Q2 2024 ImmuCell Corp Earnings Call
Speaker Change: Good morning and welcome to the In You Sell Corporation Reports second quarter and the June 30, 2024, unaudited financial results conference call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions.
Operator: second quarter and the June 30th, 2024, unaudited financial results conference. All participants will be in listen-only mode.
Operator: Second quarter, and the June 30th, 2024, unaudited financials conference call. All participants will be in listen-only mode. Today's presentation; there will be an opportunity to ask questions. Please note this event is being recorded.
Operator: At today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I'll now like to turn the comms to call over to Joe Diaz of Lithium Partners. Please go ahead.
Joe Diaz: I would now like to turn the comments to call over to Joe Diaz of List of Partners. Please go ahead.
Speaker Change: Please note this event is being recorded. I would now like to turn the conference call over to Joe Diaz of Lift and Partners. Please go ahead.
Joe Diaz: Thank you, Anthony.
Joe Diaz: Thank you, Anthony. Good morning and welcome. Anthony said my name is Joe Diaz with Lesham Partners, we're the investor relations consulting firm. Or, I thank all of you for joining us today to discuss the unaudited financial results for the quarter and for June 30, 2020. The listeners are reminded to exercise caution. [inaudible] 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: Good morning and welcome, Anthony. Indicated my name is Joe Diaz with List of Partners, where the investor relations consulting firm or ImmuCell. I thank all of you for joining us today to discuss the unaudited financial results for the quarter and the June 30th, 2024. The 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. 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.
Joe Diaz: Thank you, Anthony. Good morning and welcome. As Anthony indicated, my name is Joe Diaz with Litham Partners. We're the investor relations consulting firm for ImmuCell.
Speaker Change: I thank all of you for joining us today to discuss the unaudited financial results for the quarter ended June 30, 2024.
Speaker Change: Listeners are reminded and cautioned that statements made by management during the course of this call include forward-looking statements.
Speaker Change: 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: These statements are not guarantees of performance and are subject to risks and uncertainties that could cause actual results 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 included with the press release and the form 10Q that the company filed last night, along with the company's other periodic findings with the SCC.
Speaker Change: 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.
Joe Diaz: 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 provided with the press release and the Form 10-Q that the company filed last night, along with the company's other periodic findings with the SEC. Information discussed on today's call speaks only as of today, Wednesday, August 14, 2024. The company undertakes no obligations 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 reconciliation 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.
Speaker Change: Additional information regarding forward-looking statements.
Speaker Change: and the risks and uncertainties that could impact future results, outcomes, or events is available under the cautionary note regarding forward-looking statements.
Speaker Change: provided with the press release and the Form 10-2 that the company filed last night, along with the company's other periodic filings with the SCC.
Joe Diaz: Information discussed on today's call speaks only as of today, Wednesday, August 14, 2024. The company undertakes no obligation to update any information discussed on this 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 to the most comparable gap financial measures in last night's press release in order to better assist you in understanding its financial status. 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. Thanks, Joe. And good morning, everyone.
Speaker Change: Information discussed on today's call speaks only as of today, Wednesday, August 14, 2024. The company undertakes no obligation to update any information discussed on today's call.
Speaker Change: Please note that references to certain non-GAAP financial measures may be made during today's call.
Speaker Change: 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 its financial performance.
Joe Diaz: With that said, let me turn the call over to Michael Bregum, President and CEO of MSL Corporation, after which we will open the call for your questions.
Michael Brigham: 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 for your questions. Michael.
Michael Brigham: Michael. Thanks, Joe.
Michael Brigham: I'm not going to take your time to review all the financial details during this call today. Those numbers and results are available to you at the summary level and last night's press release, and in much more detail in the form 10 Q that we also filed last night. I would like to point out that we had very strong top-line sales growth during the 3, 6 and 12 month periods ending June 30, 2024 in comparison to the same periods ending June 30, 2023. These results demonstrate that we have largely completed the production capacity expansion work that we have been investing in since 2022. During the six-month period and on June 30, 24, Finnish goods production was approximately $12.7 million.
Michael Brigham: Good morning, everyone. I'm not going to take your time to review all the financial details during this call today. Those numbers and results are available to you at the summary level in last night's press release and in much more detail in the form 10-Q that we also filed last night. I would like to point out that we had very strong cop line sales growth during the three, six, and 12 month periods and in June 30, 2024, in comparison to the same periods and in June 30, 2023. These results demonstrate that we have largely completed the production capacity expansion work that we have been investing in since 2022.
Michael Brigham: Thanks, Joe. And good morning, everyone.
Michael Brigham: I'm not going to take your time to review all the financial details during this call today. Those numbers and results are available to you at the summary level in last night's press release and in much more detail in the Form 10-Q that we also filed last night.
Michael Brigham: I would like to point out that we had very strong top-line sales growth during the 3, 6, and 12-month periods ended June 30, 2024, in comparison to the same periods ended June 30, 2023.
Michael Brigham: These results demonstrate that we have largely completed the production capacity expansion work that we have been investing in since 2022. During the six-month period ended June 30, 2024, finished goods production was approximately $12.7 million.
Michael Brigham: During the six month period and in June 30, 24 finished goods production was approximately $12.7 million. This level of output would annualize to approximately $25.4 million, or approximately 85% of our estimated $30 million annual full capacity target. This top line success has not been matched with adequate gross margin to the bottom line. Our gross margin as a percentage of product sales did improve from 19% during the six-month period in a June 30, 2023, to 28% during the six-month period in a June 30, 2024, but this is still well short of our 40% target. We incurred some significant product contamination events from late 22 to early 2024.
Michael Brigham: This level of output would annualize to approximately 25.4 million, or approximately 85% of our estimated 30 million annual full capacity target. However, this top line success has not been matched with adequate gross margin on the bottom line. Our gross margin as a percentage of product sales did improve from 19% during the six-month period ended June 30, 2023, to 28% during the six-month period ended June 30, 2024, but this is still well short of our 40% target. As we began to operate at this higher output level, we incurred some significant product contamination events from late 2002 to early 2024. We have thoroughly investigated these events.
Michael Brigham: This level of output would annualize to approximately 25.4 million, or approximately 85% of our estimated 30 million annual full capacity target.
Michael Brigham: This top-line success has not been matched with adequate gross margin to the bottom line. Our gross margin as a percentage of product sales did improve from 19% during the six-month period ended June 30, 2023.
Michael Brigham: to 28% during the six-month period ended June 30, 2024, but this is still well short of our 40% target.
