Q1 2020 Earnings Call
Hi, Good morning, and welcome to Immucell Corporation reports first quarter fiscal year 2020 financial results Conference call.
All participants will be in listen only mode should do you need assistance really signal a conference specialist my personal starkey both sides zero.
After today's presentation there'll be an opportunity to ask questions.
To ask a question you May proceed Star then 100 Touchtone phone to withdraw your question. Please press Star then too. Please note. This event is being recorded.
Now I turn the conference over to Joe Diaz with listen partners. Please go ahead.
Thank you Brenda and good morning, and welcome to all of you.
My many Joe Diaz as the operator indicators.
Partner, where the Investor relations consultant from where it Michelle.
Again that gallery for joining us today to discuss the off the audited financial results for the first quarter, which ended March 31 20 Twond.
Proposition discussion today with a caution regarding forward looking statements listener reminded that statements made by Madden.
Of course of this call.
Forward looking statements that are subject to risks and uncertainties that could cause actual results could differ materially from don't discuss today.
Additional information regarding these risks and uncertainties available under the cautionary note regarding forward looking statements or in other words safe Harbor statement.
The Companys press release.
Form 10-Q, which are issued last night and can be a chain.
Yes, you see or by visiting investors section of the company's website that if we sell dot com.
So let me turn the call over to Michael Brigham President and Chief Executive Officer of Intersil Corporation. Afterwards, we'll open the call for your questions Mike.
Okay great.
Thank you all for taking the time do during today's call I do appreciate that just last night, we filed our form 10-Q three month period ended March 31, Twentytwenty and issued a press release summarizing some of the key results. So I'm not going to rehash a lot of the detail what do you can pick up from the Q in the press release.
But I would like to highlight a few of what I see is more important disclosures. So first with regard to the press release, let's say about three things product sales topline a 11% growth.
Good quarter force.
During the quarter with an additional $1.4 million worth the demand backlog.
And that that brought us to about $14.2 million.
Annual revenue trailing 12 months 14.2 million.
The other number two on the press release, you'll see a Lincoln there, we talk a little bit about the lease hold improvements the project.
To expand first offense production capacity, so that probably just going well if you have a chance to click on those pictures or you can pick them up through our website you can see they were at the late stage of that.
Project basically turning a warehouse into assembly space.
Really are really going well on budget on time I'll call that basically.
Sort of phase, one and where you're approaching that see it certificate of occupancy we.
I see that come in here pretty quick the move then we get up and running with assembly in that building. These two is going to lie.
Freeze dryer third freestor up and running and in that space here at 56 Evergreen. So that starts next we need to move equipment out of 56 evergreen.
In order to make room for that freeze dryer.
And then we'll move on to the expansion of our liquid processing.
So.
And third and final I guess <unk> press release is a good place for me to talk about some non-GAAP measures. They look a page four there we talk little bit about what we call income before income taxes in certain noncash expenses generating about 600000 in the first quarter, it's a slightly different number than EBITDA, we reconcile it back to EBITDA.
EBITDA was 770000.
First quarter 2020 versus 836 first quarter 29 chain.
And then if I may turning over the Q with a few highlights there I think I'd start with the subsequent events footnotes footnote number.
20.
Pointing out the P.P.P. the paycheck protection program money, we do have received $938000 and bonds under that federal program.
And we have noted that we.
We expect all but around 100000 or that to be forgiven.
But it is subject to certification by our bank under federal.
Guidelines and we've all seen a little bit of talk lately about public companies should not be.
Taking this money are receiving this money and obviously, we're making the argument there were not a big public company or a small companies public company and we do want it there was some ruling that came out yesterday that suggested I believe it was yesterday very recently the.
Suggests a PPP loans under 2 million would not be subject to the scrutiny, we're certainly under 2 million interest.
How does this work out this this process to make sure there's not a public company arbitrary one size fits all rule. So that's a little uncertain right now, but I I think we should prevail and that certainly make that.
