Q1 2024 ImmuCell Corp Earnings Call
Good morning, and welcome to the M. Yourself Corporation reports first quarter ended March 31, 'twenty 'twenty four unaudited financial results conference call. All participants will be in listen only mode. After today's presentation there'll be an opportunity to ask questions. Please note that.
Operator: Good morning and welcome to the ImmuCell Corporation Reports first quarter ended March 31, 2024, unaudited financial results conference call. All participants will be in listen-only mode.
Operator: After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference call over to Joe Diaz of Litham Partners. Please go ahead.
The event is being recorded.
I would now like to turn the conference call over to Joe Diaz of Lytham Partners. Please go ahead.
Joe Diaz: Thank you Nick good morning, and welcome to all who as Nick indicated my name is Joe Diaz I'm with Lytham partners. We are the Investor relations consulting firm for <unk>. So I think all of you for joining us today to discuss the unaudited financial results for the quarter ended March 31 2020.
Joe Diaz: Thank you, Nick. Good morning and welcome to all. As Nick indicated, my name is Joe Diaz, and I'm with Litham Partners. We're the investor relations consulting firm for ImmuCell. I thank all of you for joining us today to discuss the unaudited financial results for the quarter ended March 31, 2024. Listeners are reminded and cautioned 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.
Joe Diaz: For listeners are reminded and cautioned 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 the steps the company plans to take in the future.
Joe Diaz: 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 with the press release and the Form 10-K that the company filed last night, along with the company's other periodic filings with the SEC.
Joe Diaz: <unk> are not guarantees of performance and are subject to risks and uncertainties that could cause actual results or 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 of our event.
Joe Diaz: <unk> is available under the cautionary note regarding forward looking statements or the safe Harbor statement provided with the press release and the Form 10-K that the company filed last night, along with the company's other periodic filings with the SEC.
Joe Diaz: Information discussed on today's call speaks only as of today, Wednesday, March 15, 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 through 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 to your questions.
Joe Diaz: Information discussed on today's call speaks only as of today Wednesday May 15, 2024, the company undertakes no obligations to update any information discussed on today's call.
Joe Diaz: 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 <unk> financial.
Joe Diaz: Performance with that said, let me turn the call over to Michael Brigham.
Speaker Change: <unk> and CEO of <unk> Corporation, after which we will open the call for your questions Michael.
Michael F. Brigham: Thanks Joe and good morning everyone. This is the story of the really good and a bit of the frustrated. With regard to the first quarter, I would like to speak about two financial disclosures that I think help demonstrate what we believe could be a critical turning point for our business. First, product sales were up 111% during the first quarter of 2024 compared to the first quarter of 2023, and sales were up 33% during the trailing 12 month period ended March 31, 2024 compared to the year. The trailing 12-month period ended March 31, 2023. So again, 111% quarter-over-quarter, 33% trailing 12 over trailing 12. This improvement is largely the result of increased production output.
Michael F. Brigham: Thanks, Joe.
Good morning, everyone. This is the story of the really good and the bit of the frustrating.
Michael F. Brigham: By implementing and optimizing a multi-year investment to increase our production capacity, we achieved $7.2 million in production during the first quarter of 2024, which annualizes to $28.7 million, or about 96% of our $30 million full-capacity S&P. This level of production remains our aspirational goal, but we do not expect that it can be repeated or exceeded on a regular basis. $7.3 million in sales recorded during the first quarter of 2024 represents an all-time quarterly sales record for us. The next highest quarter was $6 million recorded during the first quarter of 2022.
Michael F. Brigham: With regards to the first quarter I would like to speak about two financial disclosures that I think help demonstrate what we believe could be a critical turning point for our business.
Michael F. Brigham: Second, with those strong sales, we were able to turn earnings before interest, taxes, depreciation, and amortization, or EBITDA, of negative $1.6 million during the quarter ended March 31, 2023 into positive EBITDA of $377,000 during the quarter ended March 31, 2024. Additionally, our gross margin as a percentage of product sales improved from 9% during the quarter ended March 31, 2023 to 32% during the quarter ended March 31, 2024. But this is still well short of our 45% target; cash is tight.
Michael F. Brigham: <unk> product sales were up 111% during the first quarter of 2024 compared to the first quarter of 2023 and sales.
Michael F. Brigham: We're up 33% during the trailing 12 month period ended March 31, 2024 compared to the year.