Michael Brigham: As we began to operate at this higher output level, we incurred some significant product contamination events from late 22…
Michael Brigham: We have investigated these events thoroughly. Some of our problems were caused by an unusually high bio burden in our source raw material, which is classroom as we rapidly contracted with more source forms for more cows to meet anticipated demand. We believe that this front end problem has now been largely fixed; while it will require ongoing monitoring going forward. We also believe that some of the contamination was caused by equipment and processes that were not adequately optimized to run at the higher level of production output. The remediation of the contamination events required several adjustments, all within our USDA-approved outline of production.
Michael Brigham: to early 2024. We have investigated these events thoroughly. Some of our problems were caused by an unusually high bio-burden in our source raw material, which is colostrum, as we rapidly contracted with more source farms for more cows to meet anticipated demand.
Michael Brigham: Some of our problems were caused by an unusually high biological burden in our source raw material, which is colostrum, as we rapidly contracted with more source farms for more cows to meet anticipated demands. We believe that this front-end problem has now been largely fixed, while it will require ongoing monitoring going forward. We also believe that some of the contamination was caused by equipment and processes that were not adequately optimized to run at the higher level of production output.
Michael Brigham: We believe that this front-end problem has now been largely fixed, while it will require ongoing monitoring going forward.
Michael Brigham: We also believe that some of the contamination was caused by equipment and processes that were not adequately optimized to run at the higher level of production output. The remediation of the contamination events required several adjustments all within our USDA approved outline of production.
Michael Brigham: The remediation of the contamination events required several adjustments, all within our USDA-approved outline of production. We disclose the cost of scrap inventory in detail in our 10-Q filing, but it's not just the scrap that reduced our gross margin. It is also lower sales in the prior periods when we slow production to remediate the contamination. This missed sales data is also disclosed in our 10-Q filing and is the key reason we have not yet cleared the backlog of orders, which was set at $7.9 million as of August 6.
Michael Brigham: We disclose the cost of scrap inventory in detail in our 10-Q filing, but it's not just the scrap that reduced our gross margin. It is also the lower sales in the prior periods when we slow production to remediate the contaminations. This miss sales data is also disclosed in our 10-Q filing, and is the key reason we have not yet cleared the backlog of orders, which was set at 7.9 million as of August 6th. New remediation steps implemented during April of 2024 in response to the most recent contamination events appear to be very successful so far, because we have run without contamination since then and to the present.
Michael Brigham: We disclosed the cost of scrap inventory in detail in our 10-Q filing, but it's not just the scrap that reduced our gross margin, it is also the lower sales in the prior periods when we slow production to remediate the contaminations.
Speaker Change: This missed sales data is also disclosed in our 10-Q filing and is the key reason we have not yet cleared the backlog of orders, which was set at $7.9 million as of August 6th.
Michael Brigham: New remediation steps implemented during April of 2024 in response to the most recent contamination events appear to be very successful so far because we have run without contamination since then and to the present. For clarification, I'd like to confirm that throughout these contamination events, all products that were sold to market had passed final USDA release testing requirements. Like most other companies in this economy, we are facing challenging inflationary pressures on the cost of labor and components.
Speaker Change: New remediation steps implemented during April of 2024 in response to the most recent contamination events appear to be very successful so far because we have run without contamination since then and to the present.
Michael Brigham: For clarity, I'd like to confirm that throughout these contamination events, all product that was sold to market had passed final USDA release testing requirements. Like most other companies in this economy, we are facing challenging inflationary pressures on the cost of labor and components. This impacts just about everything we buy. In addition, the other cause of the gross margin deterioration is the production yield losses that we have incurred during this period. We have disclosed some specific targets that we are working on to improve process yield in the coming quarters. When I look back, I see this. I see something that is now very understandable.
Speaker Change: For clarity, I'd like to confirm that throughout these contamination events, all product that was sold to market had passed final USDA release testing requirements.
Speaker Change: Like most other companies in this economy, we are facing challenging inflationary pressures on the cost of labor and components.
Michael Brigham: This impacts just about everything we buy. In addition, the other cause of the gross margin deterioration is the production yield losses that we have incurred during this period. We have disclosed some specific targets that we are working on to improve process yield in the coming quarters.
Speaker Change: This impacts just about everything we buy. In addition, the other cause of the gross margin deterioration is the production yield losses that we have incurred during this period. We have disclosed some specific targets that we are working on to improve process yield in the coming quarters.
Michael Brigham: I see something that is now very understandable. After successfully running the same process for over 30 years, sudden growth is hard. We work with a high bioburden source material, that being farm milk. We needed to better control quality at the source of this growth. We have done that now. However, similar challenges were encountered in our processing as we pushed our well-established process and equipment harder. A natural reaction to contamination is to introduce more heat to reduce the bio-burden, but this heat also kills antibodies.
Speaker Change: When I look back I see this
Michael Brigham: After successfully running in the same process for over 30 years, sudden growth is hard. We work with a high bio-burden source material that being farm milk; we needed to better control quality at the source of this growth. We have done that now. Similar challenges were incurred in our processing as we pushed our well-established process and equipment harder. A natural reaction to contamination is to introduce more heat to reduce bio-burden, but this heat also kills antibodies. We are optimizing that mix to maintain acceptable bio-burden levels while also maximizing yield. We believe that the operational improvements implemented are allowing us to run more effectively at the higher output level going forward.
Speaker Change: I see something that is now very understandable.
Speaker Change: After successfully running the same process for over 30 years, sudden growth is hard. We work with a high-bio-burden source material, that being farm milk.
Speaker Change: We needed to better control quality at the source of this growth.
Speaker Change: We have done that now. Similar challenges were incurred in our processing as we pushed our well-established process and equipment harder.
Speaker Change: A natural reaction to contamination is to introduce more heat to reduce bioburden, but this heat also kills antibodies. We are optimizing that mix to maintain acceptable bioburden levels while also maximizing yield.
Michael Brigham: We are optimizing that mix to maintain acceptable bio-burden levels while also maximizing yields. We believe that the operational improvements implemented are allowing us to run more effectively at the higher output level going forward. To be successful, we must avoid future significant contamination events and equipment breakdowns and operate with good production yields. With those strong sales, we were able to improve earnings before interest, taxes, depreciation, and amortization, or EBITDA, from negative 2.2 million during the six-month period ended June 30, 2023 to negative EBITDA of $340,000 during the six-month period ended June 30, 2024. No doubt cash is tight.