That argument to give us a little bit Uh huh.
But that 800.
Thousand dollars, a financial flexibility going into.
Later, this year and potential.
Pandemic related economic related challenges.
So probably too much set on that one, but we're going on that if I go into the I'm DNA item two M.D. nature of the Q.
We want to highlight the bank, where you fight a really good deal with Gordon savings Bank were able to lower interest rates are able to take out our variable interest rates.
To a fixed rate of 3.5 and avoid some balloon payments coming our way in just a better cash flow for sound principal repayments.
[noise] so a lot of detail on product sales follows that I highlighted the top line in the press release.
And well see I wanted to highlight just sit update on retain and the FDA process. So we're moving straight ahead with that Colgate or no coated. The idea is open. They are responsive northbrook is open they are responsive. So we see our submission the next Chris.
Of course submission of the.
Manufacturing technical section going in a fourth quarter that will be subject to a six month review that's a standard statutory review so we get it and.
Fourth quarter 2026 months later, you get a response.
You know obviously, we're hoping that will be a complete we think we were reduced a lot of risk in order to get that first time complete.
To the two ways, we reduced risk is one we've already submitted the drug substance.
Section of this technical section in other words that making the active. So this is really adding drug product to complete the submission that being the drug substance, we make here in Portland, having it it's subject we filled into a surrenders by northbrook. So it's.
It's.
That final submission, there and working with Northbrook or who is a world class eight aseptic filling expert reduces some risk as well, but we'll see we just won't know and so if it's complete six months. After submission. There's about 60 day Admin review and we would expect approval if it's been completely.
I have to answer their questions on resubmit for another six months.
My last couple of points you know Cobiz is well this all in the every every way in many ways. We've put a couple under risk factors and around page 37 first talking about the economic downturn.
I'd like to just read one on that note some milk as being dumped on farms largely because of the loss of demand for dairy products from close restaurants in school lunch programs and other negative impacts of the covert Nike pandemic.
Also economic a certain uncertainty for beef producers, that's the supply chain its interrupted due to closures of processing plants and reduced throughput caused by the cobot nights in pandemic.
That's very unusual situation for farmers, who worked so hard to improve production quality and efficiency in order to either growing population.
So you know there are other disclosures in here about no price and that's where it's just.
Just just as recent as January and February where we were projecting.
Yeah, basically a banner year on no price when it's now back down to.
So low levels. So we've got some our customers we've got some challenges our job is to.
Same first defense is superior technology position in its markets off the total market.
Does shrink a little bit.
Well to maintain or grow could we take more about market share.
Competitively and then the second risk factor I was going to highlight was what's the next one around page 37.
Just talking specifically about coal that.
It's you know what's your all might expect our exposure to this risk is mitigated.
To some extent by the fact that our supply chain is not heavily dependent on manufacturers and and you know a lot of a these affected countries and the ongoing cross training era is the implementation of remote work practices practices for us wherever possible and early compliance was recommended hygiene.
And on social dispensing practices.
But oh, we're going to just continue to.
Lived through this.
Unprecedented Korea, the economic and market risk so far so good I'm really proud of the.
Team and the way we've been able to.
Keeps supply and keep producing.
And that said it to me its day by day and week by week as we go forward here.
Second third and fourth quarter and and.
Manage manage this this that's pandemic risk.
So that's a bit informal or not really scripted as you may have noticed but.
Then spend a lot of time right in the queue and reading the press release, So I just referred to those sources and picked out what I saw it was important I also want to highlight one more thing. So lastly, we did just issue a press release this morning.
Regarding the 2020 annual meeting of stockholders and given all the safety precautions, we've implemented around our facilities during the cold at Nike pandemic.
We have decided it is best not.
To open our doors for an in person visit at this time.
Well the safety of our employees and for your safety as well. So today's press release provides instructions on how you can access our virtual meeting on Wednesday June 10th at three PM.
