Q3 2024 ImmuCell Corp Earnings Call
Yeah.
Speaker Change: Good morning, and welcome to our New cell Corporation reports third quarter.
Speaker Change: September 30, so only 24 unaudited financial results conference call.
Speaker Change: All participants will be in listen only mode. After.
Speaker Change: After today's presentation there'll be an opportunity to ask questions.
Speaker Change: Note. This event is being recorded.
Speaker Change: I would now like to turn the conference call over to Joe Diaz of Lytham Partners. Please go ahead.
Joe Diaz: Oh, Thank you Wyatt and good morning, and welcome to everybody on today's call.
Joe Diaz: As the conference call Operator indicated my name is Joe Diaz with Lytham partners, we are the Investor relations consulting firm for Michelle.
Joe Diaz: And thank all of you for joining us today to discuss <unk>.
Joe Diaz: Financial results for the quarter ended September 32024.
Joe Diaz: As a reminder, any cautioned that statements made by management. During the course of this call include forward looking statements, which include any statements that refer to future events or expected future results or predictions about the 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 are.
Joe Diaz: 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.
Joe Diaz: Outcomes of our events is available under the cautionary note regarding forward looking statements or the safe Harbor statement provided with the press release and our 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 Thursday November 14, 2024, the company undertakes no obligation to update any information discussed on today's call. Please note that references to certain non-GAAP financial measure may be made during today's call.
Joe Diaz: The company included definitions of these terms as well as reconciliations of these figures.
Joe Diaz: The comparable GAAP financial measures in last Night's press release in order to better assist you in understanding its financial performance.
Speaker Change: With that said, let me turn the call over to Michael Brigham President and CEO of N B cell Corporation, after which we will open the call question Michael.
Michael Brigham: Hey, alright, thanks, Joe and good morning, everyone.
Michael Brigham: I'm excited to say that for a few reasons first I say that because someone told me that my voice does not always demonstrate that.
Michael Brigham: Please judge My Judge me on my words in our disclosures I'm excited to have a really difficult period largely behind us.
Michael Brigham: The best evidence of that is that we have not had another contamination of our production process. Since the first half of April of 'twenty 'twenty four.
Michael Brigham: We have a great opportunity to increase 2024 sales over both 2020, three and 2022.
We can see the potential of achieving FDA approval of retain around the corner. After all these years of investment and we are eager to find out what the market thinks of our new novel product.
Michael Brigham: We are fortunate to be experiencing strong customer demand for the first defense product line, but the significant investments in facilities equipment and staffing necessary to double our production capacity have been challenging despite delays in the installation of certain equipment. We completed these capacity expanding.
Michael Brigham: Around the end of 2022 around the same time as we began to operate at this higher output level, we began experiencing a production contamination events that became more frequent during 2023 and continued into April of 'twenty 'twenty. Four we are investigating these events thoroughly we were optimizing raw.
Michael Brigham: A real mix to maintain acceptable bio burden levels. While also maximizing yields. We also believe that some of the contamination was caused by equipment and processes that were not adequately optimized to run at a higher level of production output. These new remediation steps implemented during April of 'twenty, 'twenty four and risk.
Michael Brigham: Sponsor the most recent contamination events appear to be very successful so far because as I said, we have run with out Contaminations since then and so the present.
Michael Brigham: We do not see one smoking gun is the root cause of the contamination and you'll losses. We think the solution is more about optimizing and controlling critical process parameters of multiple production input some process steps the remediation steps of the contamination events required several adjustments all within our U S D. A.
Michael Brigham: Proved outline of production further I.
Michael Brigham: I would like to confirm that throughout these contamination contamination events all product that was sold the market had passed final USDA released testing requirements.
Michael Brigham: When I look back I see something that is now very understandable after successfully running the same process for over 30 years sudden growth is hard.
Michael Brigham: We work with a high bio burden source material that being farm milk, we needed to better control.