Speaker Change: We believe that the operational improvements implemented are allowing us to run more effectively at the higher output level going forward.
Michael Brigham: To be successful, we must avoid future significant contamination events and equipment breakdowns and operate with good production yields. The first month period ended June 30, 2023, to negative EBITDA of 340,000 during the sixth month period ended June 30, 2024. No doubt cash is tight. In response, we continue to be prudent with our expense controls where possible, and we have frozen non-essential 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: To be successful, we must avoid future significant contamination events and equipment breakdowns and operate with good production yields.
Speaker Change: With those strong sales, we were able to improve earnings before interest, taxes, depreciation, and amortization, or EBITDA, from negative $2.2 million.
Speaker Change: during the six-month period ended June 30, 2023, to negative EBITDA of $340,000 during the six-month period ended June 30, 2024.
Michael Brigham: In response, we continue to be prudent with our expense controls where possible, and we have frozen non-essential 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: No doubt cash is tight. In response, we continue to be prudent with our expense controls where possible, and we have frozen non-essential capital expenditure investments for the time being.
Speaker Change: But we have no draw outstanding on our $1 million line of credit that is available to us until September of 2025.
Michael Brigham: So that's a big picture with regards to the other financial results. The press release provides the un audited P&L results and some audited summary balance sheet data. Further, our Form 10-Q provides all the un audited financial details and management's discussion and analysis. As I mentioned, I'll not take your time in this call to review all that in detail. We will remain focused on the commercial opportunity we have with First offense. As we work through what we see is the final steps of the regulatory process and an effort to bring retained to market. In May, the FDA issued a CNC technical section incomplete letter in response to our third submission of the CNC technical section for retained.
Michael Brigham: So that's the big picture. With regard to the other financial results, the press release provides the unaudited P&L results and some audited summary balance sheet data. Further, our Form 10-Q provides all the unaudited financial details and management's discussion and analysis.
Speaker Change: So that's the big picture. With regards to the other financial results, the press release provides the unaudited P&L results and some audited summary balance sheet data. Further, our Form 10-Q provides all the unaudited financial details and management's discussion and analysis.
Michael Brigham: As I mentioned, I won't take your time on this call to review all that in detail. Instead, we will remain focused on the commercial opportunity we have with FirstDefense as we work through what we see as the final steps of the regulatory process and our effort to bring Retain to market. In May, the FDA issued a CMC Technical Section incomplete letter in response to our third submission to the CMC Technical Section for Retainment.
Speaker Change: As I mentioned, I'll not take your time on this call to review all that in detail.
Speaker Change: We will remain focused on the commercial opportunity we have with First Defense as we work through what we see as the final steps of the regulatory process and our effort to bring Retain to market.
Speaker Change: In May, the FDA issued a CMC Technical Section Incomplete Letter in response to our third submission of the CMC Technical Section for Retain.
Michael Brigham: Pursuant to the incomplete letter, the FDA has provided some minor questions about our submission requiring a forced submission, 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. Most critical to the timeline, however, is that the FDA has also required that we not resubmit the CNC technical section until inspection observations at the facilities of our drug product contract manufacturer are resolved. Our contract manufacturer submitted its responses to the inspection observations in early July, given the unique facts and circumstances.
Michael Brigham: Subsequent to the incomplete letter, the FDA has provided some minor questions about our submission requiring a fourth submission, 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. Most critical to the timeline, however, is that the FDA has also required that we not resubmit the CMC technical section until inspectional observations at the facilities of our drug product contract manufacturer are resolved. Our contract manufacturer submitted its responses to the inspectional observations in early July.
Speaker Change: Pursuant to the incomplete letter, the FDA has provided some minor questions about our submission requiring a forced submission.
Speaker Change: 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: Most critical to the timeline, however, is that the FDA has also required that we not resubmit the CMC technical section until inspectional observations at the facilities of our drug product contract manufacturer are resolved.
Speaker Change: Our contract manufacturer submitted its responses to the inspectional observations in early July.
Michael Brigham: 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 an FDA-required milk discard or meat withhold label.
Michael Brigham: 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 the sub-clinical mass site is treated in today's dairy market with a novel alternative to traditional antibiotics, without an FDA-required milk discard or meat withhold label restrictions.
Speaker Change: Given the unique facts and circumstances,
Speaker Change: We are working with the FDA and our drug product.
Speaker Change: 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.
Speaker Change: Without an FDA-required milk discard or meat withhold label restrictions.
Michael Brigham: Lastly, I encourage you to review 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. An August update was just posted to our website last night. See the investor section of our website and click on corporate presentation or contact us for a copy.
Michael Brigham: Lastly, I encourage you to review 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 August update was just posted to our website last night. See the investor section of our website and click on corporate presentation or contact us for a copy.
Speaker Change: Lastly, I encourage you to review 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.
Speaker Change: An August update was just posted to our website last night. See the investor section of our website and click on corporate presentation or contact us for a copy.
Operator: With that, I will be happy to take your questions. Let's have the operator open up the line. We will now begin the question and answer session. To ask a question, you request a star, than wanting a telephone keypad. If you're using a speaker phone, please pick up your hands up before pressing the keys. To withdraw your question, please press star, then two. At this time, we'll pause momentarily to assemble our roster.
Operator: With that, I will be happy to take your questions. Let's have the operator open up the line. We will now begin the question and answer session. To ask the question, you're a star. Then why don't you tell us on the phone? If you're using a speakerphone, please pick up your handset before pressing the keys.
Speaker Change: With that, I will be happy to take your questions. Let's have the operator open up the lines.
Speaker Change: We will now begin the question and answer session.
Speaker Change: To ask a question, you may press star then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys.
Operator: To withdraw your question, please press star then 2. This time, we'll pause momentarily to summarize. Our first question will come from Tom Fox of Private Investment. You may now go. Good morning.
Speaker Change: To withdraw your question, please press star then 2.
Speaker Change: At this time, we'll pause momentarily to assemble our roster.
Speaker Change: John Zinckgraf, Paul Wainman, John Zinckgraf
Unknown Attendee: Our first question will come from Tom Fox, a private investor.
Speaker Change: Our first question will come from Tom Fox, a private investor. You may now go ahead.
Unknown Attendee: You may now go ahead.
Unknown Attendee: Good morning. Thank you for taking my question. I actually have a couple questions. My first one is our first offense. As I understand it, you guys get your main ingredient for the drug from the mother cow's milk after she gives birth. What I'm wondering is if there's a potential bottleneck here because you're getting it from an animal, not a machine, and you're getting it at a certain point in their life. On top of that, what is your relationship with these farms? Do you think that you'll be able to contract out more farms? If first the fence keeps growing, thank you.
