Q4 2022 ImmuCell Corp Earnings Call
Good morning, and welcome to immune cell Corporation reports fiscal year 2022, unaudited financial results Conference call.
All participants will be in a listen only mode.
After today's presentation there'll be an opportunity to ask questions.
Please note that this event is being recorded today.
I would now like to turn the conference over to Joe Diaz of Lytham Partners. Please go ahead.
Thank you.
Good morning, and welcome as the operator indicated my name is Joe Diaz with Lytham.
Markers, where are the investor relations consulting firm for them yourself.
Thank all of you for joining us today to discuss the financial.
Financial results for the year ended December 31 2022.
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 the future events or expected future results or predictions about the.
The company plans to take in the future.
These statements are not guarantees of performance.
Subject to risks and uncertainties that could cause actual results and 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 with last nights press release, along with the company's other periodic filings.
With the SEC.
Information discussed on today's call.
Speaks only as of today February 20.
2023, 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.
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 <unk>.
Corporation, after which we will open the call for your questions Michael.
Okay. Thanks, Joe and good morning, everyone last Night's press release reports no change to our product sales results that were first reported on January nine.
The press release also provides the full unaudited P&L results and some on a summary balance sheet data, we expect of our file our full audited financial results on Form 10-K on or about March 29 2023.
I'm not going to spend much more time on this call discussing the financial results I think it is more important to use this time to discuss the impact of the Sirius product contamination problem in our production process.
We're going to take a hit in the first quarter of 2023.
But we are working diligently to address the situation I believe we're taking the appropriate steps to emerge from this problem stronger with production capacity in place to produce more than $30 million.
Product per year going forward.
We disclose the situation in detail on last Night's press release, but I'd like to recap the important points with you now.
In 2018, it became clear that the demand for Tri Shield first defense was outpacing production in response to this increasing demand. We began a series of investments during 2019 to increase our production capacity to over $30 million per year.
The necessary facility expansions and new equipment to increase production capacity in place by the end of 'twenty to 'twenty two.
It's a very hard thing is it just is this increased production capacity, that's coming online and production can am contamination event was detected by standard in process quality control testing around the end of the third quarter of 2022 weeks.
We took immediate steps to address the contamination and production ran without issue during the balance of the fourth quarter of 2022.
Well it makes matters, even more challenging is it during the first quarter of 2023 are standard in process quality control testing is detected a second contamination event.
This is resulting in a slowdown in production output as we take the necessary steps to to assess and remediate the issues and ensure that we that any product that is put to market meets all quality standards.
We believe that the ongoing implementation of our capacity expansion plans and the corrective actions being taken in response to these contamination events should allow us to operate at a higher level of production output.
Going forward without.
Further significant contaminations.
Slowdown in the first quarter production output has in part contributed to a more than doubling of the order backlog since the end of 2022.
We expect to report reduced sales during the first quarter of 2023, and a large increase backlog as of March 31 2023.
Beautiful Austin earned gross margin that is being incurred during the first quarter of 2023, we've made the decision to defer for the time being completion of the incremental planned investment to increase our production capacity further to over $40 million per year.
The increase in sales demand for first defense is both exciting and difficult for us.
At the same time, we are preparing all the data required to make our third submission of the CMC technical section approval up which by the FDA has required to market retain.
The submission will be subject to a six month review by the FDA, we aim to resubmit during the first quarter of 2023 subject to completion of several critical path items that require results from external laboratories.
So by way of conclusion, then to be very direct.
One do you is that we have driven the company into backlog and contamination on the first defense side, while not yet achieving FDA approval of reaching.
However, the other view is that we were approaching the $30 million in annual production capacity for first defense, but the flex option to get to more than $40 million in the future. While at the same time, we are advancing to the final stages of a very significant.
F D a product development initiatives.
I take the latter view as they work to attract retain and motivate our greatest assets that being the employees that are working so diligently to make all this possible.
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. Our February update was just posted to our website last night see the investors section of our website and click on corporate presentation or contact us for a copy.
We expect to disclose more information about the impact of the product contamination and the updated status of our remediation efforts and in our annual report on Form 10-K on or about March 29 2023.
But that said I would be happy to take your questions, let's have the operator open up the lines.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
If youre using a speakerphone please pick up your handset before pressing the keys and if you'd like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Yeah.
And they get to join the question queue that is star then one telephone keypad.
Yeah.
It would.
Just a moment as we assemble our roster.
And our first question here will come from Charles sure hammered with SMIC. Please go ahead.
Hi, Mike how are you today.
Charles Good morning, I'm doing alright. Thank you how are you.
Alright, we're doing good.
Just what God side. This morning, we got eight inches of snow not that that's germane to the to the to the Collier well I have a question on her way yeah, Yeah. It's in all.
Michael I've, just got a couple of quick questions I didn't see a big charge off on the operation statement.
Due to the contamination in other words, a line item, where you able to salvage are any of those batches or or were they a total a total loss.
Yeah. That's a good question Charles a little tricky so.
Third quarter as I mentioned, two events that third quarter, then of course as reflected in the.
In the 2022 results and we'll detail that in the K with the cost of goods discussion in the MD&A.