Michael Brigham: The quality of the source of this growth we are doing that now similar challenges were incurred in our downstream processing as we pushed our well established process and equipment harder we believe that the operational improvements implemented are allowing us to run more effectively at a higher output level going forward.
Michael Brigham: To be successful, we must avoid future consent significant contamination events and equipment breakdowns and operate with good production yields.
Michael Brigham: So turning to the P&L results product sales increased by 11%, 51% and 46% during the three nine and 12 month periods ended September 30 2024, respectively.
Michael Brigham: Comparison to the same periods ended September 32023.
Michael Brigham: This helped us reduce the order backlog to $6 8 million as of October 30th.
Michael Brigham: This is exciting but this topline success has not been matched with adequate gross margin to the bottom line like most other companies in this economy, we were facing challenging inflationary pressures on the cost of labor on components. Then this impacts just about everything we buy in addition, the other cause of the gross margin deterioration.
Michael Brigham: In their production yield losses that we've incurred during excuse.
Speaker Change: Excuse me.
Speaker Change: And I just wanted to say this impacts just about everything whereby in addition, the other cause of the gross margin deterioration is the production yield losses, we have incurred during the recent periods I've been said, our gross margin as a percentage of product sales did improve from 23%, 26% during the comparable three months.
Speaker Change: <unk> from 21% to 27% during the comparable nine months periods and from 22% to 27% during the comparable 12 month periods, but this is still well short of our 35% to 40% target.
Speaker Change: We do believe that by both Remediated, the contamination contamination events and optimizing the operation of the new equipment installed to increase production out, but we can improve processes oleds beginning during the fourth quarter of 'twenty four and into 'twenty five.
Speaker Change: These strong sales, we were able to improve earnings before interest taxes, depreciation and amortization or EBITDA from negative 95000. During the three months period ended September 30, 'twenty two 'twenty three to positive EBITDA of 119000 during the three months period ended September.
Speaker Change: Timber 30, 'twenty 'twenty, four and we did reduce negative EBITDA of $2 3 million. During the nine month period ended September 30, 2023 to negative 221000 during the nine month period ended September 32024.
Speaker Change: We have decided that some stockholder dilution is necessary in order to improve our cash position to that end our at the market offering has contributed meaningfully to our capital needs. During 'twenty 'twenty four and has helped us improve our cash position from just 979000 as of dish.
Speaker Change: <unk> 31, 23 to approximately $3 8 million as of September 32024, as we stabilize our production systems at a higher output level.
Speaker Change: Currently we are reducing product development expenses as we await approval of retained by the F. D. A.
Speaker Change: After an investment of about 25 years and approximately $50 million in the development of this technology. We are committed to seeing this product through to regulatory approval in the.
Speaker Change: The initiation of our previously disclosed limited distribution controlled launch strategy at the same time. We were also in the very early stages of exploring potential strategic partnerships that could offset some of our product development expenses and enhance a mass market launch of retain.
Speaker Change: So we will remain focused on the commercial opportunity we have our first defense as we work through what we see as the final stages of the regulatory approval process and our effort to bring retain the market.
Speaker Change: In may.
Speaker Change: The FDA issued a CMC technical section complete letter in response to our third submission of the CMC technical section for retain pursuant to the incomplete letter. The FDA has provided some minor.
Speaker Change: Questions about our submission requiring a four 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.
Speaker Change: Most critical to the timeline however.
Speaker Change: Is that the FDA has also required though we're not resubmit the CMC technical section until inspection observations at the field facilities of our drug product contract manufacturer or resolved given the unique facts and circumstances, we were working with the FDA and our drug product contract manufacturer to obtain an expedited.
Speaker Change: We view this as 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 is dairy market with a novel or alternative to traditional antibiotics without F. D a required.
Speaker Change: Milk discard or meat withhold label restrictions.
Speaker Change: So that's the big picture are we with regards to the.
