing, and equipment is inherently a gradual process, regardless of how urgently our team pushes or how hard it works — particularly in the current climate of supply chain disruptions and escalating expenses. Over the next few comments, I'll refer to each of our capital spending initiatives by the letter designations used in our Form 10-Q. Much deeper detail and fuller descriptions of these investments are available there. PROJECT C, which we launched in 2019, was designed to raise production capacity from $16.5 million up to $23 million, with an estimated outlay of about $3.7 million. We have now achieved that goal. Projects E and F, started in 2021, are close to finished at a combined cost of approximately $1.7 million, which raises our yearly production capacity to around $30 million. We're pushing to wrap up Project G, also begun in 2021, by year-end, which would push yearly production capacity up to roughly $35 million. That effort is proceeding on schedule. Looking ahead, I'm genuinely thrilled about what our latest investment, which we call Project H, is worth: it will lift yearly production capacity past $40 million and create optionality for additional investment beyond that level. The numbers I mentioned for capacity aren't fixed—they move around based on biological and process yields, which product formats we're making, what we charge, and other factors. This period of limited availability has been incredibly tough and draining for the people in our manufacturing and sales operations. And we genuinely feel bad about the difficulties and aggravation our distributors and end user customers have experienced. We're exiting a phase where customer orders were way ahead of what we could produce, and transitioning to something closer to a just-in-time model as we move toward the position we aim for and require—availability that exceeds demand. Because of that, I have a lot of confidence about how 2022 finishes, and about 2023 and the years after. Everyone wished this growth had arrived earlier. What stands out to me regarding Project H is that we're putting money into more production capacity before demand actually calls for that volume; it feels better to plan, invest, and expand on that basis. We've kept this up even as we continue developing and paying for Re-Tain. So now let's discuss that effort; alongside boosting First Defense output, our second objective capable of transforming the company is getting the FDA to clear Re-Tain. The goal for our product development is to show that Nisin A, our polypeptide antimicrobial, is able to serve a useful function in treating subclinical mastitis within the dairy sector as it exists now, giving the industry a viable substitute for conventional antibiotics. Since — pardon me, since the labeling rules for every intramammary mastitis medication currently sold require that milk be thrown away and meat be held back while treatment is underway and for some time afterward, the usual approach is to leave untreated those ill cows that continue to produce milk that can be sold. By eliminating that financial drawback to addressing subclinical mastitis, Re-Tain delivers a welfare gain for the animals and lets ailing cows receive treatment free of the penalties for discarded milk and withheld meat. Beyond better animal welfare, Re-Tain also strengthens food safety and sustainability through its use of Nisin, a substance that has no role in human medicine. That matters since excessive reliance on conventional antibiotics, including among animals raised for food, is thought to be a driver of antibiotic resistance, a public health problem that persists. You may have seen our July 27 press release. We've received a technical section complete letter from the FDA. This covers our second full submission of the last of 5 major technical sections for Re-Tain — the chemistry, manufacturing and controls, or CMC, technical section. That section has to be done for our new animal drug application to be considered complete. The key remaining item is a successful pre-approval reinspection of our manufacturing facility. We're wrapping up preparations for that reinspection, and in the third quarter we expect to tell the FDA we're ready for it. Staying focused on those readiness steps matters a lot for getting a strong outcome. Among the 6 remaining notes the FDA raised, we see nothing of real concern, and not one of them touches on how safe or effective the product is. Most of those notes relate to the finished drug product instead of the drug substance; they're asking us for additional details on raw material specs, drug substance labeling, and stability testing. This lays out plainly what still stands between us and getting the product approved; our aim is to hand in the CMC technical section a third time during the third quarter, after which the FDA would take 6 months to review it; we believe we can complete the pre-approval reinspection successfully during that stretch; we remain prepared and keen to change the way subclinical mastitis is treated. So, in closing, I'd encourage everyone to review the press release as well as the quarterly report on Form 10-Q, which we submitted yesterday evening. And kindly also check out our corporate presentation slide deck and the August update, both of which were posted to our website just last night. I think it gives a pretty good picture of what we're trying to do as a business, the goals we've set, and where our numbers stand right now. On our site, go to the Investors area and click on Corporate Presentation. With that said, I'm happy to take whatever you'd like to ask. Operator, please bring the callers on. Anthony?

Regarding the supply issues that affected the quarter, was plastic syringes the sole cause, or did other elements also interfere with output and revenue?

No, George, that was truly it. Those tubes are essential for us, and we're making some headway on resolving that, and I believe that headway will keep coming. That's the reason I noted that I think we have — we're addressing this during Q3. So a large quantity of tubes is simply what we require. Our operation is genuinely moving away from the bolus toward the tube, and we experienced a breakdown in contractor supply that we intend to repair, though it did impact Q2.

All right, and would it be possible for me to inquire about the quantity of syringe tube supplies that you possess?

Sure, the count exceeds 1, though there is 1 that serves as the main one; and clearly, we have to move the emphasis.

All right. And does that supply come from within the country? Or is it European or from elsewhere internationally?

Yes. We have to reach a certain combination; so I believe what we're observing is that the supplies here at home just — have not been dependable for quite a while now, and it — at last it collapsed and reached its high point here in Q2.

All right. Did the product not work, or were you simply unable to obtain sufficient quantities?

Correct. Purely a matter of supply. What we get is usable. We simply aren't receiving a sufficient amount. It comes down to both receiving less and requiring more.

All right. All right. So what's your plan for fixing that issue?