Tom Fox: Thank you for taking my question. I actually have a couple questions. My first one, I don't know, first offense.
Tom Fox: Good morning. Thank you for taking my question. I actually have a couple questions. My first one...
Tom Fox: All right. As I understand it, you guys get your main ingredient for the drug from the mother cow's milk after she gives birth. Milk that she spits out after giving birth. What I'm wondering is if there's a potential bottleneck because you're getting it from an animal, not a machine. You're getting it at a certain point in their lives. On top of that, what is your relationship with these farms? Do you think that you'll be able to contract out more farms if First Offense keeps growing? Thank you. If you could just talk about all that,
Speaker Change: is our first offense.
Speaker Change: As I understand it, you guys get your main ingredient for the drug.
Speaker Change: from the mother cow's milk. [inaudible]
Speaker Change: after she gives birth.
Speaker Change: This is the milk that she spits out after giving birth. What I'm wondering is if there's a potential bottleneck here.
Speaker Change: because you're getting it from an animal, not a machine, and you're getting it at a certain point in their life.
Speaker Change: On top of that, what is your relationship with these farms? Do you think that you'll be able to contract out more farms if First Offense keeps growing? Thank you. If you could just talk on all that.
Michael Brigham: If you could just talk on all that.
Michael Brigham: Yeah, Tom, sure. Thanks. It's a good question. So you've got it right. That's the early milk right after she freshs, and it's called claustrum. It's really rich with antibodies. We hyper immunize those donor cows so that it's very specific antibodies to our target being equal Icrona rotavirus. We've been very successful at growing the quantity of milk we bring in. There's actually a disclosure.
Michael Brigham: Yeah. Yeah. Tom, sure.
Michael Brigham: Thanks. It's a good question. So yeah, you've got it right. That's the early milk, right after she freshens; it's called colostrum.
Speaker Change: Yeah, Tom, sure. Thanks. It's a good question. So yeah, you got it right. That's the early milk, right after she freshens called colostrum. It's really rich with antibodies. We hyper immunize those donor cows.
Michael Brigham: It's really rich in antibodies. We hyper-immunize those donor cows so that they have very specific antibodies to our target being E. coli, corona, and rotavirus. Well, we've been very successful at growing the quantity of milk we bring in. There's actually a disclosure, if you don't find it, sidebar with me; the page number will be right at the moment, but I did detail a little bit about the growth of that work and process inventory. So we are in really good shape with the quantity of the raw material, the colostrum, and the milk that we buy.
Speaker Change: So it's very specific antibodies to our target being E. coli, corona, rotavirus.
Speaker Change: Well, we've been very successful at growing the quantity of milk we bring in. There's actually a disclosure. If you don't find it, sidebar with me.
Michael Brigham: If you don't find it, sidebar with me on the page number with me, right? It's the moment. But I did detail a little bit about the growth of that work and process inventory. So we are in really good shape on the quantity of the raw material, the claustrum, the milk that we buy. I did discuss the challenges in growing those farms and those cows and those contracts. We did run through this contamination problem. We needed to assimilate our growth and training, quality standards, all that. I think we're in a much better position now on the quality and so good shape on the quantity and improved shape on the quality.
Speaker Change: I don't have the page number with me right at the moment, but I did detail a little bit about the growth of that work and process inventory. So we are, you know,
Speaker Change: Really good shape on that.
Speaker Change: quantity of the raw material, the colostrum, the milk that we buy.
Michael Brigham: And I discussed the challenges of growing those farms and those cows and those contracts. We did run through this contamination problem; we needed to assimilate our growth and training quality standards, all that. I think we're in a much better position now on the quality end. So, good shape on the quantity and improved shape on the quality.
Speaker Change: And I did discuss the challenges in growing those farms and those cows and those contracts.
Speaker Change: You know, we did run through this contamination probably needed to
Speaker Change: sort of assimilating our growth and, you know, training, quality standards, you know, all that.
Speaker Change: I think we're in a much better position now on that.
Speaker Change: Quality and so good shape on the quantity and improved shape on the quality. So I don't see that as a limit to our production growth.
Michael Brigham: So I don't see that as a limit to our production growth. Okay, thank you. That answers my question. I do have another question, kind of a quick one. Do you, I understand that you're a chief scientist. Tyler Gretzerling, John Zinckgraf, John Zinckgraf, John Zinckgraf. Do you guys have any plans? Yeah, I do. You're referring to Dr. Joe Krab.
Unknown Attendee: So I don't see that as a limit to our production growth. Okay. Thank you. That answers my question. I do have another question. Kind of quick one. Sure.
Speaker Change: Okay, thank you. That answers my question. I do have another question. It's kind of a quick one.
Unknown Attendee: I understand that your chief scientist retired recently. Do you guys have any plans to replace them?
Speaker Change: I understand that your chief scientist retired recently. Do you guys have any plans to replace him?
Michael Brigham: Yeah. You're referring to Dr. Joe Krab. I'm very pleased to maintain an open consulting relationship with him, but true. He could retire from full-time work. You know, he's the developer of First Defense. Going back to the early days of the first USDA approval. He's the initial developer of Retain. He did pass both of those projects on. First defense is into a production team now, and the retain is being run by Betsy Williams. She's our VP of Manufacturing Operations. So there was good transitions there, and we really do not have a large active new program. So our investment in product development outside of retain is very limited, and is managed by Dr. John Zincrap.
Michael Brigham: I'm very pleased to maintain an open consulting relationship with him, but it's true he could retire from full-time work. You know, he's the developer of First Defense going back to the early days of the first USDA approval and was the initial developer of Retain. He did pass both of those projects on to his students.
Speaker Change: Yeah. I... I...
Speaker Change: You're referring to Dr. Joe Crabb, I'm very pleased to maintain an open consulting relationship with him, but true, he did retire from full-time work.
Speaker Change: You know, he's the developer of FirstDefense, going back to the early days of the first USDA approval, he is the initial developer of Retain. He did pass both of those projects on, FirstDefense is into
Michael Brigham: First offense is into, you know, a production team now, and Retain is being run by Betsy Williams, who's our VP of manufacturing operations. So there were good transitions there, and we really do not have a large active new program. So our investment in product development outside of Retain is very limited and is managed by Dr. John Zincgraf.