The 12 month trailing 12 month period ended March 31, 2023, so again, 111% quarter over quarter, 33%.
Michael F. Brigham: Trailing 12 or trailing 12. This improvement is largely the result of increased production output by implementing an optimizing and multi year investment to increase our production capacity, we achieved $7 $2 million worth of production during the first quarter of 2024, which annualized is 220.
Michael F. Brigham: $8 7 million or about 96% of our 30 million full capacity estimate.
Michael F. Brigham: This level of production remains our aspirational goal, but we do not expect that is that it can be repeated or exceed it on a regular basis.
Speaker Change: The $7 3 million in sales recorded during the first quarter of 2024 represents an all time quarterly sales record for US. The next highest quarter was $6 million recorded during the first quarter of 2022.
Speaker Change: Second with those strong sales, we were able to turn earnings before interest taxes, depreciation and amortization or EBITDA of negative $1 6 million. During the quarter ended March 31, 2023 to positive EBITDA.
Speaker Change: 377000 during the quarter ended March 31 2024.
Speaker Change: Gross margin as a percentage of product sales improved from 9% during the quarter ended March 31, 23% to 32% during the quarter ended March 31 2024.
Speaker Change: But this is still well short of our 45% target.
Michael F. Brigham: In response, we have frozen certain capital expenditure investments for the time being, but we have no draw outstanding on our 1 million line of credit that is available to us until September of 2025. So that is the big picture. With regard to the other financial results, the press release provides the full unaudited P&L results and some unaudited summary balance sheet data. Further, our Form 10-Q provides all the unaudited financial details and management discussion and analysis.
Speaker Change: Cash is tight in response, we have frozen certain capital expenditure investments for the time being but we have no draw outstanding on our 1 million line of credit that is available to us until September of 2025.
Speaker Change: So that is the big picture with regards to the other financial results. The press release provides the full unaudited P&L results and some on audited summary balance sheet data further our Teng Form 10-Q provides all the unaudited financial details and management's discussion and analysis I will not take our time on.
Michael F. Brigham: I will not take our time on this call to review all that in detail, but I would like to add that we have been driven by data as we remediate the contamination events that have plagued us recently. Improvements made throughout our production process are allowing us to come back into full production. We believe that the operational improvements implemented are allowing us to run more effectively at a higher output level going forward. To be successful, we must avoid future significant contamination events and equipment breakdowns and operate with good production yields.
Speaker Change: This call to review all that in detail.
Speaker Change: I would like to add that we have been driven by data as we remediate the contamination events that have plagued us recently improvements made throughout our production process are allowing us to come back into full production. We believe that the operational improvements implemented are aligned and that's allowing us to run more effectively at a higher output level going forward.
Speaker Change: To be successful, we must avoid future significant contamination events and equipment breakdowns and operate with good production yield.
Speaker Change: So we will remain focused on the commercial opportunity we have with first defense, but as is often the case in a regulatory approval process. We are frustrated by yet another regulatory delay in our effort to bring retained market. The F. D. A recently issued a CMC technical section.
Michael F. Brigham: So we will remain focused on the commercial opportunity we have with First Defense, but, as is often the case in a regulatory approval process, we are frustrated by yet another regulatory delay in our effort to bring Retain to market. The FDA recently issued a C&C Technical Section incomplete letter in response to our third submission of the C&C Technical Section for Retain. According to the incomplete letter, the FDA has provided some minor questions about our submission requiring a fourth submission of the CMC technical section, which is typically subject to a six-month review. However, the FDA has indicated that this resubmission potentially could be handled through a shortened review period because the open items are not complex.
Speaker Change: Action incomplete letter in response to our third submission of the CMC technical section for retain.
Speaker Change: Pursuant to the incomplete letter the FDA has provided some minor questions about our submission requiring a fourth submission of the CMC technical section, which is typically subject to a six month review. However, the FDA has indicated that this resubmission essentially could be handled through a shortened review period because of the item open eyes.
Speaker Change: <unk> are not complex.
Speaker Change: Most critical to the timeline. However is that the FDA has also required that we not resubmit the CMC technical section until the inspection observations at the facilities of our drug product contract manufacturer or resolved.
Michael F. Brigham: Most critical to the timeline, however, is that the FDA has also required that we not resubmit the CMC technical section until the inspectional observations at the facilities of our drug product contract manufacturer are resolved. Given the unique facts and circumstances, we are working with the FDA and our drug product contract manufacturer to obtain an expedited review. This is part of the process, and we are continuing to move forward. 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 without FDA-required milk discard or meat withhold claims.
