ImmuCell Corporation (ICCC) Earnings Call Transcript & Summary

Thanks, Chad. Hello, everyone, and good morning. My name is Joe Diaz, as Chad mentioned. I represent Lytham Partners, the investor relations consulting organization working with ImmuCell. I appreciate each of you taking part today as we go over the unaudited financial results covering the quarter that closed on March 31, 2023. Before we proceed, I want to begin with a note of caution about forward-looking statements. Those listening should be aware that remarks from management on this call contain forward-looking statements, meaning anything referencing future events, anticipated future events, or forecasts concerning actions the company intends to take going forward. Such statements cannot be guaranteed as to performance and carry risks and uncertainties that might lead actual results, outcomes, or events to vary materially from what we discuss today. You can find further details about forward-looking statements and the risks and uncertainties that may affect future results, outcomes, or events in the cautionary note on forward-looking statements — commonly called the Safe Harbor statement — included in last night's press release, as well as in the company's other periodic filings with the Securities and Exchange Commission. Everything discussed during today's call reflects information only as of today, Friday, May 12, 2023. The company has no obligation to update any information covered on today's call. Be aware that certain non-GAAP financial measures might be referenced during today's call. To help you better grasp its financial performance, the company has provided definitions of those terms and reconciliations of those figures to the most comparable GAAP financial measures in last night's press release. Having said that, I'll now hand things over to Michael Brigham, President and CEO of ImmuCell Corporation, and afterward we'll open the line for your questions. Michael?

Appreciate it, Joe, and hello everybody on this morning's call. I'll dive straight into the difficult portion. We've made it through what I regard as the single hardest quarter this business has ever faced. Most of my time today I want to use explaining what took place and the steps we're taking to correct it. Before that, though, on the numbers side: our product sales figures, originally released on April 5, remain unchanged, as last night's press release confirms. That release also includes the complete unaudited P&L, certain audited summary balance sheet figures, plus our non-GAAP earnings before income tax, depreciation and amortization, or EBITDA. In addition, we submitted our Form 10-Q covering the quarter that ended March 31, 2023 yesterday evening. Rather than spend our time walking through those financials line by line here, let's turn to the difficult material. When demand for the first events product line kept climbing, we launched a set of investments starting in 2019 aimed at lifting our production capacity to roughly $30 million annually. The positive side is that every facility expansion and piece of new equipment required for that added capacity was installed by the close of 2022. The truly painful part is that right as this expanded capacity started coming online, standard in-process quality control testing picked up a product contamination event near the finish of the third quarter of 2022. We moved immediately to deal with that contamination, and production continued without problems for the remainder of the fourth quarter of 2022. Then, in the first quarter of 2023, our standard in-process quality control testing identified a second contamination event. Faced with that second event, we reached a strategic conclusion to cut production output substantially so we could evaluate and fix the issue. This production reduction caused a major drop in sales for the first quarter and helped push the order backlog up from roughly $2.5 million on December 31, 2022 to about $8 million by May 3, 2023. Because of the earned gross margin we lost during the first quarter of 2023, we decided to postpone for now the completion of certain capital expenditure investments; data is guiding us as we work through this temporary production issue. Let me clarify what I mean by that. Our quality control team tests every production batch at the start, the middle and the finish of the process. Between February 1, 2023 and May 3, 2023, the incoming test satisfied specifications 88% of the time, while both the mid process and end process tests consistently met specifications. We keep making headway on enhancing the beginning stage of production, and improvement across the process since the worst of the contamination problem in January is enabling us to return to full production. We think the changes we've made to how things run across the manufacturing operation, which are part of the remediation effort, are going to let us operate better and at greater volume down the road. As we bounce back and get back to making product at full scale, our intention is that each quarter we turn out more than what we managed in Q1 of 2023. Once this contamination situation is completely resolved, we're targeting the ability to turn out no less than $6 million of product each quarter, which works out to roughly 80% of the 30 million we can make when running at full capacity. We haven't taken our eyes off how essential it is to get supply steady, win back business we lost, and rebuild our growth targets. At the same time, we're getting all the data together that's needed for our third submission of the CMC technical section for retain, which we plan to make prior to the close of this second quarter of 2023, assuming several critical path items get finished, since those need results coming from outside labs. That submission is going to face a 6-month review by the FDA; we're still ready and thrilled about changing how subclinical mastitis gets treated in the dairy market as it stands today, offering a novel substitute for conventional antibiotics. So, with all that, finally, I'd really urge you to go through the press release about the quarter — that quarterly report we submitted last night. And please also take a look at the slide deck for our corporate presentation. In my view it gives a strong overview of our business strategy and goals, plus where our financial results stand right now, and a May update went live on our website just last night. Check the investor section of our site and click corporate presentation, or reach out to us and we'll send a copy. Having said that, I'm glad to answer your questions. Let's have the operator bring people on the line. Thanks, Chad.

Thanks, Chad. Michael, do you know what caused this contamination problem, or where it came from?

All right, Joe, that's a reasonable point. What matters, I believe, is that we avoid tying this to any single occurrence or location. Essentially, we're restarting the entire manufacturing chain, beginning with the farm and going all the way through to completed products. Still, that shared data does suggest we're performing quite well in the middle stage, and quite well in the final stage too, with 100% meeting specifications, while attention remains somewhat on the initial stage. And we'll keep working to raise that 88% to a considerably greater figure. Whether it truly must reach 100, I'm not certain, but we will lift it above the 88%, 89% level where it stands now. So, I suppose what I'm saying is that our emphasis runs from farm to finish, from beginning to end; however, additional effort is needed at the front end.