ImmuCell Corporation (ICCC) Earnings Call Transcript & Summary

Thanks. Morning, everyone, and thanks for joining. Like Betsy mentioned, I'm Joe Dorame, and I'm with Lytham Partners. We serve as the Investor Relations consulting firm for ImmuCell. Appreciate it. As I said, today we'll be going over ImmuCell's unaudited financial results for the quarter that closed on June 30, 2023; joining us on this call is Michael Brigham, the President and CEO. Once today's prepared remarks wrap up, we'll open up the call for questions. Ahead of our prepared comments, please keep in mind that some of what management says on this call constitutes forward-looking statements. That includes anything addressing upcoming events, events we anticipate, or projections regarding actions the company intends to take going forward. Statements like these are not assurances of results, and they carry risks and uncertainties that might make actual results, outcomes, or events turn out substantially different from what we discuss today. You can find more details on forward-looking statements, plus the risks and uncertainties that might affect future results, outcomes, or events, in the cautionary note about forward-looking statements or the safe harbor statement included in the quarterly report on Form 10-Q the company filed last night, as well as in its other periodic filings with the Securities and Exchange Commission. Anything talked about on today's call reflects information only as of today, Friday, August 11, 2023. The company isn't obligated to update anything discussed on today's call. Also, keep in mind that references to certain non-GAAP financial measures may — be made during today's call. To help you better grasp how the business performed financially, the company put definitions for those terms, along with reconciliations of these numbers and the closest comparable GAAP measures, into yesterday evening's press release. At this point, I'd like to hand things over to ImmuCell's President and CEO, Michael Brigham. Michael?

Okay, thanks Joe, and good morning everyone. Let me begin with the financials. As stated in the press release that came out last night, the product sales figures we first shared on July 11 remain unchanged. That same release includes the full unaudited profit and loss statement, plus some unaudited summary balance sheet data. We also submitted our Form 10-Q for the quarter closing June 30, 2023, last night. I'm not going to walk you through all those financial details here. Our non-GAAP earnings before income taxes, depreciation, and amortization — EBITDA — is in last night's press release as well. You can find it on Page 5. There's a notable $3.4 million shift you can see here. For the six months that concluded on June 30, 2022, we had positive EBITDA of $1.2 million, and that turned into negative EBITDA of $2.2 million for the same period ending June 30, 2023. This EBITDA decline lines up pretty closely with our net loss growing by $3.5 million — from a $171,000 loss in the six months ending June 30, 2022, to a $3.7 million loss in the six months ending June 30, 2023. A key factor behind the larger net loss was that our gross margin fell by $3.5 million — down to $1.3 million for the six months ending June 30, 2023, compared with $4.8 million for the same period in 2022. Why did that occur? I'll try to explain. First, we feel very lucky to have support from Gorham Savings Bank and the Finance Authority of Maine, our partners, in the form of a $3 million debt facility — combining their contributions — that we finalized in July. That mattered a great deal for our cash flows. Now, please turn to Page 30 in the quarterly report. There's a section titled Production Capacity Increase, Product Contamination and Related Events. In it, we look at a number of major difficulties we faced during the past 12 months, and those difficulties played a part in the financial results we're reporting now. Let me go over a few of those developments. By July 2022, we had finished almost all of the work to expand the facility and install new equipment that was needed to raise our production capacity substantially. Even so, freeze-dryer #4 — the single most important new piece of equipment — arrived from the fabricator 6 months behind schedule. Our schedule slipped by half a year because of this, yet before 2022 ended, the USDA had cleared freeze-dryer #4 for operation. Right when we started running at that increased capacity in early 2023, we had to reduce production in order to address a contamination incident tied to raw material coming into our facility. Simultaneously, freeze-dryer #2 ceased functioning, and fixing it took 6 months, which left us with 3 freeze dryers in service. By the start of July 2023, we had 4 freeze dryers running again, and the contamination incident was mostly resolved. I'll cover that remediation in greater detail in a moment. After that, during the second week of July 2023, the USDA showed up at our facility for a routine inspection they hadn't announced beforehand. Because of that, we needed to divert a substantial portion of our quality and manufacturing personnel to help out, which let us promptly submit detailed replies to the inspectional observations to the USDA. As we were preparing those replies according to the schedule we had settled on with the USDA, the agency issued a voluntary stop distribution and sale — a VSDS order — along with a hold release on First Defense, until two of the inspectional observations got resolved. So the effect there was that beginning the week of July 24, we weren't permitted to ship products until we cleared those two inspectional observations. Something to keep in mind: during that entire period, we were still able to manufacture inventory. Then, on August 4, the USDA verbally lifted the VSDS along with the hold release, which allowed our shipping operations to return to something close to normal; and subsequently, that verbal decision was documented in writing. Despite that significant draw on our resources, we anticipate submitting the third CMC technical section for Re-Tain to the FDA before long. That submission will be subject to a 6-month FDA review. We remain prepared and motivated to change the way subclinical mastitis is handled in the dairy sector as it exists now, offering an innovative substitute for conventional antibiotics. As I noted earlier, the last twelve months have undeniably been very tough for our company. We have put in tremendous effort to address those difficulties and continue making progress. Considering how we have responded, I am hopeful about our prospects in the coming quarters. Let me go back to what I said about contamination and provide additional detail about cleaning up those contamination incidents. We have relied on information to steer us while dealing with this short-term manufacturing issue. I want to explain exactly what I mean by that. Every batch we make gets checked by our quality control group at three points: when production begins, halfway through, and at the end. Over the four months that wrapped up on August 4, each of those three standard checks came back within spec every single time — a 100% pass rate. Since the contamination issue peaked back in January, the gains we've made throughout production are letting us get back to running at full capacity. We believe the operational changes now in place will allow us to run more efficiently while producing more than before. Our target is to turn out product valued at about $6 million per quarter, which on an annual basis works out to roughly 80% of the $30 million we estimate as our total yearly production capacity. So finally, I'd encourage you to look over the press release and the quarterly report we filed last night. Also, please take a look at our corporate presentation slide deck. My take is that this does a nice job laying out what our strategy and goals are, along with where our financials stand right now. Just last night, an August update went up on our site — head to the Investors area there and select corporate presentation, or reach out to us and we'll send you one. With all that covered, I'm glad to answer whatever you'd like to ask. Betsy, please go ahead and open the lines.

Thanks for joining us on today's call. We're eager to speak with you once more when we hold our Q3 call, scheduled for around Tuesday, November 14, 2023. Enjoy the rest of your day.

That brings us to the end of this call. We appreciate your participation in today's presentation. You are welcome to disconnect at this time.