So and then what.
We're still evaluating this first one is you're right. It's not all of the write off I think the immediate impact is timing. So it doesn't slow as I mentioned slows down production some of that product can be successfully reworked and some of it will become a write off and that is all under careful evaluation that that's what I was referring to I think.
We'll have better data to assess that and report that.
A weeks here with the three or four weeks for the 10-K, but you're right. It's two things some of it can be salvaged reworked some of it will be a P&L write off.
Okay, and and your deferred investment.
I would assume that that's for preservation of capital.
Reasons is would that be correct.
Yeah that project.
It was largely funded by you know by.
Sales by gross margin by profit.
I proudly worked so we're taking a cautious approach is not immediately needed with sales being around $20 million with our current capacity being about $30 million. The objective was to you know to get ahead. These investments as you've seen them take take some time a number of years.
We want to get ahead and get to that 40 million level, but I think it's prudent cash flow wise and safe no.
Production wise to pause on that settle get back get back up and running at the 30 and put that I still have kind of put that program back in place but.
It's not the start date is not that urgent.
Okay and then the do you have any idea of what the attrition rate is on the backlog do you guys lose.
A lot of that backlog to other other products or.
Or are those backlogs are still most of those come to fruition.
That's another great question Charles that our sales team works, so hard I'm not answer every day I mentioned, the doubling of the backlog I'm on a lot of that happened even before the contamination related slowdown. So demand is real strong and the orders are continuing real strong, but we do know.
We do know that these cards are born and a lot of these.
Customers will go find an alternative product. So so we'll lose some and the challenges to bring back supply and go get them back and just just sell our efficacy in my opinion, they're going to move to a product that's not as effective.
That's why our orders are so strong they want first defense, so, bringing the supply end and the sales team that has a <unk>.
It was challenged with the balance of the year to go.
To go find those that switched over to something else and bring them back.
Well I know you've got a great product. So and then if you've got a good sales team they'll get it back for you.
I have a.
Other another question.
When you go to a raise of.
The funds that you've deferred what's what method ER do what message do you look at to raise those funds as it loans or is it to sell more stock.
And if you do sell more stock is that delusional. If you could just talk about that for a second and that would be in the future. Obviously with what you had said.
If I could just go back for a second Chris.
Appreciate your confidence in the efficacy of our product and he said it and if you have a good sales team and I would just add our sales team is uniquely positioned to.
To bring this to bring this back to get these lost customers to regain the sales.
Worked so hard and suffered along through this backlog is going to be a joy to have them selling with inventory on hand, but dennis to financing.
Your question there.
Yeah. My first objective gross margin that that's the best way to fund this business. We've done a lot of equity we've done a fair amount of debt, but in a situation. Like this you know we got to keep our eyes open to be flexible to all three what's the best way to it too.
They make up for this first quarter loss and you know a loss or is it still being evaluated so I would say.
Oh, it's only prudent to have all options on the table.
Yeah, its pretty mature question I'm, sorry about that.
Yeah.
The.
When youre coming out with your retained product hopefully in 'twenty 'twenty four late 2023 we don't know so no point in speculating on that is it's the retained gonna be made in the same factory or lab.
All your terminology, but place as your as your first offense or or or and then if it is do we have to worry about contamination issues crossing over from one product to the next.
Yeah, Charles when I was in another great question I'm sorry. These are tough questions, but Oh no no no. They are just spot on they're good questions I appreciate it.
So let me just first comment on the timing just just to be clear I'm. The submission that goes then again will be subject to a six month review and then there's a two month, what's called an administrative review at the end. So I just look as eight months from submission.
But you're right that that's what we control the submission and then the the review and the approval is.
In the Fda's hands. So we will have that that news complete or incomplete eight months from submission, but I'm no production. That's a very fair fair caution, but it's a completely different facility. It's a short walk out of our back door. It will work.
Different standards as far as air control and separation of process.
It's F D. A regulated as opposed to U S. D. A I would say you know this remediation process.
In part as he's taking some lessons from the routine facility not all of which can be implemented into the USDA facility, but it. It is a it is a very different facility very different inspection standards and yeah, no crossover at all of our product or.
Whit meant and very little cross sell crossover of even people so same company, but a little bit of a different world over there.
We call what we call it 33 caddie lane for routine.
Yeah. Thank you very much where I learned something today about the difference between the U S D E and the F D a.
I wasn't I wasn't thinking about that so thanks for opening up at Horizon for me.
When you look at the development budgets when I talk about capacity expansion for first defense.
Compare to the investment we're putting into our ethane you know that it comes at a price that retain facility cost US 20 million we've invested.
You know just five ish million to get to this $30 million on first defense. So yeah. It is different but.
We moved to one one quality fits all.
Well, we've got a lot of confidence certainly Michael So I hope that things continue on.
One more question for you and then I'll finish I'm, sorry to take up too much of your time here, but where do you see a M yourselves going in in let's say the 'twenty 'twenty four 'twenty twenty-five what's can you just give a quick thumbnail sketch of kind of what's your vision.
One is for for the next two years.
Right, it's pretty clear and it hasn't changed except that one real significant surprises challenge was thrown right on right on top of this you know so they they go pre contamination.