Speaker Change: The other financial results. The press release provides the unaudited P&L results and some on audited summary balance sheet data further our Form 10-Q provides all the unaudited financial details and management's discussion and analysis.
Speaker Change: We'll now take our time on this call to read all that in detail.
Speaker Change: But just lastly, I encourage you to review our corporate presentation slide deck I do believe it provides a very good summary of our business and objectives as well as our current financial results.
Speaker Change: Hey November update was just posted to our website last night see the investors section of our website and click on corporate presentation or contact us for a copy of that said I'd be very happy to take your questions. Let's have the operator open up the lines. Please.
Speaker Change: Yeah.
Speaker Change: Now I'll begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
Speaker Change: 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 two.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Hey, Michael.
Speaker Change: This is Joe Diaz I did have a question while the Q start filling up.
Speaker Change: With regards to shell.
Speaker Change: First defense.
Speaker Change: The business has been strong what do you what do you attribute that to.
Speaker Change: The product works I mean efficacy rules I mean, we just have.
Speaker Change: Have a great customer demand for this product, we're competing very effectively against alternative technologies, primarily vaccines vaccines that are either given to the mother to try and I'll say somewhat unsuccessfully improve her production of antibodies in the feed is given to the <unk>.
Born we compete extremely effectively against the vaccine is given directly to the newborn calf with its naive immune system and I would say.
Speaker Change: You know limited ability to respond to that vaccine. So just great work by our sales team with a product that is pretty well known for its efficacy in.
Speaker Change: And providing that value to the customer to keep those newborns healthy but that but thanks Joe.
Good question.
Speaker Change: Leveraging off of that.
Speaker Change:
Speaker Change: How how do you see the backlog are working out here over the next three to four quarters.
Speaker Change: Well I would say this show as the customer demand warrants a strong it would've worked as well self down.
Speaker Change: Quite a bit more by now.
Speaker Change: So I always say backlog is a problem, but it's a good problem, especially compared to the.
Speaker Change: Alternative of having you know product on the shelf with.
Speaker Change: [noise] expiry.
Speaker Change: Aiding issues.
Speaker Change: So the the the more direct answers. Your question is are we will just have to see because it obviously depends on the volume of incoming orders, but with this new production level that we've the output level. We've reached a you know where we're making progress on that every day and I. It's a matter of months I'm not certainly not a U.
Speaker Change: Here, but.
Speaker Change: Yeah, we're getting into peak season here, so it's a little extra.
Speaker Change: The extra challenge to clear the backlog right now because this this.
This first quarter here December ish into March April is a is the highest demand for us. So you know we're going to just keep working at it and.
Speaker Change: You'll see a quarterly how we work that down to zero.
Wyatt: Alright, Thank you I will get out of the queue Wyatt.
Speaker Change: Our next question comes from George Melas with M. K H management. Please go ahead.
Thank you good morning, Joe and Mike how are you.
Thanks George.
Speaker Change: He made.
Speaker Change: My question about the gross margin and I appreciate all the detail.
Speaker Change: You've put into Q, you try to buy them.
David.
Speaker Change: They'll come back.
Speaker Change: Hum.
Speaker Change: Late 'twenty one early 'twenty two.
Speaker Change: Similar revenue level. It was two quarters December 21 March 'twenty, two where you live.
Speaker Change: Revenue was five zero.
Speaker Change: Yeah.
Speaker Change: Got it.
Speaker Change: Okay.
Speaker Change: Cost of goods sold.
Speaker Change: Significantly lower.
Speaker Change: I think probably it.
Speaker Change:
Speaker Change: $2 9 million and knowledge on that rig.
Speaker Change: Great.
Speaker Change: So the Delta is like one 4 million of added costs.
Speaker Change: You talked a little bit about inflation you talked about.
But.
Speaker Change: You can help us understand a little bit better would be increasing the cost of goods sold.