Speaker Change: Given the unique facts and circumstances, we were working with the FDA and our drug product contract manufacturer to obtain an expedited review. This is part of the process and we are continuing to move forward.
Speaker Change: 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 without FDA required milk discard or meat withhold claims.
Speaker Change: So lastly, 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. Our May update was just posted.
Michael F. Brigham: So lastly, 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. A May update was just posted to our website last night. See the Investors section of our website and click on the corporate presentation, or contact us for a copy.
Speaker Change: To our website last night see 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 the operator open up the lines. Please.
Michael F. Brigham: With that said, I'll be happy to take your questions. Let's have the operator open up the lines, please. Thank you.
Speaker Change: Thank you.
Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Again, if you have a question, please press star, then 1. Please hold while we queue for questions. The first question comes from Frank Gasker, a private investor. Please go ahead.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys.
Speaker Change: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: Okay.
Speaker Change: Again, if you have a question. Please press Star then one.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Please hold while we queue for questions.
Speaker Change: The first question comes from Frank <unk> private Investor. Please go ahead.
Speaker Change: Yeah.
Speaker Change: Well first of all Mike.
Frank Gasker: First of all, Mike. It's a sure relief having that kind of sales for the quarter. Bye-bye.
Speaker Change: Sure relief.
And then kind of sales for the quarter.
Speaker Change: Oh.
Speaker Change: Keep it up.
Michael F. Brigham: Yeah, I share that sentiment. Very exciting. Thank you.
Speaker Change: Yeah, I am sure that sentiment is very very exciting. Thank you.
Frank Gasker: My question deals with the [inaudible] and the offering. Could you clarify that in regards to the [inaudible] at the market and your How are you doing, everyone? Thank you. Thank you, designating or allowing a certain quantity at a time.
Speaker Change: My question deals with the.
Speaker Change: No shelf huh.
Speaker Change: And the offering.
Yeah.
Speaker Change: Clarify that in regards to.
Speaker Change:
Speaker Change: At the market and your.
How do you go.
Speaker Change: Yes.
Speaker Change: We're allowing a certain quantity.
Speaker Change: Our time.
Speaker Change: Yeah, Frank I think one of the big benefits of the ATM is its flexibility. So the answer to your question can change day to day week to week month to month I think the biggest distinction between the ATM instrument versus traditional more traditional offering as the traditional.
Michael F. Brigham: Yeah, Frank, I think one of the big benefits of the ATM is its flexibility. So the answer to your question can change day to day, week to week, month to month. I think the biggest distinction between the ATM instrument versus the traditional more traditional offering is the traditional offering would have gone out at Michael Brigham, Unknown Attendee, Joe Diaz, ImmuCell, Unknown Attendee, David Cunningham, to raise a little bit of money without the anticipated more significant discount, but I guess the short answer to your question is it is at management discretion and board discretion really on a day to day basis.
Speaker Change: The offering would have gone out at.
Speaker Change: Frankly, a significant discount to market and with this vehicle. We can just sort of a watch the market and make adjustments as appropriate. The downside is it takes a lot longer to raise some money because you just do it in certain nibbling at the market. So we kind of looked at that real hard.
Speaker Change: Around year end and going into the first quarter, and pros and cons and kind of decided this was a good opportunity to Turin.
Speaker Change: Tourism, a little bit of money without the anticipated.
Speaker Change: More significant discount, but I guess the short answer to your question is it is it is it.
Speaker Change: Management discretion board discretion really on a day to day basis.
Speaker Change: Okay.
Speaker Change: Okay.
Michael F. Brigham: Okay, I So some shares have, in fact, been authorized and sold. Yeah, so perhaps I should have included that in my comments, but it is in our disclosures. You can see that in both the financial footnotes, there's an equity section footnote, then there's a subsequent event footnote, and then in the very beginning of the MD&A, really, the three places repeat the same information about $300,000 has been raised gross gross proceeds. Okay, I did see that, and as far as you do not disclose, do you? Unknown Speaker, when in fact, you are selling or not selling?
Speaker Change: So some shares have in fact been.
Speaker Change: Oh awesome. So yeah. So perhaps I should have included that in my comments, but it is in our disclosures you can see that are in both the financial footnotes Theres a equity section a footnote then there is a subsequent event footnote and then in the very big.