He has the same post contamination, which was.
Now 23 was a great year of transition great. Your milestone achievements huge catalysts being number one.
$30 million in capacity.
And the ability to grow sales $10 million on top of the current 'twenty.
Yeah, just on the doorsteps of having that we'd get the setback on contamination. So we work with and so the new the new.
The new twist is same St plan for first defense.
But.
Remediated contamination and then the other thing that just hit the same here at 2023.
When I say, it's a year or two big catalysts. The second was this F Diego reading and <unk> seen that and so the goal was always.
Just get out of backlog.
Produce more first defense.
The F D. A another opportunity to say, yes, so as we turn to the second year in your question of 'twenty 'twenty four we're much more commercial focused much less product development and just selling selling a bunch of first defense and initiating what we call that controlled launch that market introduction of our <unk>.
Anything to the industry.
Yeah, It sounds like with all your hard work, we need a little bit of luck to bless us I missed like.
Well it does takes I do believe that I think its skills on the first defense side and just hard work and.
Boy I think on the F. D. A side you do need a little bit of luck.
Yeah, There's no question.
Alright, Michael you've done a fine job for me and and I want to thank you for your time and and really good luck with these impending challengers lying in front of you.
That's great job and I appreciate the chat and we will keep at.
Communications very current.
Okay. Thank you Sir good deal.
Our next question will come from Frank Gasior, a private investor. Please go ahead.
My God.
Thanks for taking my call.
Yeah, Frank good morning.
A question on the chain I believe in one of the press release, you just about the.
The last submission.
Had to do with.
Oh, the subtleties inspection.
How's that been redone.
Right.
That's a good question as well the inspection.
We will take place sometime after the submission it will take place during that.
Well I should say, we suspect, but where we're highly confident it will.
Will take place during that six month review period, So essentially I think the FDA takes the position of you know, we're not going to we're not going to.
Mobilize our our inspection team until you guys are serious submission is pending and under our review so that is.
That is still ahead of us.
Okay.
<unk> seen.
It seems like Oh.
Kind of odd way to go about it.
Where are you under.
Uh huh.
The prospects of a hard enough.
The simple inspection dictate release.
I know, it's a tough it's a really tough process, what I should clarify you know they did make their first inspection they issued their essentially to do list and then you know as we can.
Okay, well then what that's what we learned that okay well.
We were where we're gonna wait when you make that submission one of them to do that one of the items on the to do list would that submission was to tell them.
We're ready for inspection.
So I just think they think that they're busy and I think they took the attitude we can get it done within six months, let's not bother unless there are serious enough to have made that final C. M. A c's submission.
And another question on.
We came.
I was under the understanding that.
Or rather can you explain.
Or give some color in regards to your comments about the critical path in a lab.
So Oh Wow lab results from third party.
Yeah, I mean, essentially what the FDA required us to have certain.
Analysis of certain testing procedures done by two labs.
So we've been able to control the method and the completion of the process.
On our hands that they wanted to they wanted to be robust enough that someone else can do it so.
That is the that's the critical path item to have that repetition buyers outside of them yourself.
And you're still going with the Q1.
Submission time right yeah, how about we are we all are we know how important that is.
It's going to be very close I don't I don't think that you know we're already here towards the end of February but it's.
It's hard when I put out those projections, they they move a little bit because the reality changes our best ambitions, but I do feel very confident that we're down to a matter of days not a matter of months from from that target.
Everyone.
Everyone in the project is expecting still to make this in March.
Yeah.
Okay, and one more could.
Could you.
Give me some idea about the SG&A line seem to be so.
They currently are higher than a year ago.
Yeah of course, I'd get that detail because I think as you noted the press release kind of aggregate, but you know the the selling line as is.
I'm, sorry, I meant to say the administrative line as its very steady pretty you know inflationary you know it doesn't move more in the hundreds or two found 1000, we have made a conscious decision to increase that that selling expense and that one is more triggered by a controlled or budgeted.
By a percentage of sales.
So it has increased with a couple of really important personnel hires and and also some really good programs. There are some really critical and really important to the to the rebound here from the backlog.
I've been having.
Dr. Lindsey on the team, providing technical support having mark weisenberg of it I mean, he came in for ethane with 30 years of cheese experience and having him be part of the team to remediate.
Our contamination problem is hugely valuable so the sales team has grown in the sales programs have grown and it's proportional to sales, we always keep it under 20% but.
Yeah, there's a little bump there in 2022 on the on the sales expense side and a smaller amount on the admin side and I'll get you that split detailed here in the K.
Okay.
That's all I have Mike and.
I'm looking forward to.
And Oh C.
A potential for.
First defense suddenly chain not come to fruition, it's been a long time, but.
I know how as well.
Sure.
They're all the same page with that.
Very much.
Alright.
Alright, good thing thank you.
This will conclude our question and answer session.
Like to turn the conference back over to Joe Diaz for closing remarks.
I'd like to thank all of you for participating on today's call. We will board excuse me, we look forward to talking with you again to review the results for first quarter 2023 on or about May 16, 2023 have a great day.
The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect your lines.