Speaker Change: And you'll have you'll have moved back to.
Speaker Change: Through the process.
Speaker Change: But I guess on the cost of goods sold.
Speaker Change: Probably we can have pretty good granularity about every day.
Speaker Change: Maybe help us understand that.
All right.
Speaker Change: Yeah, certainly an important question George I think you almost asked it and in part at least answered it, but I'll repeat and and and and and thank you.
Speaker Change: I do use the Q.
Speaker Change: To try and get into some of this detail because I think I I know, it's important I know you and others are curious I know, we're curious I am concerned.
Speaker Change: It's critical it's you know we spent.
Speaker Change: The better part of you know basically 23, so laser focused on contamination that was just you know.
Speaker Change: Such a critical event it'd be nice to report to you up with fix the contamination on my way back to our old gross margin well I cant.
Speaker Change: But I do think talked on the <unk>.
Speaker Change: On the on the key factors or variables, Yeah, I think if I remember you were comparing sort of 'twenty three 'twenty four 'twenty one 'twenty two yeah, that's that that is.
Speaker Change: Or two different periods for a lot of reasons, but again, the first one and contamination.
Speaker Change: Yeah. Those those costs are just written off as we go when we when we were losing those batches. There that was there were six.
Speaker Change: Expensive.
Speaker Change: Write offs of scrapped inventories it certainly weren't in our gross margin budget.
Speaker Change: But you also touched on yield and I think that's right.
Speaker Change: You know coming out of this maturity to a period of contamination. It it would be nice if we could just say we jumped right into the higher output.
Speaker Change: Higher output level and have the same yields but we don't so there's a lot of work we're doing on yield a it's a very tricky biological process little things make a big difference I feel like we are addressing a lot of factors like that that are gonna it positively impacted the.
Speaker Change: Going forward, but that that's the key I think that's the number one a key goal or initiative going forward as is.
Speaker Change: Yeah, you said, yes, youre right more and more cheese batches, that's probably a good metric for measuring our production.
Speaker Change: More and more cheese batches at less unless a yield is it's not going to it's not going to work, but you know we will.
Speaker Change: We're working on that so I think I don't know I wouldn't rank them I would just say contamination is a huge factor yields a huge factor and I think I would throw out a third that I think is very relevant and I do that this disclosure into the this Q and I believe the prior Q as well.
Speaker Change: Product line format mix, you know when I bragged, there a bit about efficacy and growth in customer demand and customer support for the product you know our original bivalent format in a bolus is still on the market and some customers love it but a lot of our growth is coming from the.
Speaker Change: The trivalent to the newer format the Tri shield.
And that product simply is more expensive to make.
Speaker Change: You could we go back to cheese batches.
Speaker Change: Essentially it takes.
Speaker Change: One cheese batch to make a bivalent bolus capsule product it takes to cheese batches for every every dose of Tri shield.
Speaker Change: To get that third antibody into the tube. So I'm kind of go on top of mind here after spending a lot of time with this issue every day and in certainly in preparing the queue, but contamination yield and product mix or are the challenges we need to.
Speaker Change: To fix to get that gross margin back to that 35 to that 40 level.
Speaker Change: So that means that essentially.
Speaker Change: Here we go.
Hi.
Speaker Change: Two years ago.
Speaker Change: What do you have similar revenue level now you'll have more batches so that is.
Speaker Change: One of the factors into high cost.
Speaker Change: Yeah, Yeah, more batches, but also more bachelor's total to increase the output, but more batches per dose to get the Tri shield.
Speaker Change: You know two to one two to one so that's that's definitely a factor.
Speaker Change:
Speaker Change: Yeah, I think I, yeah, and I think.
Speaker Change: You know I mean, it is we even had some 50% margin back back in the days when we had a bolus or capsule business of about $10 million in sales.
Speaker Change: No. That's that's a that's a it's the same company, but it's a different business.