Speaker Change: You know, a production team now, and the retain is being run by Betsy Williams, she's our VP of manufacturing operations, so there was good transitions there and
Speaker Change: We really do not have a large active new program, so our investment in product development outside of Retain is very limited, and it is managed by Dr. John Zinckgraf. He is our Director of Product Development.
Michael Brigham: He is our director of product development. So no, not to replace at the VP level or at the, you know, full-time level, but that team, that production team, Betsy's work, and John Zinckgraf's work really covers the science for us quite, quite well. Thank you for taking my questions about ImmuCell moving forward. Of course, yeah, thank you, Tom. Again, if you have a question, please press star then one. Our next question will come from George Melas with MKH Management. You may now go. Thank you. Good morning, Michael. Hi there, George. Good morning. Good morning.
Michael Brigham: He is our Director of Product Development.
Michael Brigham: So no, not to replace at the VP level or at the full-time level, but that team, the production team, Betsy's work and John Zincrap's work really cover the science force quite well.
Speaker Change: So, no, not to replace at the VP level or at the, you know, full-time level, but that team, that production team, Betsy's work and John Zinckgraf's work really cover our, the science for us quite well.
Unknown Attendee: Okay, thank you for taking my questions, and good luck to me. So I'm moving forward.
Speaker Change: Okay, thank you for taking my questions and
Operator: Of course, yeah, thank you, Tom. Again, if you have a question, please press star, then one.
Speaker Change: Good luck to ImmuCell moving forward.
Speaker Change: Again, if you have a question, please press star then 1.
George Melas: Our next question will come from George Melas with MKH Management. Give me now, go ahead. Thank you.
Speaker Change: Our next question will go from George Melas with MKH Management.
Michael Brigham: Good morning, Michael. Hi there, George. Good morning.
George Melas: You may now go ahead.
George Melas: Thank you. Good morning, Michael. Hi there, George. Good morning.
George Melas: I'm just trying to drill down a little bit more on the gross margin. And, and thank you for the, You know, for some of the clarity that you provide in the cues; it's interesting to read. Just trying to understand, it seems like the first quarter was really impacted by some of the previous contamination event of 23. The second quarter was less affected by contamination and maybe more affected by yield issues. In a nutshell, is that right? Or is that just to simplify things? Yeah, that's a good one, not too simple. That's generally true.
Michael Brigham: Just trying to drill down a little bit more of the gross margin. And thank you for some of the clarity that you provide in the cues. It's interesting to read. Just trying to understand, it seems like the first quarter was really impacted by some of the previous contamination events of 23. The second quarter was less affected by contamination and maybe more by yield issues. In a nutshell, is that right or is that just too simplifying? Yeah, that's a good, not too simple; that's generally true. I mean, we did that. I really think it is hard; the smaller the period, the harder the analysis.
George Melas: Good morning. I'm just trying to drill down a little bit more on the gross margin, and thank you for the...
Speaker Change: For some of the clarity that you provide in the cues, it's interesting to read.
Speaker Change: Just trying to understand, it seems like the first quarter was really impacted by some of the previous contamination events of 23. The second quarter was less affected by contamination and maybe more by yield issues.
Speaker Change: In a nutshell, is that right or is that just too simplified?
Michael Brigham: I mean, we did that, and I really think it is hard, the smaller the period, the harder the analysis, so I do prefer 6 over 3, but we do report quarterly, and if you're reading those numbers right, there was a bigger hit in 2Q than 1Q. Yeah, so I mean, a kind of combination of both. I don't know exactly how to separate contamination impact from yield impact, but I know for sure, contamination's got to go down, and yields got to go up, and that's what we were trying to speak to as far as progress and, you know, Unknown Speaker, Unknown Participant, Unknown Participant, Unknown Participant, Unknown Participant, Unknown Participant, Unknown Participant, Unknown Participant, Unknown Participant One of them is by sort of using, and the other one is introducing some new filter equipment, with a sort of improvement of 17% and 5% respectively.
Speaker Change: Yeah, that's a good, not too simple. That's generally true. I mean, we did that, that
Speaker Change: I really think it is hard, the smaller the period, the harder the analysis, so I do prefer six over three, but we do report quarterly and we do, you're reading those numbers right, there was a bigger hit in 2Q than 1Q.
Michael Brigham: So I do prefer six over three, but we do report quarterly. And I wanted that you're reading those numbers right. There was a bigger hit in 2Q than 1Q. Yeah, so I mean, kind of a combination of both. I don't know exactly how to separate contamination impact from yield impact, but I know for sure, contamination's got to go down and yields got to go up. And that's what we were trying to speak to as far as progress. And, you know, detail on status on both sides. Is that there? Okay.
Speaker Change: Yeah, so I mean, a kind of a combination of both. I don't know exactly how to separate contamination impact from yield impact. But I know for sure, contaminations got to go down and yields got to go up. And that's what we were trying to speak to as far as
Michael Brigham: There's, I don't know what page it is, but you talk about in the, in the, in the queue, you talk about some yield improvements that you have already sort of achieved. One of them is by sort of using key, and the other one was introducing some new filter equipment with sort of improvement of 17% and 5% respectively. Is that 17 points of margin, or is that 17% over what you have achieved previously? Yeah. No more of the latter. So you are in the page 35 area. I don't know if Tom is still with us, but the work and process question he asked is right above that.
Speaker Change: some yield improvements that you have already sort of achieved.
Speaker Change: One of them is by sort of reducing heat and the other one was introducing some new filter equipment.
Speaker Change: with sort of improvement of 17% and 5% respectively.
Michael Brigham: Is that 17 points of margin, or is that 17% over what you have achieved previously? Yeah, no more of the latter. So you are in the page 35 area. I don't know if Tom is still with us, but the work and process question he asked is right above that where we were talking about the inventory. And then, yeah, what's interesting about the 17%.
Speaker Change: Is that 17 points of margin or is that 17% over what you have achieved previously?
Speaker Change: Yeah, no more of the latter. So you are in the page 35 area. I don't know if Tom is still with us.
Michael Brigham: Where we were talking about the inventory. And then, yeah, what's interesting about the 17%? I mean, what's important about the 17% is we can identify; we know what that target is, but that's one that we have not had the technical fix to yet. But it is something that would give us. That much more at that filtration step of each week, you know, plus or minus an estimation range; that filtration step can be improved. And then that product still needs to be finished all the way through the rest of its sort of the early chasing, post-chasing filtration.
Speaker Change: The work-in-process question he asked is right above that, where we were talking about the... Yep.