Speaker Change: <unk> of the MD&A really the three places repeat the same information about $300000 has been raised our gross gross proceeds.
Speaker Change: Okay I did see that.
[laughter].
Speaker Change: As far as.
Speaker Change: You do not disclose or.
Speaker Change: Do you.
Speaker Change:
Speaker Change: When in fact, you are selling or not selling.
Speaker Change: Well the board.
Michael F. Brigham: Um, well, the board Through me, the board communicates to the banker and sets thresholds of both volume and price. And I think through our quarterly reports, we would report the results of that. Interaction with that activity.
Speaker Change: No.
Speaker Change: Through me the board communicates to the banker and set thresholds of both volume and price.
Speaker Change:
Speaker Change: And I think through our quarterly I know through our quarterly reports, we would report the results of that.
Speaker Change: Interaction in that activity.
Speaker Change: Okay.
Frank Gasker: You've answered.
Frank I: You've answered all my questions. Thank you very much alright, Thank you Frank.
Michael F. Brigham: Questions. Thank you very much. All right. Thank you, Frank.
Speaker Change: Yeah.
The next question comes from Michael Potter with Monarch Capital Group. Please go ahead.
Operator: The next question comes from Michael Potter with Monarch Capital Group. Please go ahead.
Michael F. Brigham: Hey Michael, how are you doing? Hey, very well.
Michael F. Brigham: Hey, Michael how are you doing.
Michael F. Brigham: Hey, very well. Thank you.
Michael F. Brigham: Hey, very well thank you.
Michael F. Brigham: Yeah.
Michael F. Brigham: So certainly a mixed quarter.
Michael F. Brigham: So certainly a mixed quarter on the news front. Congratulations on operationally, obviously a kind of
On the news Franz Congratulations operationally obviously are.
Speaker Change: Kind of scratching my head on in regards to retain can you walk us through the inspection will.
Michael F. Brigham: Scratching my head in regards to retention. Can you walk us through the inspectional observation? What is the process here and the timeline? to get through this process?
Speaker Change: Observation, what what is the process here and the timeline.
Speaker Change: Okay.
Speaker Change: Yes.
Michael F. Brigham: Yeah, honestly, it is live, it is active, it is undetermined. There's going to be a lot of back and forth that we're not going to be party to. It's directly between the FDA and Norbrook, but Norbert does communicate very well with us, so we'll get, you know, status reports. But their ability to respond is that they're, at their discretion. I would add they're a big company, they have other products, they're motivated beyond just retain to get it right, and then once they do that, it will be up to the FDA to determine how quick they review and how quick they are and what the results of that review are. It's frustrating not to have a more definitive answer, but we just don't have that at this It's just very fresh.
Speaker Change: Yeah honestly it is.
Speaker Change: <unk> is active it is undetermined, there's going to be a lot of back and forth that we're not gonna be party to its directly between the F D. A N nor brook.
norberg: But norberg does communicate very well with us. So we will get you know status reports, but their ability to respond is that their their.
norberg: Their discretion I would add there that they're a big company they have other products they're motivated beyond.
norberg: Just retain.
norberg: To get it right and then once they do that it will be up to the FDA to determine how quickly review and how quickly.
And what the results of that review is so.
It's.
norberg: It is frustrating not to have a more definitive answer to that but we just don't have that at this point, it's just very very fresh.
norberg: Okay.
Michael F. Brigham: Okay, and when will we be notified by the FDA that they were not? Moving forward with the approval.
Speaker Change: And when when will be notified by the FDA that.
norberg: If they were not.
Speaker Change: Moving forward with the approval.
Michael F. Brigham: Yeah, it was right on the, as expected, right, right on the 180 point. And that was, uh... Well, I think we've even disclosed it, it's May 10.
Speaker Change: Yeah. It was right on the as expected right right on the the 180 point and that was.
Speaker Change: Well I think we'd even discloses may 10th.
Michael F. Brigham: This is May 10th, so this is all fresh, so we're just getting our arms around this go forward process.
Speaker Change: <unk> services. This is all fresh so we're just getting our arms around this the go forward.
Michael F. Brigham: Unknown Speaker Exactly right. That's what I meant by the good and the frustrating. The good, you pointed out the sales. You know, the frustrating is just, wow. We thought, you know, this was Transcribed by https://otter.ai This was the end stage late, late in the game, didn't didn't get didn't think we didn't get it complete. So yeah, very busy over the weekend, the week so far, and the coming week. So there will just be a lot of back and forth. How quickly can Norfolk respond? How effectively can it respond, and how quickly? Can the FDA, you know, concur?