When we started doubling that over to 28 million plus adding in the Tri shield.
Speaker Change: It's a very different look it's a very different look for the staff or the equipment for the facilities.
Speaker Change: And we got to work it and and.
Speaker Change: As I said in the Q and unexpected get back to 50, it's a different business but.
Speaker Change: We're growing sales and growing the gross margin dollar even up at that lower 35, 40% level.
Speaker Change: Target.
Speaker Change: Yeah Yeah.
Speaker Change: A quick question on the P&L some of that.
Speaker Change: Costs were down, especially.
Speaker Change: Let me explain that.
Speaker Change: Good evening Mike.
Speaker Change: As well.
Speaker Change: The way to explain that.
Speaker Change: Its a big ask you know, where we're asking the sales team to do two things gross sales and save money.
Speaker Change: So it's a balance you know we bet, but those that the team is the team is consistent as far as head count. So no increase no decrease we've managed programs that you know we like to spend and then that's then fund the ones we have to spend because when you're in that cash crunch when you're in a contamination period.
Speaker Change: We look at all levers.
Speaker Change: To to reduce costs. So yeah. It's that simple you know we there were there are some selling expenses that our V. P of sales Bobbi Brockmann has done a great job of managing and controlling and try and reducing at the same time not cutting anything critical.
Speaker Change: Two to fuel that growth. So good expense management by the sales team and the product development is kind of very different now all the inventory we wont need for this controlled launch has been produced we simply don't need to produce more inventory. So we can reduce costs, but we can't.
Speaker Change: I have chosen not to eliminate those costs, because we want to stand ready for an FDA inspection.
Speaker Change: And in a plant that we call aggressive idle. So it's it's ready to be brought back into service, it's not mothballed, but it's not actively producing inventory and that is simply to save some money.
Speaker Change: Okay, Great and then Oh.
Speaker Change: Yeah.
Speaker Change: You also did calculate appreciate that very much.
Speaker Change: Chad.
Speaker Change: And then you have a sense.
Speaker Change: Yeah.
Speaker Change: Talk about a possibility of a penny.
Speaker Change: Great.
Speaker Change: That would actually do.
Speaker Change:
Speaker Change: I think that it's lower cost it's slightly different.
Speaker Change: Would you wait to absorb.
Speaker Change: Can you talk about that just a little bit more.
Speaker Change: Yeah, it's a really interesting upside for us we haven't realized it yet it's in development, we have processed some material we like the look of it. The initial batches and are you now going into 25 are going to get that to market and and and and see if that is.
Speaker Change: As a less expensive, but different format way to use up some of that whip that you're you're talking about I mean are the inventory of of hyper immunized raw class classroom frozen raw classroom. So it's simply is different we spend a lot of time in there.
Speaker Change: The money so you get a lot of antibodies into a capsule or two this is a pretty different approach with the same overall objective of our antibodies are very effective at preventing newborn calf disease. So rather than focus on concentration. This is gonna be more of a bulk product it'll be more for a different cut.
Speaker Change: Or a large caf ranch say that's mixing back.
Speaker Change: Bags of of our feed rather than a capsule of first defense or two but first defense. So.
Speaker Change: I'm kind of excited about it but it's unproven, but you know we're trying to be creative and just find new customers and new sources of revenue.
Speaker Change: So it is great that you would pre owned rather than separate well know George the spray refers to the production process. So you've got their local classroom you either run it through the Cheesing and all of the filtration process to really concentrate those antibodies do a small dose and then we lie awful is it that's freeze drying it this.
Speaker Change: New potentially new format would be skipping all of those process steps, taking the raw classroom and spray drying it and so its a powder that would be added to a batch of milk to be fed to cats.
Speaker Change: Oh, okay.
Speaker Change: So the spray refers to the <unk>.
