Q2 2022 ImmuCell Corp Earnings Call
Good morning.
Of course, we'll now be assisting with your conference call. This morning.
Good things start to let me ask Joe to open up the call.
Good morning, and welcome to all.
The operator indicated this is Joe Diaz I'm with Lytham partners.
The Investor relations consulting firm for them yourself.
Thank all of you for joining us today to discuss the unaudited financial results for the second quarter ended June 32022.
Like to preface this discussion today with a caution regarding forward looking statements.
Listeners are reminded that statements made by management during the.
Of course of this call include forward looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those discussed today.
Additional information regarding these risks and uncertainties is available under the cautionary note regarding forward looking statements better known as the Safe Harbor statement provided with last Night's press release and with our quarterly report on Form 10-Q for the three months period ended June 32020.
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Along with the company's other periodically filings with the SEC.
That said, let me turn the call over to Michael Brigham President and CEO Michel <unk> Corporation, after which we'll open the call for your questions Mike.
Thanks, Joe and good morning, everyone. You do have a summary of the second quarter and year to date financial results from last Night's press release and the details from the Form 10-Q. We also filed last night since that information is available to I will not take your time here to review all the line item detail, but I would like to touch on.
Some of the highlights.
As you May know on July 7th we issued a press release covering our preliminary topline sales results. We have been making these optional announcements to give investors a very timely look at product sales, which I believe is the most critical measure of our of our operations and financial performance early in the reporting period.
I have no changes to that previous disclosure.
It is gonna be a bit of a bumpy road as we exit from a long period of short supply.
Two our emerging new state with expanded and still expanding production capacity. This transition was complicated further during the second quarter by a material disruption in the supply of needed plastics syringes used in our gel product formats.
If not for this disruption quarterly product sales would've been about flat in comparison to the second quarter of 'twenty 'twenty. One. Despite this supply disruption sales were up 14% and 27% during the six and 12 months periods ended June 30th respectively compared to the same periods during the prior year.
EBITDA, which is an important non-GAAP financial measurement for us given the high level of noncash depreciation expense that we carry increased to $1 5 million. During the six month period ended June 32022 from $1 1 million during the six month period ended June 32021.
This non-GAAP financial measures should be considered in context with our statement of cash flows that is presented in accordance with GAAP.
Our balance sheet is looking pretty solid in my opinion cash increased to $11 million at June 32022 from 10.2 million at December 31, 2021, net working capital increased to $14 8 million at June 32022 from $13 7 million.
At December 31, 2021.
<unk> equity increased to $32 8 million at June 30, 2022 from $32 6 million at December 31, 2021 here's a fun fact, our current market cap is equal to a little more than twice our stockholders' equity as of June 30th.
Next I would like to talk about our very important capital expenditure projects that are more specifically detailed under the liquidity and capital resources section of item two management's discussion and analysis and the Form 10-Q that we filed last night.
Yeah.
We raised $27 million in common equity from 2016 to 2021 after several bank debt financing.
We had $9 8 million and outstanding Bank debt as of June 30th that bears interest at a blended fixed rate of 3.52%.
We are using those funds together with the gross margin from product sales to transform this company.
Prior to our introduction of the newest extension of the first defense product line in late 2017, namely Tri Shield first defense.
Annual production capacity of about $16 5 million was adequate to cover sales promptly.
Without an order backlog.
However, our world changed with the introduction of Tri Shield, we have been investing millions of dollars in capital expenditures to increase our production capacity.
This kind of significant investment in real estate manpower and equipment does take time, despite all the urgency and energy our teams puts into it.
Particularly in this current environment, featuring supply chain difficulties and increasing costs.
In my next few comments I'm going to refer to our capital expenditure expenditure projects by the letters assigned in our Form 10-Q.
Much more specific detail on description about these investments as available to you in the 10-Q the objective of projects C, which was initiated during 2019.
Was to increase our production capacity from $16 five millions of $23 million.
At a cost of about $3 7 million, we have achieved that goal.
Project E and F, which were initiated during 2021 are nearing completion for our combined cost of about 1.7 million, increasing our annual production capacity to about $30 million.