Speaker Change: Exactly right, it's like going that's what I meant by the good and the frustrating the good you've pointed out the sales.
Speaker Change: The frustrating as this Wow, we thought this was.
This was then stage late late in the game.
Speaker Change: And.
Speaker Change: It didn't didn't didn't get we didn't get the complete so yeah very all over the weekend over the two weeks so far over the coming weeks. It will just be a lot of back and forth. How quickly can norbert respond how effectively can norfolk respond and how quickly.
Speaker Change: Can the F D a.
Speaker Change: Concur.
Speaker Change: Got it.
Michael F. Brigham: Okay. Thanks, Mike. We look forward to more information as you get it.
Michael F. Brigham: Okay. Thanks, Michael.
Speaker Change: Forward to a more information or do you Oh, you got it.
Michael F. Brigham: For sure. Thanks, Michael. Yep.
Michael F. Brigham: For sure Thanks, Michael Yes.
Speaker Change: The next question comes from May not Fernandez with Macdill Columbus. Please go ahead.
Operator: The next question comes from Maynard Fernandez with MacDill College, Columbus. Please go ahead.
Maynard Fernandez: Good morning. ICC has now achieved 95% of its maximum production volume but still has not turned a profit for the quarter. How can ICC turn a profit if not with 95% of production volume? That's the first question. The second question is, when do you project ICC will produce a profit?
Speaker Change: Good morning.
I assume she has now achieved 95% of maximum production volume, but still it's not turned to profit for the quarter, how can I actually see turn a profit if not with 95% of production volume. That's the first question second question is when do you project to produce a profit. Thank you.
Speaker Change: Yeah. That's a fair question Maynard the best answer I have as you know we are.
Maynard: First the first thing I turned to stay in the cash flows and I just look at the the depreciation so it's not a bottom line profit. It is cash flow positive when you look at EBITDA and that's obviously not a GAAP measure so that's not in the well the depreciation expenses in our GAAP.
Maynard: Reports.
<unk> EBITDA figure is just in our press release.
Maynard: So I think thats step one in a transition from from this.
Speaker Change: Product development retain drill.
Speaker Change: Driven loss to two cash flow and then then to P&L next but I didn't put a projection on the date for that it really.
Speaker Change: It really is a transition here that we're looking at 'twenty four is how how strong we can keep the sales how quickly we can reduce some expenses as this retained project that drives almost all of our product development expense as that moves from development to commercial so a lot of.
Speaker Change:
Speaker Change: Events in 24 to answer that question.
Speaker Change: Thank you for your answers.
Amanda: Thank you Amanda.
Speaker Change: Yeah.
Speaker Change: The next question comes from Sean Kirkwood with S. RK capital. Please go ahead.
Michael F. Brigham: Thank you.
Speaker Change: Hi, Mike Good morning.
Michael F. Brigham: Yeah, that's a fair question. The best answer I have is, you know, our first, the first thing I turn to is the statement of cash flows. And I just look at the depreciation. So while it's not a bottom-line profit, it is cash flow positive when you look at EBITDA. And that's obviously not a gap measure, so that's not in that while the depreciation expenses in our gap report. The EBITDA figure is just in our press release, so I think that's step one in a transition from this product development, and retention. [inaudible] So a lot of events in 24 to answer that question. Thank you for your answers.
Operator: The next question comes from Sean Kirkwood with SRK Capital. Please go ahead.
Speaker Change: Hey, John how are you.
Speaker Change: Good.
Sean Kirkwood: So I have a few questions about margins.
Speaker Change: From the 10-Q, it sounds like maybe it was yield that is causing margins to be lower than the 45% target.
John: Can you just kind of speak a little bit more detail about what is affecting those margins.
Speaker Change: Yeah. Your yield is always a big one and it is variable I mean, just a biological process.
Speaker Change: And we try and manage it as tight as possible, where they do go up and down it just the milk is our source raw material cows that produce it.
Speaker Change: You know I'm not.
Speaker Change: To digress too far, but one of our marketing positions that we take is that don't vaccinate. Your cows used first defense. So you don't have to be subject to the variability that is inevitable with the vaccine. The commercial vaccine response, so what our customers see on the commercial side, we see every day in our production plant. So it is variable.