Please review those details on let US know if you have any questions.
So in conclusion I again encourage you to review the Q.
Form 10-Q, and the press release that we filed last night also please take a look at our updated corporate presentation slide deck. A may update was just posted to our website last night I believe it provides a very good summary of our business strategy and objectives. Because those are current financial results. If you would see invest the investors section.
For web site and click on corporate presentation.
So with that said, let's have the operator open up their lines for your questions I'd be happy to take your questions.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one under Touchtone phone.
If you're using speakerphone, please pick up your handset before person the keys.
Withdraw your question. Please press Star then too.
Time, we will pause momentarily to assemble our roster.
Our first question comes from Sam Rebotsky without see our asset management. Please go ahead.
Good morning, Michael Hope, everybody is staying safe and well.
And.
And with so what I can get through all this Oh My first question relates to the 1.4 million backlog.
Relative to the first defense.
We couldn't produce this what is the rationale for the backlog and how do we need the new facility to be up and running.
So to reduce the backlog or give me some.
Color on that.
Yeah, I mean, one.
One answer is great work by the sales team I mean, you know the first quarter was.
Largely in front of the impacts of the cold it.
And.
Sales same was fully charged in the field and when the market was strong and looking as I said looking to be strong for the rest of year. So great demand great work will that sales team and then but to production, yes, we need a.
We need this expansion you know, we're pushing every button and that's building as it can that first quarter was 4.9 million. If you annualize that out we're getting close to $20 million worth it production.
Of course, I'm not suggesting we would we would be there first quarters are high season, I'm just saying.
That's a lot of product to push out the door and it wasn't enough.
So weve defined our capacity is around 18 million and eating this expansion to get up to 27 million.
So we're going to just keep going on now.
Filled up until that backlog, but it will ultimately take the expansion to get us to the point, where it went up back when it goes away and stays away.
Did we eliminate the backlog as of now or when do we expect to eliminate the backlog.
As soon as possible, but not yet so it's a moving target we've got new orders coming in.
Just as soon as Oh, we're filling old order for the same time, but yeah, we're working through that in the second quarter, but I don't know will be 100% clear.
On June 30, but well, we're making progress.
Well, that's wonderful now as far as a submission to the F.D.A.O., we expect it but <unk> 2021, and a response in six months, if we get a complete do we need you have to do something else or what what do we have to do.
As far as the retain and the Matt mast out a right.
Yeah, I mean, so I think really the answer is no nothing else I mean, there I mentioned, a 60 day administrative review.
So we do you know don't just go right to market, but we we are you. There was one more step in the process that basically five technical sections for complete we need to step one complete manufacturing one.
Plus the 60 day I hadn't been reducing the go to <unk> market sales.
So it ended submission is basically that the plant is functioning properly and you're producing the quantity that you're going to sell in the plan Thats what the submission is.
A little different from that Sam So the first.
Phased submission was strictly more what you described drug substance that nice in the active ingredient, we make and category that can be lane facility. So we're responding to questions that they raised when they issued an incomplete on that and it was incomplete because they had questions and it was incomplete we hadnt submitted drug product so the real.
New focus of the pending submission is to answer those questions and then submit all the drug product that being the drug substance aseptically filled in the syringe. So that is new material that they have not seen yet and that's where we partner with Norbert.
Hopefully get them something that they are our AR is acceptable.
Okay, No I know as far as treatment of Corona virus in cows had we had any further.
Discussions are results, whether this is beautiful well ISO both for any other animals or anything else.
Yeah, It's a very fair question, Sam I Didnt highlight.
Hi, my caution points there.
But on page 26.
We did put a pretty definitive answer and it's it's no when it is what we expected.
Human kroner virus is different than the animal kroner virus, we had to tested in a lab and.
Those results were confirmed it's just it's just it's not the cross protection is not there. So we're not gonna be older.