We are working to complete project G, which was also initiated during 2021 by year end to further increase our annual production capacity to about $35 million.
That work continues as planned looking forward I'm really very excited about the value of our newest investment in what we call project H to increase our annual production capacity above $40 million and provide optionality for further investment north of that.
The capacity estimates I have just mentioned vary based on biological and process yields.
Format mix.
Selling price and other factors, it's been very difficult and stressful for our manufacturing and sales teams to work through this period of short supply and.
We.
Sincerely regret the difficulty in frustration. This situation is cause for our distributors and end user customers.
We are now exiting from a period when sales demand well exceeded production supply entering more of a just in time supply environment as we transition to where we want and need to be that is having supply that exceeds demand.
This makes me very optimistic about the end of 2022 and about 2023 and thereafter, none of this expansion happen soon enough for anyone.
Thing I like most about project H.
Is that we are making.
Now, making investments and further production capacity expansion before that output is needed by the market.
This is a more comfortable way to plan invest and grow all of this is.
Then ongoing while we look well we continue to work on it and fund the development of retain.
So let's talk about that project now.
In addition to increasing first defense production capacity or other company changing goal is to achieve FDA approval of routine.
Our product development objective is to demonstrate that our polypeptide antimicrobial nice in a can play a productive role in the treatment of subclinical mastitis in today's dairy industry offering an effective alternative to traditional antibiotics.
Based on Big I mean, excuse me because labor requirements of all Intermammary mastitis drugs on the market today require that must be discarded in the meat withhold during the during treatment and for a period of time thereafter.
Is common practice to not treat sick cows that are still producing saleable milk.
Retain provides an animal welfare benefit by removing this economic disincentive to treating subclinical mastitis, allowing sick cows to be treated without the milk discard and meat withhold penalties.
In addition to improved animal welfare retain enhances food safety and sustainability by utilizing Neisen, which is not used in human medicine.
This is important because the overuse of traditionally antibiotics.
Including in food production animals is believed to create antibiotic resistance, which is an ongoing public health concern.
You may have seen our July 27 press release, we recently received a technical section incomplete letter from the FDA, but with regards to our second full submission of the last of five significant technical sections pertaining to retain specifically the chemistry manufacturing and controls or CMC.
Technical section.
Which is required to complete our new animal drug application.
Principal issue remaining as a successful preapproval reinspection of our manufacturing facility we.
We are completing preparations for this re inspection and intend to notify the FDA of our readiness readiness for the preapproval reinspection during the third quarter.
Our continued focus on these preparations is critical to a successful outcome.
We do not see any substantive issues raised by the FDA and there are other six comments, which are not related to the safety or efficacy of the product. The comping the comments principally related to drug product not drug substance.
These comments require that we provide additional information about raw material specifications drug substance labeling and stability testing.
This clarifies the required remaining path to product approval, we are working to make our third submission of the CMC technical section during the third quarter, which would be subject to a six month review period by the F. D. A.
We believe we can successfully complete the preapproval reinspection inside of this timeframe.
We remain poised and excited to revolutionize the way that subclinical mastitis is treated.
So in conclusion I encourage you to review the press release and the quarterly report on Form 10-Q that we filed last night also please have a look at our corporate presentation slide deck in August update was just posted to our website last night.
I believe it provides a very good summary of our business strategy and objectives as well as our current financial results.
So see the investors section of our website and click on corporate presentation with that said I'll be happy to take your questions. Let's have the operator open up the lines.
Anthony we will now.
We will now begin the question and answer session.
I ask the question from Michael started wanting your telephone keypad.
Sneak in so I'm pleased to experience it for questions.
So it was try a question. Please press Star then two.
At this time, well pause momentarily to assemble our roster.
Okay.
Again, if you have a question please press star one.
Okay.
Our first question will come from George Melas with <unk> K each management.
You May now go ahead.
Good morning, Michael.
Good morning, George Hi, there.
Hi.
About the material disruptions in the quarter, but he just plastics syringes or were there some other factors that.
