Q3 2022 ImmuCell Corp Earnings Call

Good morning, and welcome to immune cell Corporation reports third quarter fiscal year 2022 financial results Conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad.

Please note this event is being recorded.

I would now like to turn the conference over to Joe Diaz at Lytham Partners. Please go ahead.

Thank you Chad good morning, and welcome to everyone.

As Chad indicated my name is Joe Diaz.

Partners, where are the Investor relations consulting firm for yourself I. Thank all of you for joining us today to discuss the unaudited financial results for the third quarter, which ended September 32022.

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 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.

Sherri note regarding forward looking statements or better known as the Safe Harbor statement provided in last Night's press release and with the company's quarterly report on form.

In Q3.

Three months and nine months periods ended September 32022.

Along with the company's other periodic filings with the SEC with that said, let me turn the call over to Michael Brigham President and CEO of any self operation after which we will open the call for your questions Michael.

Okay, great. Thanks, Joe and good morning, everyone.

So a summary of the third quarter and year to date financial results are now available to you from last Night's press release.

And the details are available from the Form 10-Q for the quarter ended September 32022 that we also filed last night.

We did filed its Form 10-Q about five business days late to all time to restate, our first and second quarter filings with the SEC.

Statements were made to reflect a non cash accrual of deferred compensation expense consisting of earned an unused paid time off during the first quarter of 2022. This change increased our administrative expenses and accrued expenses by approximately $222000 once again with no impact on our.

Our cash position or on our product sales.

As you May know in October 5th we issued a press release covering our preliminary topline sales results. We have been making these optional announcements to give investors a very time. They look at product sales, which I believe is the most critical measure of our operations and financial performance early in the reporting period I have no.

Changes to that previous disclosure again sales were down about $350000. During the three months period ended September 32022, compared to prior year, but sales were up 24% or 935000 over sales during the second quarter of 2022.

As we look at the longer periods of time sales were up 6% or 858015% or $2 $5 6 million during the nine month and 12 month periods ended September 32022, respectively compared to the same periods during the prior year.

We are experiencing a bit of a bumpy road as we exit from a long period of short product supply to our emerging new state with expanded and still expanding production capacity.

Prior to the introduction of the newest extension of the first defense product line in late 2017, and its popularity with our customers, namely Tri Shield first defense annual production capacity of about $16 5 million was adequate to cover sales promptly without an order backlog.

I should note that the capacity estimates that I mentioned on this call very based on biological and process yields product format mix.

Selling price and other factors.

Beginning in 2018, our world changed for the better with the introduction of Tri Shield. We have invested we have been investing millions of dollars.

And capital expenditures to increase our production capacity.

Kind of significant investment in real estate manpower and equipment does take time, despite all the urgency and the energy our team puts into it.

This transition from backlog the buffer stock was complicated further during the second quarter by a material disruption in the supply of the needed plastics syringes used in our Joe product formats.

You saw that supply disruption challenge.

Recently, we experienced some contamination events in our production process around the end of the third quarter of 2022. This resulted in a write off of approximately $412000 and has pushed those back into our backlog situation. We believe that we have to address these challenges going forward.

Installation of two critical pieces of equipment needed to increase our production capacity are on track to be operational by the end of the year investments being completed through the end of this year should bring our annual production capacity to the state of goal of $35 million per year at 100% operating levels going for.

Into 2023. This is what we need to increase our production capacity and solve the backlog going into 2023, new investment that is referred to as project H and our SEC filings represents an investment in building modifications and equipment to further increase our annual first.

Fence production capacity from the 35 million level.

Two approximately $47 million during the second half of 2024 with options for further expansion.

H also provides improved.

Yes.

Facilities for powder milling and much needed additional cold storage and warehouse space in contrast to past capacity expansion investments that could not possibly be completed soon enough. The timeline for this investment is much more reasonable for all involved including our employees contractors and equipment fabricators.

The levels of production output that I, just mentioned requiring require running equipment and staff at nearly 100% of capacity.

We have been running hard near to that level over the last couple of years owner in order to fill the backlog of orders.

This opens us up to product Contaminations enforces us to defer preventive maintenance of equipment, while subjecting us two more disruptive emergency maintenance what are the objectives of project age is to create a more sustainable production schedule for example, but we're running at 80% of maximum capacity project H.

<unk> could increase our annual production output from approximately $27 7 million at the end of this year to approximately $37 3 million during the second half from 'twenty to 'twenty four.

EBITDA, which is an important non-GAAP financial measure for us given the high level of noncash depreciation that we carry.

Decreased to approximately $1 3 million during the nine month period ended September 30, 22 from almost $2 million during the nine month period ended September 32021.

non-GAAP financial measures should be considered in context with our statement of cash flows that is presented in accordance with GAAP.

Let's look at our balance sheet cash decreased to $8 8 million at September 32022 from 10.2 million at December 31 21.

Net working capital decreased by just $12000 to $3 7 million at September 32022, compared to December 31, 2021.

Stockholders equity decreased to just under 32 million at September 32022 from $32 6 million at December 31, 21.

All of this has been going on.

Well, we continue to work on and fund the development required to achieve FDA approval of retain.

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 nutrition to due to traditional antibiotics.

Because labor requirements of all interim memory masonite as drugs on the market today require that milk be discarded and MEP withheld during treatment and for a period of time thereafter. It is common practice to not treat sick cows that are still producing saleable milk retain provides an animal welfare benefit.