Provide a a viable solution to that stand dynamic but.
Yes.
That's a new disclosure.
Okay, and one final do we need to raise any more funds are we suitable.
Through the ended the year.
The way we are.
Yeah suitable I guess, yeah sure I do want to make sure we.
Achieved forgiveness on that a few PD lone that's that's critical to our you know our financing going forward.
But yeah, no plans or go to market this year I mean.
I just don't know how deep the crater is gonna be how deep the economic collapse is gonna be so it's hard to say definitively, but I don't I don't see that we stress test so that we can handle a drop in sales.
If you need cover enough. So yeah, no my expectation is not to raise money.
Okay, I want to congratulate you and <unk> and immune cell on the performance on the sales on the growth of new products keep up the good work Michael Thank you.
Okay, great. Thank you Sam.
As a reminder, if you would like to ask the question. Please press Star then one.
Our next question comes from Paul Norrie with Noble equity. Please go ahead.
Hey, good morning.
Hi, Paul Good morning.
It looks like the gross margin was around 45% there. So this quarter.
Given your product make up now is this what we should think about as normal gross margin for you guys or once you get the expansion complete should we expect higher gross margin.
Yeah that was a little surprising to me. It's definitely the 46 is lower than you know we want our goal is 50.
I don't worry about the depreciation component, which isn't there at least you know a cash margins, obviously, a little bit better and 46.
But this list the that we know where our growth is being fueled by the try shield business the gel to business and the job to product and process is more expensive. So.
Yeah, we will go.
Real repeatable and solid 50% plus margin on the council.
But.
No that business was maturing and didn't have the growth explosive growth. We're seeing out of this try shield. So we may suffer a little bit on the percentage.
But we feel it's worth it because they're gonna grow on the total dollar received the total dollar gross margin.
And yes, we just think that's going to get better over time, we're gonna get better yield our cows are and they get better throughput out of the expanded.
Capacity worth more throughput over fixed costs. So.
No I don't think we're going to go back to the old bolus days of well over 50, but I think we can get back that 50. Those are the those are the drivers deal out of our colleagues are expanding heard of source cosan.
More throughput over fixed costs.
Okay, and I guess that given that you're still working through your backlog I guess the virus has not negatively affected demand for the probably yeah.
I'm.
No extremely negative so I I, we're seeing signs and you know, we're seeing seeing that the stress that our customers under so that's definitely not positive, but we're offsetting it would the value proposition.
And this market is resilient you know we are selling a product that helps some save money. We've had comments like a one interesting comment was I.
I need to go I try shield I don't have labor get treats accounts.
So there's opportunity for us like that you know even in the this is no milk price environment.
Okay LNR second in second and third quarter results will answer that question.
As they're gonna played out.
And on the last call I think you brought up casually that.
You had sent in your.
Animal Corona virus or vaccine or product to the health authorities just to see if there was anything they can do with it or are there any developments with that or no.
Yeah. That's I was I think I was Sam's question I was referring to our or short paragraph on page 26, just above the gross margin analysis, where we'd yeah. We did work hard to get that are antibodies tested it took a little longer than we would've liked but we did ultimately get them tested in the answer was what we expected.
No, there's not that cross protective opportunity.
For for our antibodies good data was not there so.
Kinda confirm what we did believe that does.
Animal bovine krona virus.
It was different than the little bit 19, human virus and there was not crop protection.
Okay, and then last question the.
Sales marketing and admin expenses as well as the product development expenses.
Should we expect any significant increase in these lines in the next few quarters or should they remain about where they are now.
Yeah, No I think in this environment by the you know honestly, even without that pandemic.
Those figures that we're not looking.
Well, we're controlling those expenses if we can reduce somebody will right now we're not making drastic cutbacks.
Person extreme cutback so.
But I think I know a no increase plans just we're going to.
Oh level <unk> level through this next two three quarters.
All right. Thank you.