Speaker Change: The inventory and then, yeah, what's interesting about the 17%, I mean, what's important about the 17% is we can identify it, we know what that target is, but that's one that we have not had the technical fix to yet. But it is something that would give us...
Michael Brigham: I mean, what's important about the 17% is that we can identify, we know what that target is, but that's one that we have not had the technical fix for yet, but it is something that would give us that much more at that filtration step of each week. You know, plus or minus an estimation range, that filtration step can be improved. And then that product still needs to be finished all the way through the rest of the process; it's sort of the early cheesemaking, post-cheesing filtration.
Speaker Change: That much more at that filtration step of each week.
Speaker Change: plus or minus an estimation range, that filtration step can be improved. And then that product still needs to be finished all the way through the rest of the, it's sort of the early cheesing, post-cheesing filtration. That product still needs to be finished through the production cycle.
Michael Brigham: That product still needs to be finished through the production cycle, formulated, and filled. So it's not I wasn't trying to suggest dropping 17 points from the bottom line, but 17% improvement on that liquid process step. So it means that if right now you have sort of an output there of 100, that output would move to 117. Is that what it is? Yeah. Yeah. And then incur the additional costs, labor, and materials to finish it.
Operator: Second Quarter, and the June 30th, 2024, Unaudited Financials Conference call. All participants will be in listen only mode. Today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded.
Michael Brigham: That product still needs to be finished through the production cycle, formulated, and filled. So it's not; I wasn't trying to suggest dropping 17 points to the bottom line, but 17% improvement on that liquid process step. So it means that if you right now you have sort of an output there of 100, that output would move 217, is that wouldn't it? Yeah. And then go and incur the additional cost, labor, and materials to finish it. But yeah, then each week would be in that fall part of like basically doing the same work and getting those extra 17 doses.
Speaker Change: I wasn't trying to suggest dropping 17 points to the bottom line, but 17% improvement on that liquid process step.
Joe Diaz: I would now like to turn the comments to call over to Joe Diaz of List of Partners. Please go ahead. Thank you, Anthony.
Joe Diaz: Good morning and welcome, Anthony, indicated my name is Joe Diaz with List of Partners where the investor relations consulting firm or ImmuCell. I thank all of you for joining us today to discuss the unaudited financial results for the quarter and the June 30th, 2024. The 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.
Speaker Change: So it means that if you right now you have sort of an output there of a hundred that
Speaker Change: Output would move to 117. Is that what it is? Yeah, and then go incur the additional costs, labor, and materials to finish it. But yeah, then each week we'd be in that ballpark of like basically doing the same work and getting those extra 17 doses.
Michael Brigham: But yeah, then each week we'd be in that ballpark of basically doing the same work and getting those extra 17 doses. Okay, and then. Maybe it's very hard to look at the crystal ball, and it's probably a little opaque and murky, but you still have a goal of 40% gross margin, including depreciation. Do you feel like you have the tools, the steps, the knowledge, the processes to get there? because you still have that goal. I mean, is there some sort of plan to get there that you can understand?
Unknown Attendee: Okay.
Michael Brigham: And then maybe looking at the very hard to look at the crystal ball, and it's probably a little opaque and murky, but you still have a goal of 40% gross margin, including depreciation. And do you feel like you have the pool, the steps, the knowledge, the processes to get there? Because you still have that goal. I mean, is there sort of a plan to get there that you can understand? I called out those two specific yield items because we do understand them well. One, I feel like we just now we have implemented the 5% or we've implemented and just need to see it be achieved and repeated.
Speaker Change: Okay, and then...
Speaker Change: Maybe looking at the, very hard to look at the crystal ball and it's probably a little opaque and murky but...
Speaker Change: You still have a goal of 40% gross margin, including depreciation, and
Joe Diaz: These statements are not guarantees of performance and are subject to risks and uncertainties that could cause actual results outcomes or events 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 provided with the press release and the form 10Q that the company filed last night along with the company's other periodic findings with the SEC.
Speaker Change: Do you feel like you have the tools, the steps, the knowledge, the processes to get there?
Speaker Change: Because you still have that goal. I mean, is there sort of a plan to get there that you can understand?
George Melas: I called out those two specific yield items because we do understand them well. One, I feel like we just now have implemented. The 5% is something that we've implemented and just need to see it achieved and repeated. 17 is still in the development stage with the manufacturer to find that solution. But I'm saying, these people sell equipment that's supposed to, you know, work well.
Speaker Change: I called out those two specific yield items because we do understand them well. One, I feel like we just now we have implemented the five percenter we've implemented and just need to see it be achieved and repeated.
Joe Diaz: Information discussed on today's call speaks only as of today, Wednesday, August 14, 2024. The company undertakes no obligations to update any information discussed on today's call. Please note that references to certain non-gap financial measures may be made during today's call. The company included definitions of these terms as well as reconciliation of these figures to the most comparable gap financial measures in last night's press release in order to better assist you in understanding its financial performance.
Michael Brigham: The 17 is still in the development stage with the manufacturer to find that solution. But I mean, these people sell equipment that's supposed to, you know, work well. We need to adopt it to our process and make it work 17% better. So that one way I need to hedge a little bit on because it hasn't happened yet. But I think both I pick those two. I mean, there's a laundry list, George. There's a lot of little things, but I pick those two because they're significant and because they're identifiable. And yes, I think we can achieve both of those.
Speaker Change: The 17 is still in the development stage with the manufacturer to find that solution.
Michael Brigham: We need to adopt it into our process and make it work 17% better. So that one I need to hedge a little bit on because it hasn't happened yet. But I think both, I picked those two because, George, there's a laundry list. There are a lot of little things, but I picked those two because they're significant and because they're identifiable.
Speaker Change: These people sell equipment that's supposed to, you know, work well. We need to adopt it to our process.
Speaker Change: and make it work 17% better. So that one I need to hedge a little bit on because it hasn't happened yet. But I think both, I picked those two. I mean, there's a laundry list, George. There's a lot of little things, but I picked those two because they're significant.
Michael Brigham: And yes, I think we can achieve both of those. Okay, great. Okay. Best of luck. Thank you. Cool. Thanks, George. There appear to be no further questions. Part of Me.
Speaker Change: And because they're identifiable, and yes, I think we can achieve both of those.
Unknown Attendee: Okay, great. Okay. Best of luck. Thank you.
Michael Brigham: With that said, let me turn the call over to Michael Bregum, President and CEO of MSL Corporation after which we will open the call for your questions. Michael. Thanks, Joe. Good morning, everyone.
