ImmuCell Q4 2023 Earnings Call Transcript

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February 28, 2024

There are 5 speakers on the call.

Operator

Good morning, and welcome to the ImmuCell Corporation Reports 4th Quarter and Year Ended December 31, 2023, Unaudited Financial Results Conference Call. Today, all participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask your questions. I would now like to turn the conference over to Mr. Joe Diaz with Lytham Partners.

Operator

Please go ahead, sir.

Speaker 1

Thank you, Chris. Good morning and welcome to all. As Chris indicated, my name is Joe Diaz. I'm with Lytham Partners. We're the Investor Relations consulting firm for ImmuCell.

Speaker 1

I thank all of you for joining us today to discuss the unaudited financial results for the quarter and the year ended December 31, 2023. I would like to preface this discussion today with a caution regarding forward looking statements. Listeners are reminded that statements made by management during the course of this call include forward looking statements, which include any statement that refers to future events or expected future results or predictions about steps the company plans to take in the future. These statements are not guarantees of performance and are subject to risks and uncertainties that could cause actual results, outcomes or events to differ materially from those discussed today. Additional information regarding forward looking statements and the risks and uncertainties that could impact future results, outcomes or events is available under the cautionary note regarding forward looking statements or the Safe Harbor statement provided in the press release that the company filed last night, along with the company's other periodic filings with the SEC.

Speaker 1

Information discussed on today's call speaks only as of today, Wednesday, February 28, 2024. The company undertakes no obligation to update any information discussed on today's call. Please note that references to certain non GAAP financial measures may be made during today's call. The company included definitions of these terms as well as reconciliations of these figures to the most comparable GAAP financial measures in last night's press release in order to better assist you in understanding its financial performance. With that said, let me turn the call over to Michael Brigham, President and CEO of ImmuCell Corporation, after which we will open the call for your questions.

Speaker 1

Michael?

Speaker 2

Thanks, Joe, and good morning, everyone. Let me open by saying the hard truth straight up. 2023 was an extremely difficult year for us. The contamination events that plagued our production process were harsh and expensive. Growth is challenging and we are growing.

Speaker 2

The good news is that we believe we have moved into 2024 in a much improved state. The investigation into and the remediation of these contamination events taught us a lot. It is relatively simple to run our to run at lower production rates for the 30 years between 1991, the original USDA approval date of First Defense, and 2021. The contamination events we suffered during 2022 2023 were largely the result of our processing more milk than ever before in order to meet increasing customer demand. As we enter 2024, we believe that we have much improved processes and controls in place from the farms through liquid processing.

Speaker 2

I would like to speak about 2 financial disclosures that I think help demonstrate this critical turning point for our business. First, excuse me, while sales were down 6% year over year, they were up 30% during the Q4 of 2023 compared to the Q4 of 2022. This improvement is largely the result of increased production output. The production level we reached during the final 2 months of the year would annualize to about 26.8 $1,000,000 in sales value, which equates to an average quarterly production of about $6,700,000 Our objective is to meet or exceed this level going forward. 2nd, EBITDA earnings before interest, taxes, depreciation and amortization decreased by $2,900,000 during 2020 3 compared to 2022, but EBITDA during the Q4 of 2023 improved by $657,000 in comparison to the Q4 of 2022.

Speaker 2

So that's a big picture. With regards to the other financial results, last minute's press release reports no change to our product sales results that were first reported on January 8. The press release also provides the full unaudited P and L results and some unaudited summary balance sheet data. I will not take our time on this call to review all those numbers in detail, but I would like to discuss a high level overview. When we compare the year ended December 31, 'twenty three to the prior year, the $3,300,000 increase in our net loss was largely caused by the $3,800,000 decrease in gross margin.

Speaker 2

The lower gross margin in 2023 was largely the result of contamination scrap and a lot of fixed costs being spread over lower total sales as we slowed down production output to remediate the production problems. As a result of all this, cash is tight. In response, we have frozen certain capital expenditure investments for the time being and we recently secured an extension of our $1,000,000 line of credit until September of 2025. We have been driven by data as we resolve this temporary production problem. All production batches are and always have been routinely tested by our quality control team at the beginning, middle and end of the production process to ensure that no out of specification product ever gets to market.

Speaker 2

Improvements made throughout the production process are allowing us to come back into full production. We believe that the operational improvements implemented will help us run more effectively at a higher output level going forward. We have worked incredibly hard to address these challenges. To be successful, we must avoid future significant contamination events and equipment breakdowns and operate with good production yields. Based on our responses and progress, I am optimistic about what we can do in the coming quarters.