Again, if you would like to ask a question. Please press Star then one.
Our next question comes from Brad Curtain with main Securities. Please go ahead.
Hey, guys.
The other braille great to see skills moving ahead here in this environment. That's right through the ended the quarter anyway. You can you give us a little color and on how they have look here for April and still find today.
No.
I mean, I, just don't do that I mean that would be a I've been violation of Reg FD.
You know we're going to announce these results.
Since we have them and we just have not been in the.
Projection business I don't have an analyst that works on that with me and we just don't do monthly sales reporting. So that's my short answer no I think that probably doesn't surprise you, but in general you know a we're going full steam ahead, how it.
Whether we you know the first <unk> first level of businesses to fill the orders we already have.
In orders, if not dropped down to zero. So we're bringing new orders would be go but how the second quarter plays out.
Here on May 14.
Halfway through the quarter I, Yeah, I don't want to make I don't have a good way to make that projection.
Sorry, Mike I didn't mean for the quarter just how things are looking so far here in April you know a lot of businesses had seen there your business fall off quite a bit here and we read a lot about what's going on in the dairy industry. So I was just trying to see if things are are.
Especially consistent with what they've been here in the pasture or if you're really seeing something a little bit different from from what a lot of companies are seeing.
Right, Yeah, you're you're asking that was a speaking to really not making monthly you know public sales disclosures, but yet we make quarterly.
So.
It's something I want to see how not just the first half of the core and the whole yet, but the whole three months together and then put out there, but you know the though when I was trying to make and customers resilience our product I think has a place to play even in a down market.
And the sales team as aggressive and creative and trying to make that happen but.
It's too early to.
That's true too early to know what ultimately is going to going to happen here.
Sure.
Just kind of moving from there little bit over to the Paycheck protection program loan or you know cash at the end of the first quarter.
Working capital and the first quarter look pretty similar to what it was at the end of the year.
In <unk>.
Once they really need for this I mean, we do have access to capital you've obviously so lot of stock over the past few years, just refinanced with the bank.
Was there need for this or would you take it because it was out there.
Oh, I think when you do contingency planning for a pandemic of this size and the economic.
Potential harm that's your way you look for every opportunity you have to to mitigate downside and that's what this plant program was designed or.
And we we kept our we met the primary objective of the program, which is the key people employed <unk> caliber payroll you know that was based on a run rate of payroll in 2019.
The actual the adjusted to we're about halfway through or the this eight week measuring period.
And it's a allowed us to not missing payroll dollar to keep the business going and you know it's it's it's it's a it's a.
Security for what May happen here going forward, but I think that was the purpose of the plan is that.
Get get payroll dollars out into the market. He businesses, you know moving forward and.
We fit that description quite well we've done the best we can to do that.
I'm happy to be a relatively small participant in this.
Mega dollar program.
Right well I think I think the plane list for businesses that were planning on laying off.
The employees to be able to keep them on a on it but I won't I want debate, but if you do you feel you met the obligation. It just is there's a lot of backlash against public companies as you know and you may be smaller, but it. It just strikes me that the working capital the cash level here sales up in the first quarter.
Hi.
It seems like a stretch to make the case there but.
Other question I had for you.
Syringes.
Maybe a lot of talk right now.
If if were able to find some some sort of vaccine that one of the issues just finding enough search engines for the vaccine for the pandemic you see that.
Obviously, there was nothing in the queue speaking to that but do you see that as a potential issue or where are you pretty firm with the supplier.
Yeah, I see no issue the supplier. This is a huge company Hubert to bacher.
Providing these you know sort of different syringes, they're not the human injectables, they're there and from memory and infusion pieces the plastic.
No indication that there's any problem there in fact did come to make this submission.
Later this year, you know weve been needing to access syringes for the for the studies. So we've been successful and I've I don't see any.
Any indication of a problem with Cuba tobacco.
Okay excellent and then just a final it's just it.