Speaker Change: And and and the other factor.
Speaker Change: I would add to that is are these contaminations are expensive they did drag down the margin.
Speaker Change: And so moving forward with better yields and moving forward with.
Speaker Change: Lastly, our limited Contaminations would certainly improve the margin that's definitely the goal and I think we also.
Speaker Change: Need to accept the fact that the this is it this is a difficult product to make it is expensive to make I was looking at some numbers. Just last night, you know back before Tri Shield, we were $10 million company 10 million in sales Tri Shield has really changed our topline a lot of growth a lot of customer demand.
Speaker Change: <unk> coming from Tri shield, but it is more expensive to make so I.
Speaker Change: And while disappointed not surprised by the stress on the margin when you consider those.
Speaker Change: Those three factors, but I'd much rather be a multi format.
Speaker Change: Company with Tri shield than a smaller company with just the relatively less expensive bolus.
Speaker Change: Offering.
Speaker Change: Okay.
So.
I mean, it looks like contamination was only about 1% of the margin in the quarter.
Speaker Change: If I read that correctly, but how long is that.
Speaker Change: How do you improve margins from here to your target of 45%.
Speaker Change: Yeah, we're gonna push all those buttons.
Speaker Change: You know there are things, we can do to influence yield.
Speaker Change: And control the process controlling the process eliminates eliminates.
Speaker Change: Yeah.
Speaker Change: Some of it some of the hopefully eliminates or at least mitigate those contamination challenges and then volume.
Speaker Change: Just we have a lot of fixed cost higher volume over those fixed cost is always going to work in our favor.
Speaker Change: And yeah, it's certainly a priority, but you know I I respect the question and it is a it is a management goal to get that percentage.
Speaker Change: But I also have to balance that with the the dollars we don't pay the bills with percentages, we pay it with dollars and we need more gross margin dollars to pay the bills and to get back to Maynard's question get back to profitability I'm you know.
Speaker Change: It's total dollars and even if that comes with a slightly less margin that.
Speaker Change: That made it that that made it I think that's what that is.
Speaker Change: Better alternative than being that that bolus company at $10 million.
Speaker Change: Okay I mean so.
Yeah.
Speaker Change: Like these are these margins are historically much lower than say what you even did in your highest quarter of 2022.
Speaker Change: Do you see any improvement moving forward, what what should we expect going forward in Q2, and the remainder of the year.
Speaker Change: Is this a new normal of 33% margin.
Speaker Change: Yeah.
Speaker Change: Well, yeah the improvement the first step as I mentioned, both in the call and in the filings is moving off that disaster is nine to 32. So now the huge focus is how how quickly and how close can we move from 32 to 45.
Speaker Change: You know, we do always talk about.
Speaker Change: The gross margin GAAP percentage, but the other thing I do look at as a.
Speaker Change: Again.
Speaker Change: Cash and depreciation is a component of our cost of goods I'd be happy with it.
Speaker Change: With the near 45% margin that could be 45, when you when you remove the noncash depreciation so.
Speaker Change: Well, we're looking at that does that that measure the cash flow measure in all of those buttons to to increase that yield. So you know what it.
Speaker Change: It is a future looking thing it would be subject to the performance and subject to future disclosures, how quickly and how close can we moved from 32 33 to 45 at least 45.
Speaker Change: Before depreciation.
Speaker Change: Right I I mean is there any improvement.
Speaker Change: As of today from the first quarter or what we're still looking at 32%.
Speaker Change: Yeah, The center may not satisfy Sean but it is the truth is we really.
Speaker Change: The costing the production processes, so complex, we get it we get it.
Speaker Change: Our view as it with our auditors quarterly there's really not a weekly or monthly way to accurately measure that we can watch certain metrics as they expect and anticipate certain trends, but I mean this is a six month production process. So the best answer to that is is core.
Speaker Change: The quarterly and in interim views are not disclosed because theyre just not accurate.
Okay. That's fair I appreciate the details thank you.
Sean Kirkwood: Well, Sean Thank you.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Mr. Joe Diaz for any closing remarks.
Sean Kirkwood: Hi Mike, good morning.
Michael F. Brigham: Hey there John, how are you?
Sean Kirkwood: So I have a few questions about margins. And from the time queue, it sounds like maybe it was yield that is causing margins to be lower than the 45% target. Can you just kind of speak a little bit more detail about what is affecting those margins?