Speaker 2

Despite this significant diversion of our resources, we made our 3rd submission of the CMC technical section for RETAIN to the FDA in August. This type of submission is typically subject to a 6 month review by the FDA. However, the FDA notified us in late October that they had refused to review our August submission because of a misunderstanding about where and by whom we intend to have our drug product aseptically formulated and filled. Our understanding is that the FDA believed that our plan was to bring those services in house, which we might do down the road post approval rather than to continue to have these services provided by our contract manufacturer, which is what we are doing currently. In response to this notification from the FDA, we were forced to refile our submission in November.

Speaker 2

We are in communication with the FDA to resolve this unfortunate miscommunication, but if we fail to reach a compromise, the expected response date for their review could be delayed until as late as May 2024, which is 6 months from the November resubmission date. Regardless, we remain poised and excited to revolutionize the way that subclinical mastitis is treated in today's dairy market with a novel alternative to traditional antibiotics with 0 milk discard and 0 meat withhold claims. Lastly, I encourage you to review the press release that we filed last night. Also, please have a look at our corporate presentation slide deck. I believe it provides a very good summary of our business strategy and objectives, as well as our current financial results.

Speaker 2

A February update was just posted to our website last night. See the Investors section on our website and click on Corporate Presentation or contact us for a copy. We plan to file our full annual report on Form 10 ks for the year ended December 31, 2023 around the end of March. With that said, I'll be happy to take your questions. Let's have the operator open up the lines please.

Operator

Thank Today's first question comes from Frank Gasker, a Private Investor. Please go ahead, sir.

Speaker 3

The inspections, are all the inspection facilities completed?

Speaker 2

I would answer that Frank. Good morning Frank. Yes. In process, I see no issues, but it is an ongoing process at both our site and our contract manufacturers. So we're making progress and responding to their action, but it's ongoing.

Speaker 2

So far, so good.

Speaker 3

How about the backlog? You made no comment. I know that's a little iffy because of the circumstances.

Speaker 2

Yes, it's interesting. It's still very large. So we've done 2 things that might have resulted in a decrease in backlog. We have increased sales, increased production and sales out our door. And we also did have an increase in selling price about 8% back in November.

Speaker 2

But however relevant or not relevant, those two things are, the fact is the backlog pretty stable, pretty strong. So honestly, Frank, I will just be focused on production. And you know what, the backlog is, I guess, a good sign at this point. But certainly, the objective is we got to clear it. We got to clear it.

Speaker 2

But it remains strong. It's a good problem to have, but it's a problem. We're going to clear it. But great demand. It's a very interesting to watch.

Speaker 2

I would have thought it might have been leveling down by now.

Speaker 3

As far as your work in progress or process for your inventory, have you had anything in the Q4 that would affect future revenues or sales? Frank, when

Speaker 2

you say anything, do you mean like any further contaminations?

Speaker 3

Yes. Yes.

Speaker 2

Yes, no. 4th quarter was really super strong. I mentioned in my comments, no significant contaminations. I don't think we'll ever be in a state where we'll never have a contamination, but that full quarter worked. We were we go back to September for the last contamination event.

Speaker 3

I guess what I'm asking is, like in the Q3, you had issues that affected 4th quarter. Is there anything in the Q4 that's going to affect the 1st quarter?

Speaker 2

No, that disclosure was current. That's our most recent contamination challenge at September, but it does affect October shipments.

Speaker 3

Okay. That sounds great.

Speaker 2

All right, great.

Speaker 3

I guess the only issue that I have remaining would be the statement in regards to working with the FDA as to when the start of the 3rd submission, Is that known or not known at the present time?

Speaker 2

It is I mean, I have to put my mind around they're going to stick to their schedule. That doesn't mean I think it's fair, but their schedule is May and we're continuing to talk about how could you possibly advance that a little bit. But I guess I do know what 6 months from the resubmission is, resubmission November and 6 months later is May. So that's why we had to sort of say by the end of May, It's tough. I think there should be some compromise and I think it should be something in between.

Speaker 2

The original expectation was February. So the range was February to May. But at this point, I have to just be realistic and say it's out of my hands. They have the power and it may not be till May.

Speaker 3

And given that approval could be as late as May and then the 2 months prior, are we in a position to as far as cash to begin that sales and marketing?