Removing this economic disincentive to treating subclinical mastitis in la and 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 nice and 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 and human consumers, which is an ongoing public here.

Concern.

So we are preparing all the data required to make our third submission of the CMC technical section approval, which is required to market reaching.

This submission will be subject to a six month review by the FDA. We are on track to make this submission during the first quarter of 'twenty 'twenty three but the exact timing within the quarter is not presently known we remain poised and excited to revolutionize the way that subclinical mastitis is treated mastitis is a disease that causes about two.

2 billion, an economic harm.

$2 billion in economic harm to the U S dairy industry per year.

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 I believe it provides a very good summary of our business strategy and objectives as well as our current financial results and November update was just posted to our website last night.

The investors section of our website and click on corporate presentation or contact us for a copy.

With that said I'll be happy to take your questions, let's have Chad to open up the lines. Please.

Sir we will now begin our question and answer session to ask a question you May Press Star then one on your telephone keypad.

You are using a speakerphone please pick up your handset before pressing nicky's to withdraw your question. Please press Star then two.

Again pressing star then one will allow you to ask a question at this time, we will pause momentarily to assemble our roster.

Okay.

And again Carson Star then one will allow you to ask a question.

Yeah.

It looks like we've got a couple of people in the queue.

Thank you and our first question will come from Jim Barrett with Baird investments. Please go ahead.

Well good morning, Joe and Michael.

Oh, Mike I may have missed it but.

Are the product challenges that you experienced in Q3.

Have they been solved and can you explain what happened was it human error.

Some other factor involved and if it has not been solved.

When would you expect it to be.

Largely behind the company.

Yeah. Thanks, that's fair Jim.

So solved you know when you're running a biological manufacturing process I think you're always subject to contamination. So.

Is it safe to say solved like permanently because of it.

It can come around but what we're very comfortable with we haven't seen a contamination. Since these third quarter events. So I think some of the improvements we put in place are working and we're proceeding you know well since them. There. They these these events were kind of bunched together.

And are you know looking for a smoking gun I don't really have one I have a list and we've just.

Implemented a little a lot of procedures that should and so far it hasn't helped us.

Boyd further contaminations and as I mentioned in.

In my comments I really think it's largely the result of just pushing people and pushing equipment and pushing the process too hard.

And this is this is what we avoid if we moved from you know operating equipment at 100% to push it down.

A bigger capacity get run at 80%.

And do all the right things with preventive maintenance and cleanings and just tightening up the process and the controls. So so far so good extremely painful event, but I'm so far behind us.

And it may be in the Q, but what is the size of your current backlog.

Relative to year ago, or however, you measure it yeah, probably the best answer is well we did put it in the Q as our best projection of what we think will be around a year and and we think it may be around 900000 at year end, but.

Again with this new capacity coming on here in the fourth quarter, we just walk into the Dizzy.

Peak season first quarter.

As our as our VP of sales likes to say a it's a it's not a fire hose at the fire Brigade, and we just crank.

Crank it at higher level.

To turn that around pretty quickly, but yes short answer where you know it's subject to sales and in new product releases and actual figures, but we're where we're thinking it's going to be up to around 900000 at year end.

And then finally could you update us on your planned capital spending for both this year and if in 2023.

Yeah, now theres a lot of detail.

And that in the Q on that is spelled out project H two a through H, but we are completing our you know all the current projects and then at this age as the new one that will take us to get this next level over but you know for for for the end of 'twenty four so I would refer you.

You and maybe Beth helped me here on the page.

Yeah, I will I will read the 10-Q.

Yeah, just you know that but specifically to your question surround page 27, where we just detail each project, but I think the summary, you're looking for but maybe I'll just read the benefit of others as well.

When we when we you know we we would disclose our cash obviously and we set aside about $5 7 million to complete these projects and that leaves about 3.1 for you now go forward.

I think what well thank you very much I appreciate the answers thanks Jim.

And once again, if you would like to ask a question. Please press Star then one.

The next question is from Charles sure Hammer from sure Hammers. Please go ahead.

Hi, Michael Thanks for all your hard work that I really appreciate that but my question is towards this rising interest rate environment could you opine on how the company is positioned.

Going into this higher rate.

Yeah.

This is a good place to brag a little bit.

We I really like our debt structure I'm, just just before interest rates started going up we were able to lock everything in and we're at a blended rate of about 3.56. So most of our debt is right around three five we do have a couple of state of Maine loans at 5% again blended rate three.

Five six and it's and it's fixed.

I think.

For whats the duration on that.

Yeah, I mean, there's there's four different instruments and they have different.

Between mortgage and equipment loan different maturities, but I'm going to grab the footnote 10.

And kind of refer you to the details there, but on page 13, and 14 of the Q, we give the maturity schedule and the breakdown of the different instruments. It precisely.

Perfect Alright, great alright, Thank you very much hey, thanks, Charles I appreciate it.

Thank you and once again, if you would like to ask a question. Please press Star then one.

Yeah.

Ladies and gentlemen, 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 Chad and again, thanks to all of you for participating in today's call. We look forward to talking with you again to review the results for fiscal year 2022. During the latter part of February 2023, Oh, you have a great holiday season, everyone. Thank you have a great day.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Okay.

Okay.

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