Michael Brigham: Cool. Thanks, George.
Speaker Change: Okay, great. Okay. Best of luck. Thank you. Cool. Thanks, George.
Operator: It appears there are no further questions, or part of me. If you have any other questions, please a star then one.
Operator: If you have any other questions, please, so star then what? Okay, there appears to be 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 thanks to all of you for participating in today's call. We look forward to talking with you again to review the results for the third quarter, which will end on September 30, 2024. And we'll do that during the week of November 11. Have a great day. Thanks again. The conference has now concluded. Thank you for attending today's presentation.
Speaker Change: It appears there are no further questions. Oh, pardon me. If you have any other questions, please press star then 1.
Michael Brigham: I'm not going to take your time to review all the financial details during this call today. Those numbers and results are available to you at the summary level in last night's press release and in much more detail in the form 10Q that we also filed last night. I would like to point out that we had very strong cop line sales growth during the three, six, and 12 month periods and in June 30, 2024 in comparison to the same periods and in June 30, 2023.
Joe Diaz: Is there a piece to be known for other questions? This concludes our question and answer session.
Speaker Change: i
Speaker Change: There appears to be 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.
Joe Diaz: I'd like to turn the comments back over to Joe Diaz for any closing remarks.
Joe Diaz: Thank you, Anthony, and thanks all of you for participating in today's call. We look forward to talking with you again to review the results of the third quarter, which will end on September 30, 2024. And we'll do that during the week of November 11th.
Speaker Change: Thank you, Anthony. And thanks all of you for participating in today's call. We look forward to talking with you again to review the results of the third quarter, which will end on September 30, 2024. And we'll do that during the week of November 11, 2024. Have a great day. Thanks again.
Michael Brigham: These results demonstrate that we have largely completed the production capacity expansion work that we have been investing in since 2022. During the six month period and in June 30, 24 finished goods production was approximately $12.7 million. This level of output would annualize to approximately $25.4 million or approximately 85% of our estimated $30 million annual full capacity target.
Operator: 2021, 2024. Have a great day. Thanks again. The conference has not concluded. Thank you for the presentation.
Operator: You may not.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Michael Brigham: This top line success has not been matched with adequate gross margin to the bottom line. Our gross margin as a percentage of product sales did improve from 19% during the six month period in a June 30, 2023 to 28% during the six month period in a June 30, 2024, but this is still well short of our 40% target. We incurred some significant product contamination events from late 22 to early 2024. We have investigated these events thoroughly.
Michael Brigham: Some of our problems were caused by an unusually high bio burden in our source raw material, which is classroom as we rapidly contracted with more source forms for more cows to meet anticipated demand. We believe that this front end problem has now been largely fixed while it will require ongoing monitoring going forward. We also believe that some of the contamination was caused by equipment and processes that were not adequately optimized to run at the higher level of production output.
Michael Brigham: The remediation of the contamination events required several adjustments all within our USDA approved outline of production. We disclose the cost of scrap inventory in detail in our 10 queue filing, but it's not just the scrap that reduced our gross margin. It is also the lower sales in the prior periods when we slow production to remediate the contaminations. This miss sales data is also disclosed in our 10 queue filing, and is the key reason we have not yet cleared the backlog of orders, which was set at 7.9 million as of August 6th. New remediation steps implemented during April of 2024 in response to the most recent contamination events appear to be very successful so far, because we have run without contamination since then and to the present.
Michael Brigham: For clarity, I'd like to confirm that throughout these contamination events, all product that was sold to market had passed final USDA release testing requirements. Like most other companies in this economy, we are facing challenging inflationary pressures on the cost of labor and components. This impacts just about everything we buy. In addition, the other cause of the gross margin deterioration is the production yield losses that we have incurred during this period. We have disclosed some specific targets that we are working on to improve process yield in the coming quarters.
Michael Brigham: When I look back, I see this, I see something that is now very understandable. After successfully running in the same process for over 30 years, sudden growth is hard. We work with a high bio-burden source material that being farm milk, we needed to better control quality at the source of this growth. We have done that now. Similar challenges were incurred in our processing as we pushed our well-established process and equipment harder.
Michael Brigham: A natural reaction to contamination is to introduce more heat to reduce bio-burden, but this heat also kills antibodies. We are optimizing that mix to maintain acceptable bio-burden levels while also maximizing yield. We believe that the operational improvements implemented are allowing us to run more effectively at the higher output level going forward.
Michael Brigham: To be successful, we must avoid future significant contamination events and equipment breakdowns and operate with good production yields.
Michael Brigham: The first month period ended June 30, 2023 to negative EBITDA of 340,000 during the sixth month period ended June 30, 2024. No doubt cash is tight. In response, we continue to be prudent with our expense controls where possible and we have frozen, non-essential 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.
Michael Brigham: So that's a big picture with regards to the other financial results. The press release provides the un audited PNL results and some audited summary balance sheet data. Further, our form 10Q provides all the un audited financial details and management's discussion and analysis. As I mentioned, I'll not take your time in this call to review all that in detail.
Michael Brigham: We will remain focused on the commercial opportunity we have with first offense. As we work through what we see is the final steps of the regulatory process and a effort to bring retained to market. In May, the FDA issued a CNC technical section incomplete letter in response to our third submission of the CNC technical section for retained. Pursuant to the incomplete letter, the FDA has provided some minor questions about our submission requiring a forced submission, which is typically subject to a six month review.
Michael Brigham: However, the FDA has indicated that this resubmission potentially could be handled through a shortened review period because the open items are not complex. Most critical to the timeline, however, is that the FDA has also required that we not resubmit the CNC technical section until inspection observations at the facilities of our drug product contract manufacturer are resolved. Our contract manufacturer submitted its responses to the inspection observations in early July given the unique facts and circumstances. We are working to 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.
Michael Brigham: Regardless, we remain poised and excited to revolutionize the way the sub-clinical mass site is treated in today's dairy market with a novel alternative to traditional antibiotics without an FDA required milk discard or meat withhold label restrictions.
Michael Brigham: Lastly, I encourage you to review 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 August update was just posted to our website last night, see the investor section of our website and click on corporate presentation or contact us for a copy.
Operator: With that, I will be happy to take your questions. Let's have the operator open up the line. We will now begin the question and answer session. To ask a question, you request a star than wanting a telephone keypad. If you're using a speaker phone, please pick up your hands up before pressing the keys. To withdraw your question, please press star then two.