Speaker 2

Oh, yes. Oh, yes. I mean, but keep in mind those disclosures we made what we call a controlled launch and we're not going to be blitzing the market with a huge advertising and sales and marketing budget. It's but yes, no, I think your timeline is right and the cash is there for that. If CMC is complete by May, if you add 60 days to that for the what's called the administrative review, May goes to July, then you have a month or 2 for labeling and just organizing.

Speaker 2

So it's there July, August, September, we actually initiate that controlled launch. But that is not a there's not a cash burden on that, that scares me at all.

Speaker 3

Okay, great. Okay. Mike, thanks again for taking my questions. That's all I have. Yes, great.

Speaker 3

Thank you.

Speaker 4

And at this time, we

Operator

are showing no further questioners in the queue. And this does conclude our question and answer session. I would now like to turn the conference back over to Joe Diaz.

Speaker 2

Hey, Chris. Why are you still there? Maybe could we grab Sean? I think he can.

Operator

Yes. Thank you so much, sir. And the next question comes from Mr. Sean Kirkewood with SRK Capital. Please proceed.

Speaker 3

Hi, thanks. Sorry for jumping in late

Speaker 4

there. Can you hear me, Mike?

Speaker 2

Yes. Go ahead, Sean. Thanks.

Speaker 4

So I had a question about the cash. So on the balance sheet today, there's roughly $1,000,000

Speaker 2

it looks?

Speaker 4

Correct. Are you anticipating that the company is going to need cash throughout the year or is the Q1 going to start the cash flow?

Speaker 2

Well, yes, that is a thin capitalization. That's a thin cash balance. We can manage it. We're frugal. We know how to do it.

Speaker 2

I mentioned the CapEx freezes. I don't like freezing CapEx. CapEx investments are important for the future, but we have to deal with the present. That line of credit news is important to me. That's nice flexibility.

Speaker 2

I don't like to lean on that, but I'd like to have that back pocket safety. And yes, the main thing, the most important thing is continue what we saw there towards the end of the Q4 into the first quarter that First Defense cash flows this business and at these higher rates of output production output, 24 looks a lot different than 23. So we would expect those numbers to be released on April 8. We were in the habit of which I would continue that top line only press release early after the end of the quarter. So let me confirm my projections on April 8.

Speaker 3

Okay. Yes, I mean, just from looking at it,

Speaker 4

it seems like the business should do well this quarter. Can you speak

Speaker 2

a little bit to the mastitis segment?

Speaker 3

A bit about maybe the losses that are they supposed

Speaker 4

to be in line kind of with historical losses this year in that segment?

Speaker 2

So you mean like the health economic loss impact to the dairy producer or

Speaker 4

So within the retained segment of your business, I think historically, it's been around $4,000,000 a year of losses in that segment. Should we expect something around that number this year?

Speaker 2

Okay. You're not talking about the market, you're talking about our product development? Right. That's correct. Yes.

Speaker 2

No, I did specifically call out CapEx investments, pauses or freezes, but we're also super careful on that retained spend. So we do I think you're picking up, Beth, is it Note 17? Either way, that segment notes, I put our team on the spot here. I think it's 17 if my memory is any good, but it's the segment note. We wanted to be able to answer your question very specifically as we go through this launch to look at the First Defense business, the Retain business and the other.

Speaker 2

So all I guess long winded to say, yes, we're the bulk of their production for this launch and for this the bulk of the regulatory costs and investments related to retain are reducing as we complete that process. So less than 23 as we go into 24 when we look at that product development expense line. Okay. And that's just part of that cash management, got to do it. That's a stretch.

Speaker 2

But good, I'm glad we're not in the middle of the heavy spend on the regulatory submission process. At the same time, we're looking at this $1,000,000 in cash. The big spend is behind us. Good. Well, it sounds good.

Speaker 2

It sounds like the

Speaker 4

year is very optimistic. So thank you.

Speaker 2

Hey, thanks for checking, Sean. Good deal.

Speaker 3

Thanks. Take care.

Operator

And this does now conclude our question and answer session. I would now like to turn the conference back over to Mr. Joe Diaz for any closing remarks.

Speaker 2

Hey, Chris, we might have lost Joe's line there, but let me just jump in on his behalf. All we wanted to say at this point was thank you for participating in today's call and we look forward to talking with you again to review the results for the Q1 ended March 31, 2024, towards the end of the week of May 6, 2024.

Operator

And thank you. This now does conclude our conference. Thank you for attending today's presentation and you may now disconnect.

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Earnings Conference Call
ImmuCell Q4 2023
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