And then also disrupted production, let's say no really George just that we need these tubes and.
We're having some progress with that fix and I think we're going to continue to have progress. That's why I mentioned I think we've got we're working on this in the third quarter or so.
We just need a lot of tubes, our business is really shifting from the bolus.
To the tube and we had a failure and an end.
Contractor supply that where.
We're gonna fix but did hit the second quarter.
Okay, and how many may I ask how many supplies you have.
The syringe tubes.
Yeah, it's it's.
It's more than one.
But it's one primary and obviously, we need to shift the weight.
Okay.
And is that a is that supply your domestic or are there are European or international.
Yeah, We've got a we've got access a mix so.
It just I think what we're seeing is the domestic supplies is just it has not been reliable for for some time now and it finally, it crashed and peaked here in the second quarter.
Okay, well I did a failure.
The product was it that you just could not get enough of it yeah strictly supply the product. We receive is usable we're just not getting enough of it is the factor of getting less and also need anymore.
Okay. Okay.
And.
And how do you expect to them to solve this problem.
Just buy more buy more from more people.
Okay, Yeah, Yeah, it's just.
It's not complicated it's just it's just it's the same two no changes, we just need more of them and.
And we need you don't require any kind of a M E clearance to do that.
This would be USDA and it is it is a regulated product, but but we can manage we can manage that the USA understands.
Multiple vendors.
Okay.
And so how do your.
How do your customers have either farmers sort of deal with the disruption like this.
They stop using your product and do they shift to a a competing product for a period of time or do they not use it at all and hope for the best what what what's the what's from a legal.
With respect.
Alright.
Well you know it puts a lot of burden on our sales team. They manage this very closely and you know there is.
It's available in distribution and some of that product can buffer. These these these shortages out of our plant.
But it's a problem of all levels. So it's all of the above George some some customers will get frustrated and leave and we need to go get them back others will be able to find.
Find products through you.
Distribution.
And we just try and get them there.
The rest out as soon as possible you know produce it ship it and get it to the farm. So it's.
It's really a huge stressor on manufacturing to push it through and in sales to do the best they can to to allocate and prioritize and keep them moving.
Okay.
I was just trying to understand the inventory information you provided in the Q.
Because inventory has increased and finished goods inventory increased at the end of the quarter.
And.
I mean, it's not a big number right but.
It's almost half a million bucks each deal so it's meaningful right.
What does that mean that finished good inventory increase.
Well largely.
The timing difference, we we only shipped the gel product is refrigerated and we don't want it.
Got warehouse on a hot truck over a weekend, so we only shipped Mondays and Tuesdays.
So theres always going to be a bit of product that is called the backlog, but because it didn't go out but.
It is on our books, because it's available and it will ship. The next Monday, so mostly a timing difference. So that's why we've just got to keep getting a head so Iraq counting.
You know release released to shipping within a week.
Okay, but does that number suggests that you are actually sort of making progress to solve the issue because.
They seem to be saying.
The amount of finished good inventory that you can ship that you were able to ship the first week of July .
Yeah, Yeah, no, we're definitely making progress.
It just isn't that the project is not going to be complete until we're further ahead.
And more and finished goods you know, it's just it's where to close that I referred to sort of a breakeven or just some time.
Kind of where we are right now is we're watching each release.
Almost yes, almost by the hour, but certainly by the day and we just we need to build up our inventory and then build up distributors inventory and thus have a more logical flows. So it's this transition I said bumpy road, it's a little bumpy.
Bumpy road transition from short supply to sufficient supply.
Throughout it all through our shelves are cooler right through distribution right throughout to the farm.
Okay, Okay, great Alright, good luck, Dave George Hey, good to hear your voice.
Uh huh.
Again, if you have a question. Please press Star then one.
It appears there are no further questions. This concludes our question and answer session I would like to turn the conference back over to Joe Diaz for any closing remarks.
Thank you Anthony and thank all of you for participating on today's call. We will look forward to talking with you again to review the results for the third quarter of 2022 sometime in the early part of November have a great weekend and stay safe.
Have a good day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.