Operator: At this time, we'll pause momentarily to assemble our roster.
Unknown Attendee: Our first question will come from Tom Fox, a private investor. You may now go ahead.
Michael Brigham: Good morning. Thank you for taking my question. I actually have a couple questions. My first one is our first offense. As I understand it, you guys get your main ingredient for the drug from the mother cow's milk after she gives birth. What I'm wondering is if there's a potential bottleneck here because you're getting it from an animal, not a machine, and you're getting it at a certain point in their life. On top of that, what is your relationship with these farms?
Michael Brigham: Do you think that you'll be able to contract out more farms? If first the fence keeps growing, thank you. If you could just talk on all that. Yeah, Tom, sure. Thanks. It's a good question. So you've got it right. That's the early milk right after she freshs and it's called claustrum. It's really rich with antibodies. We hyper immunize those donor cows so that it's very specific antibodies to our target being equal Icrona rotavirus.
Michael Brigham: We've been very successful at growing the quantity of milk we bring in. There's actually a disclosure. If you don't find it sidebar with me on the page number with me, right? It's the moment. But I did detail a little bit about the growth of that work and process inventory. So we are really good shape on the quantity of the raw material, the claustrum, the milk that we buy. I did discuss the challenges in growing those farms and those cows and those contracts.
Michael Brigham: We did run through this contamination problem. We needed to assimilate our growth and training, quality standards, all that. I think we're in a much better position now on the quality and so good shape on the quantity and improved shape on the quality. So I don't see that as a limit to our production growth. Okay. Thank you. That answers my question. I do have another question. Kind of quick one. Sure.
Michael Brigham: I understand that your chief scientist retired recently. Do you guys have any plans to replace them? Yeah. You're referring to Dr. Joe Krab. I'm very pleased to maintain an open consulting relationship with him, but true. He could retire from full-time work. You know, he's the developer of First Defense. Going back to the early days of the first USDA approval. He's the initial developer of retain. He did pass both of those projects on.
Michael Brigham: First defense is into a production team now, and the retain is being run by Betsy Williams. She's our VP of manufacturing operations. So there was good transitions there, and we really do not have a large active new program. So our investment in product development outside of retain is very limited, and is managed by Dr. John Zincrap. He is our director of product development.
Michael Brigham: So no, not to replace at the VP level or at the full-time level, but that team, the production team, Betsy's work and John Zincrap's work really cover the science force quite well.
Unknown Attendee: Okay, thank you for taking my questions, and good luck to me, so I'm moving forward. Of course, yeah, thank you, Tom. Again, if you have a question, please press star then one.
Unknown Attendee: Our next question will come from George Melas with MKH Management. Give me now, go ahead. Thank you.
Michael Brigham: Good morning, Michael. Hi there, George. Good morning. Just trying to drill down a little bit more of the gross margin. And thank you for some of the clarity that you provide in the cues. It's interesting to read. Just trying to understand, it seems like the first quarter was really impact that by some of the previous contamination event of 23. The second quarter was less affected by contamination and maybe more by yield issues.
Michael Brigham: In a nutshell, is that right or is that just too simplifying? Yeah, that's a good, not too simple, that's generally true. I mean, we did that. I really think it is hard, the smaller the period, the harder the analysis. So I do prefer six over three, but we do report quarterly. And I wanted that you're reading those numbers right. There was a bigger hit in 2Q than 1Q. Yeah, so I mean, kind of a combination of both.
Michael Brigham: I don't know exactly how to separate contamination impact from yield impact, but I know for sure, contamination's got to go down and yields got to go up. And that's what we were trying to speak to as far as progress. And, you know, detail on status on both both sides. Is that there? Okay. There's, I don't know what page it is, but you talk about in the, in the, in the queue, you talk about some yield improvements that you have already sort of achieved.
Michael Brigham: One of them is by sort of using key and the other one was introducing some new filter equipment with sort of improvement of 17% and 5% respectively. Is that 17 points of margin or is that 17% over what you have achieved previously? Yeah. No more of the latter. So you are in the page 35 area. I don't know if Tom still with us, but the work and process question he asked is right above that.
Michael Brigham: Where we were talking about the inventory. And then yeah, what's interesting about the 17%. I mean, what's important about the 17% is we can identify, we know what that target is, but that's one that we have not had the technical fix to yet. But it is something that would give us. That much more at that filtration step of each week, you know, plus or minus an estimation range, that filtration step can be improved.
Michael Brigham: And then that product still needs to be finished all the way through the rest of it's sort of the early chasing, post-chasing filtration. That product still needs to be finished through the production cycle formulated and filled. So it's not, I wasn't trying to suggest dropping 17 points to the bottom line, but 17% improvement on that liquid process step. So it means that if you right now you have sort of an output there of 100, that output would move 217 is that wouldn't it?
Michael Brigham: Yeah. And then go and incur the additional cost labor and materials to finish it. But yeah, then each week would be in that fall part of like basically doing the same work and getting those extra 17 doses. Okay.
Michael Brigham: And then maybe looking at the very hard to look at the crystal ball and it's probably a little opaque and murky, but you still have a goal of 40% gross margin, including depreciation. And do you feel like you have the pool, the steps, the knowledge, the processes to get there? Because you still have that goal. I mean, is there sort of a plan to get there that you can understand? I called out those two specific yield items because we do understand them well.
Michael Brigham: One, I feel like we just now we have implemented the 5% or we've implemented and just need to see it be achieved and repeated. The 17 is still in the development stage with the manufacturer to find that solution. But I mean, these people sell equipment that's supposed to, you know, work well. We need to adopt it to our process and make it work 17% better. So that one way I need to hedge a little bit on because it hasn't happened yet.
Michael Brigham: But I think both I pick those two, I mean, there's a laundry list, George. There's a lot of little things, but I pick those two because they're significant and because they're identifiable. And yes, I think we can achieve both of those. Okay, great. Okay. Best of luck. Thank you. Cool. Thanks, George. It appears there are no further questions, or part of me, if you have any other questions, please a star then one. Are there a piece to be known for other questions?
Operator: This concludes our question and answer session.
Joe Diaz: I'd like to turn the comments back over to Joe Diaz for any closing remarks. Thank you, Anthony, and thanks all of you for participating in today's call. We look forward to talking with you again to review the results of the third quarter, which will end on September 30, 2024. And we'll do that during the week of November 11th. 2021, 2024.
Operator: Have a great day. Thanks again. The conference has not concluded. Thank you for the presentation.
Operator: You may not.