Nick: Thanks, Nick and thank all of you for joining on today's call.
Michael F. Brigham: You know yield is always a big one and it is variable. I mean, just a biological process, and we try and manage it as tight as possible, but they do go up and down. Milk is our source raw material cows that produce it. You know, not to digress too far, but one of the marketing positions that we take is that don't vaccinate your cows, use first defense, so you don't have to be subject to the variability that is inevitable with a vaccine, the commercial vaccine response. So what our customers see on the commercial side, we see every day in our production. So it is quite variable.
Michael F. Brigham: And the other factor I would add to that is these contaminations are expensive. They drag down the margin. And so moving forward with better yields and moving forward with lesser or limited contaminations would certainly improve the margin. That's definitely the goal.
Michael F. Brigham: And I think we also need to accept the fact that this is a difficult product to make. It is expensive to make. I was looking at some numbers just last night, you know, back before Tri-Shield, we were a $10 million company, 10 million in sales. Tri-Shield has really changed our top line. There is a lot of growth, and a lot of customer demand coming from Tri-Shield, but it is more expensive to make.
Michael F. Brigham: So I'm not, well, disappointed or surprised by the stress on the margin when you consider those three factors. But I'd much rather be a multi-format company with TriShield than a smaller company with just the relatively less expensive bolus option.
Speaker Change: Look forward to talking with you again to review the results of the second quarter, which ends on June 32024, and that will be sometime during the week of August 12. So thank you for your time have a great day.
Sean Kirkwood: Okay, so I mean, it looks like contamination was only about 1% of the margin in the quarter. If I read that correctly, but how does the How do you improve margins from here to your target of 45%?
Michael F. Brigham: Yeah, we're going to push all those buttons there. You know, there are things we can do to influence yield and control the process. Controlling the process eliminates some, some hopefully eliminates or at least mitigates those contamination challenges. And then volume, you know, we have a lot of fixed costs; higher volume over those fixed costs is always going to work in our favor. And yeah, it's certainly a priority. But you know, I respect the question, and it is a management goal to get that percentage.
Michael F. Brigham: But I also have to balance that with the dollars. We don't pay the bills with percentages. We pay them with dollars. And we need more gross margin dollars to pay the bills and, to get back to Maynard's question, get back to profitability. It's total dollars. And even if that comes with a slightly lower margin, I think that's a better alternative than being that boldest company at $10 million.
Sean Kirkwood: Okay, I mean, these margins are historically much lower than say what you even did in your highest quarter of 2022. Do you see any improvement moving forward? What should we expect? You know, going forward in Q2 and the remainder of the year? Is this a new normal of 33% margin?
Michael F. Brigham: Well, yeah, the improvement, the first step, as I mentioned, both in the call and in the filings, is moving off that disastrous nine to 32. So now the huge focus is how quickly and how close can we move from 32 to 45.
Michael F. Brigham: You know, we do always talk about the gross margin gap percentage. But the other thing I do look at is, again, cash and depreciation is a component of our cost of goods. I'd be happy with it, with a near 45% margin that could be 45% when you remove the non-cash depreciation. So we're looking at that measure, the cash flow measure, and all those buttons to increase that yield. So, you know, it is a future-looking thing. It will be subject to performance and subject to future disclosures. How quickly and how close can we move from 32%, 33% to 45%, at least 45% before depreciation?
Sean Kirkwood: Right. I mean, is there any improvement as of today from the first quarter, or are we still looking at 32%?
Michael F. Brigham: Yeah, this answer may not satisfy you, Sean, but it is the truth that we really The costing, the production process is so complex, we get a view, as with our auditors, quarterly. There's really not a weekly or a monthly way to accurately measure that. We can watch certain metrics and expect and anticipate certain trends, but this is a six-month production process, so the best answer to that is quarterly to quarterly, and interim views are not disclosed because they're just not accurate.
Joe Diaz: Thanks, Nick. And thank all of you for joining us on today's call. We look forward to talking with you again to review the results of the second quarter, which ends on June 30, 2024. And that'll be sometime during the week of August 12. So thank you for your time. Have a great day.
Sean Kirkwood: Okay, that's fair. I appreciate the details. Thank you.
Sean Kirkwood: Cool, Sean. Thank you.
Joe Diaz: This concludes our question and answer session. I would like to turn the conference back over to Mr. Joe Diaz for any closing remarks.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].