ImmuCell Corporation (ICCC) Earnings Call Transcript & Summary

Thanks, Chris. Hello everyone, and good morning to you all. As Chris mentioned, I'm Joe Diaz. I work with Lytham Partners, and we serve as the investor relations consulting firm for ImmuCell. I appreciate everyone taking the time to be with us today as we go over the unaudited financial results covering both the quarter and the year that closed on December 31, 2023. Before we begin, I'd like to start with a caution about forward-looking statements. Those listening should be aware that remarks made by management throughout this call contain forward-looking statements, which encompass any statement referencing future events, anticipated future results, or predictions regarding actions the company intends to take going forward. Such statements do not guarantee performance and carry risks and uncertainties that might lead actual results, outcomes, or events to differ materially from what we discuss today. More details about forward-looking statements and the risks and uncertainties that could affect future results, outcomes, or events can be found in the cautionary note on forward-looking statements, or the Safe Harbor statement, included in the press release the company filed last night, as well as in the company's other periodic filings with the SEC. Anything discussed on today's call is only accurate as of today, Wednesday, February 28, 2024. The company assumes no obligation to update any information covered on today's call. Please be aware that references to certain non-GAAP financial measures may come up during today's call. To help you better understand its financial performance, the company has included definitions of these terms, along with reconciliations of these figures to the most comparable GAAP financial measures, in last night's press release. Having said that, I'll now hand the call over to Michael Brigham, President and CEO of ImmuCell Corporation. After that, we'll open things up for your questions. Michael?

Thanks, Joe, and good morning, everyone. To begin, I want to be upfront about something unpleasant. For our company, 2023 proved to be a very tough twelve months. Those contamination incidents that disrupted manufacturing were severe and costly. Achieving growth isn't easy, yet growth is happening. The encouraging part is that we feel we've entered 2024 in far better shape. Through investigating and cleaning up after those contamination incidents, we gained valuable lessons. Running at reduced output levels is fairly straightforward — that's what we did across the three decades spanning from 1991, when First Defense first received USDA approval, through 2021. What caused the contamination incidents we endured in 2022 and 2023 was mostly that we were processing a greater volume of milk than at any prior point, aiming to satisfy rising customer demand. Now that 2024 has arrived, we're confident that our processes and controls have been substantially upgraded from the farm level all the way through liquid processing. There are two financial disclosures I'd like to highlight that I believe illustrate this pivotal moment for our business. To start, although sales declined 6% year-over-year — pardon me — they rose 30% in the fourth quarter of 2023 relative to the fourth quarter of 2022. This gain stems primarily from higher production output. If the production level achieved across the last 2 months of the year were annualized, it would come to roughly $26.8 million in sales value, equivalent to an average quarterly production of approximately $6.7 million. Going forward, our goal is to reach or surpass that level. Next, EBITDA — earnings before interest, taxes, depreciation and amortization — fell by $2.9 million in 2023 versus 2022. However, EBITDA for the fourth quarter of 2023 rose by $657,000 compared with the fourth quarter of 2022. That's the big picture. As for the remaining financial results, last night's press release notes no revision to our product sales figures that were initially reported on January 8. That press release also includes complete unaudited P&L results along with some unaudited summary balance sheet data. I'll now use my time on this call to walk through all of those numbers in detail, though I'd first like to give a high-level overview. Looking at the year ended December 31, '23 against the prior year, the $3.3 million growth in our net loss was primarily driven by a $3.8 million reduction in gross margin. The diminished gross margin for 2023 came mainly from contamination scrap and substantial fixed costs being distributed across reduced total sales, since we deliberately slowed production output to fix the manufacturing issues. Because of all this, cash is tight. In response, we've put a freeze on certain capital expenditure investments for now, and we recently obtained an extension on our $1 million line of credit through September of 2025; data has guided us as we work through this temporary production problem. Every batch we produce is, and has consistently been, put through routine testing by our quality control people at the start, the midpoint, and the conclusion of manufacturing, so that nothing with added specification ever reaches the market. Thanks to enhancements across our manufacturing operations, we're now able to return to producing at full capacity. Our expectation is that these operational upgrades will let us function more efficiently and at greater output going forward. Tackling these difficulties has required tremendous effort from us. Success demands that we steer clear of any major contamination incidents or equipment failures in the future, and that we maintain solid production yields. Given how we've responded and the progress achieved, I feel positive about our prospects in the quarters ahead. Even with this considerable drain on our resources, we completed our third submission of the CMC Technical Section for Re-Tain to the FDA during August. Normally, a submission of this kind gets a 6-month review period from the FDA. That said, in late October the FDA informed us they would not review what we submitted in August, citing a misunderstanding regarding the location and the party we intend to use for aseptic formulation and filling of our drug product. As we understand it, the FDA thought our intention was to move those services in-house — something we may pursue later on, after approval — instead of keeping them with our contract manufacturer, which is the current arrangement. Because of this notice from the FDA, we had no choice but to refile our submission in November; we're currently in talks with the FDA to clear up this regrettable miscommunication. Should we not succeed in refiling, the anticipated response date for their review might slip to May 2024, which is 6 months after the November resubmission date. Even so, we stay ready and thrilled about transforming how subclinical mastitis gets treated in the dairy market of today, offering a novel substitute for traditional antibiotics with zero-milk discard and zero meat withhold claims. Finally, I'd urge you to take a look at the press release we filed last month. And please also check out our corporate presentation slide deck. In my view, it offers an excellent overview of our business strategy and objectives, along with our present financial results; a February update went up on our website just last night. Visit the Investors section of our site and click Corporate Presentation, or reach out to us if you'd like a copy. We intend to file our complete annual report on Form 10-K for the year ended December 31, 2023 near the close of March; having said that, I'm glad to answer your questions. Operator, please open up the lines.