Speaker Change: One of the key production steps the application will look like a capsule only it takes a lot more capsules, because we haven't concentrated down to that four gram level for the current first defense capsule it'd be it'd be a a bulk seed powder.
Speaker Change: Okay interesting and then on.
Speaker Change: Possible update.
Speaker Change: Manufacturer.
Speaker Change:
Speaker Change: Too bad inspection process.
Speaker Change: Yeah, I I, the best update us or they don't have an update and what I mean by that is if it hasn't been delayed and it hasn't been accelerated and we are confident that they are working very diligently towards.
These answers and will have their final they've made.
Speaker Change: Progress submissions along the way, but the final final is still on schedule for December and.
Speaker Change: That's been consistent as I said hasn't moved forward Hasnt pushed back.
Speaker Change: The issue is what does the F D a to without submission because as soon as that submission is cleared we can get through what I said was that.
Speaker Change: Non complex a response on our side on the thought what's called the CMC or manufacturing technical section.
Great. Okay. Good luck. Thank you Hey, George I Hope he got some sleep last night, it sounds like Youre reading the Q a little bit.
Speaker Change: Thank you for your good questions [laughter].
If you have a question. Please press Star then one.
Okay.
Speaker Change: And the next question comes from Jane Linden men with as a private investor. Please go ahead.
Speaker Change: Hey, Michael It's Bruce How're, you doing Hello, Hi, Bruce how are you.
Speaker Change: Good good good relations and getting all that stuff behind you.
The progress thank you.
Speaker Change: Well, we're just curious about how many shares were.
Speaker Change: So and I, usually give it continues do you need to continue.
Speaker Change: The a T M. Yeah, that's fair so George it for the specific or the detail.
Would refer you over over to the Q I got a subsequent event note in there and I've got a detailed description of that.
Speaker Change: Specific.
Shares in their shares issued but and I bought it.
Speaker Change: High level.
Speaker Change: Should I wish I had my notes right in front of me I'm looking for it.
Yeah, I think we went from like it was like it was like $1 1 million and we went from seven seven to 8.8.
Speaker Change: <unk> shares outstanding.
Speaker Change: Okay.
Speaker Change: Do you think you finished for now.
Speaker Change: You know [laughter], but this AIDS him what we do as you know and this is across the board with all public company Atms is that just the specific disclosure as historical quarterly as to what happened and we leave a little flexibility into what will happen as far as you know.
Speaker Change: Board discretion, but the cash levels that I mentioned to you right take me off of the sort of the Super hyper concerned level to Yelp. We can work with this and then cause he answer really depends the future really depends on what are our capital needs. What do we need to spend money on you know and and also.
Speaker Change: As far as you know price. So you know at a higher price you could raise some money and do some big things at a lower dilution. So I'm a little vague on the future, but the key was very specific on the year to date, Okay. No I'm just curious because it seemed like you.
Speaker Change: <unk> got the cash balance to a D C level.
It's different to sell stock at three to four as opposed to.
You know higher levels exactly if that's true and you can see that just see if you compare the nine month numbers to the subsequent event it very significantly sort of lowered the big volume was.
It was what it was back in.
Speaker Change: In the third quarter.
Speaker Change: Alright.
Good luck.
Looking forward to.
To the launch.
Speaker Change: Hey, I appreciate you.
Speaker Change: Bruce and Jane for.
Speaker Change: You're here or is she older patient following long long over 20 years since five is it 'twenty Wow Wow Pfizer right.
Speaker Change: My fitness isn't that amazing time, plus wow, thanks for reminding me of that Holy Cow.
Speaker Change: Thank you.
Speaker Change: Thank you Bruce.
Speaker Change: Yeah.
Speaker Change: 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: Thank you Wyatt and thanks to all of you participating in today's call. We look forward to talking with you again to review the results for the year ending December 31, 2024. During the week of February 24, 2025, Thank you and have a great day.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Yeah.
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Speaker Change: Okay.
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Speaker Change: Yeah.