A question.
Would you consider moving these two webex presentations going forward.
Hi, I have not seen the presentation he put out there, but I like to but it'd be great. If it's if you could walk us through doing these meetings the presentation that you put out so.
I'm guessing the annual meeting will be a webex or equivalent correct, yeah, it's the either or option or both.
For the annual meeting and you'll see that in this mornings press release, but yeah, that's gonna be that.
The webex, but as I speak live here a actually the way. This webex I believe is gonna be set up is just another access to come in so we're leaning on the website for the slide deck and this slide deck that we put up last night.
Is the same slide deck I'm going to use on June 10, So people have a chance to look at it in advance, but I definitely want to walk through it but they they you know some of these services that you see from bigger companies.
Our.
You know [noise].
You know up to $10000.
I just couldn't see spending that kind of money. So we've got a much more cost effective approach will be the audio connection and <unk>.
Sides on the website again that are there now and we'll we'll talk through.
But yeah, we'll <unk> learning everyone's learn and the new virtual world. So a this will be in first rests on the annual meeting.
You know Brad back to that small company in the PTT you know.
It does.
Support payroll I I don't I'm, not aware of Oh, a rehiring criteria I think its supporting payroll. So the fact that we had the money and then didnt need to furlough or lay off I think is.
It is relevant and is a meeting a criteria and that's ultimately going to be the calculation, 75% of our forgivable piece will be payroll.
And then the argument I'm going to be making is it's too small size you pointed out that we did raise money and that's really pardon my argument.
We scratched and we worked hard with Craig Hallum to raise the money we did raise the from the two programs that we are funding and a the ability to go back to market right now for a stock like ours, a thinly traded stock or the market cap, where it is I don't think is there I think with a public company outcry is towards the big guys that have ready access.
Two or two raising money and we're a little different than that broad categorization of all public companies.
Anyway.
So oh, well play that went out and see how we prevail.
As a reminder, if he would like to ask a question. Please press Star then one.
Next question comes from Frank Castle with Andover. Please go ahead.
Thank you very much good morning.
Would you just described the play out there and.
Where you are I was on the website <unk>.
So all the pictures et cetera. This morning, I took a tour of the plant quite a when it opened I guess.
And I'm wondering what the goal is and you don't are you meeting your goal and.
Is everything going well here is that Oh, those pictures really relevant or are they pretty historical thanks, very much well yeah. Good Frank I think I need I think.
I think were confusing to different plants. So let me describe okay.
The headquarters is 56, evergreen, that's where we make first defense today, all U.S.T. operations I think the facility you tour and because we really haven't had tours over at the first defense facility I think the facility remember touring was the retained facility at 33 Catty Lane. So that was the 20 yeah. Okay.
It's the 21 million dollar investment that's complete that's we're running and producing drugs Cubs since it's a complete that after the application. So no new construction over there that's complete that's been complete what you're seeing as construction photos that are relevant is what I've been trying to show the third facility is 175.
Industrial.
So caddies out her back door industrials out our front door.
Industrials lease property, we essentially at least a 14300 square foot.
Warehouse and built in these these assembly rooms, where we're going to finish the product. So that's the that's the that's the 3.5 million dollar investment that's the that's the certificate of occupancy I'm looking for in the next in the next week's that's the move in the next stage there to get all of the assembly of first defense outage.
56 into 175.
So that we can move the new freeze dryer into the vacated space at 56, So 56 becomes a liquid processing plants. Among 75 becomes final assembly and infill.
Very good I totally understood now thanks, Okay. Okay. Thanks, Frank good thank you.
This concludes our question answer session I'd like turn the conference back over to Joe Diaz for any closing remarks.
Yeah. Thanks, Brendan [noise] again, we appreciate all of you being on todays call and we will afford to talk with you again. It goes you know the current quarter.
Sometime in early to mid August.
Please stay safe and will want to talk you again soon have a great day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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