Hello, and thank you for allowing me to ask. Regarding the inspections — has every inspection of the facility been finished?

Frank, I'll take that one. Good morning, Frank; it's underway. I don't foresee any problem, yet it remains a continuing process at our own location as well as with our contract manufacturers. So we're moving forward and addressing their action items. But it's still going on, and up to this point, things look fine.

What about that backlog? You didn't say anything about it. I realize it's a bit uncertain given the situation.

Yeah, that's a curious one. It remains quite big. So two moves on our part could have brought the backlog down. We've pushed sales higher, gotten more auctions and sales out the door. And on top of that, selling price did go up, roughly 8% back in November. Whether that matters or doesn't, those two things are simply the facts. That backlog is fairly steady, fairly robust. So our attention is on production. And as you know, the backlog, I'd guess, is a positive indicator right now. Still, the goal for sure is that we have to work it off — we have to trim it. Even so, it stays strong. Having it is a nice dilemma, but a dilemma nonetheless. We will work it off. But the demand is great. Watching it is quite fascinating. I'd have figured it would be tapering off by this point.

Regarding the ongoing efforts or procedures you have for inventory, did anything happen during the fourth quarter that could impact sales or revenues down the road?

Frank, by "anything," are you asking whether there were additional contaminations?

Yes.

Yes, no. No, the fourth quarter was honestly extremely robust. In my remarks I pointed out there weren't any meaningful contamination issues. I doubt we'll ever reach a point where contamination never happens at all, but that quarter went well. We have to look back to September 2 to find the most recent contamination occurrence.

What I’m really trying to get at is this: during Q3, you ran into problems that spilled over into Q4, right? So is there anything happening in Q4 that will carry into Q1...

No, no. When we put that out, it was up to date. The latest contamination challenge we faced was in September, though it does have an impact on what we ship in October.

Frank, thanks. That’s good to hear. The one thing I still wonder about is what you said regarding our work with the FDA and when the third submission actually begins. Do we know that right now, or is it still unknown?

I have to get my head around the fact that they will keep to the timeline they’ve set. I’m not saying I believe that’s fair, but they have a lot of timelines, and we keep discussing ways we might be able to move that up somewhat. That said, I do know what 6 months after the resubmission comes to — the resubmission was in November, so 6 months after that lands in May. That’s the reason we have to say by the end of May; it’s hard. Some kind of compromise ought to happen, in my view. And I think it ought to land somewhere in the middle. February was what was originally expected. So February to May is the range. Still, at this point I simply have to be realistic and admit it isn’t in my control. The power belongs to them, and it might not come until May.

And since the approval might not come until May, and with the two months before that, do we have the ability — regarding cash — to get that sales and marketing started?

Oh, yes. I mean, remember the disclosures we provided about what we refer to as a controlled launch, and we won't be blitzing the market with a massive advertising and sales and marketing budget; it's — but yes, no, and I don't believe your timeline is correct and the cash is available for that. If CMC is done by May, if you add 60 days to that for the — it's called the administrative review, May goes to July; then you have a month or two months for labeling and just organizing. So, it's there, July, August, September, we actually started that controlled launch. But that is not a — that's not a — we've got cash burden on that, that scares me at all.

All right, that sounds good. Mike, I appreciate you answering my questions once more. That covers everything I wanted to ask. Thanks a lot.

Thank you, Frank.