ImmuCell Corporation

Good day and welcome to the MU-Cell Corporation Report Second Quarter 2021 Financial Results Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Joe Diaz. Please go ahead.

Thank you, Betsy. Good morning and welcome. My name is Joe Diaz, as Betsy indicated. I'm with some partners. We're the investor relations consulting firm for Emucell. Thank you for joining us today to discuss the unaudited financial results for the second quarter of 2021. I'd like to preface this discussion today with a caution regarding forward-looking statements. Listeners are reminded that statements made by management during the course of this call include forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those discussed today. Additional information regarding these risks and uncertainties is available under the cautionary note regarding forward-looking statements or better known as a safe harbor statement provided with last night's press release and the company's quarterly report on Form 10-Q. With that said, let me turn the call over to Michael Brigham, President and CEO of Emucel Corporation, after which we will open the call for your questions.

Michael. Great. Thanks, Joe. I appreciate the opportunity to provide some updates on what is going on at Emucel. The press release and the quarterly report on Form 10-Q that we disclosed last night cover the key financial highlights and all the details. As you may know, on July 7th, we issued a press release covering our preliminary top line sales results. We have been making these optional announcements to give investors a very timely look at what I view as the most critical measure of our operations and financial performance, that being product sales, early in the reporting period. I have no changes to that very strong previous disclosure. Again, product sales were up 53% during the second quarter of 2021. and up 10% for the first six months of the year compared to the same periods of the prior year respectively. We have recovered from the first quarter sales drop and are on track to report positive sales growth for the full year 2021 over 2020 as projected. The 4.5 million in sales that we recorded during the second quarter indicates an annualized rate of production of about 18.2 million. We are clearly making good progress towards achieving our stated objective of increasing our annual production capacity from about 16.5 million to about 23 million and eliminating the first defense order backlog. As a result of our expanding production capacity, we shipped 11% more product during the second quarter of 2021 than during the first quarter of this year. And we reduced the backlog of first defense orders to approximately 1.3 million as of the end of last week. I am very pleased to report that our gross margin as a percentage of product sales recovered to 46% during the second quarter of 2021 compared to just 39% during the first quarter of 2021. We anticipated this improvement as the costs incurred to expand our production capacity were spread over the increasing output during the second quarter. This higher level of sales helped us to report net income of $141,000 during the second quarter of 2021 in contrast to a net loss of $766,000 during the second quarter of 2020. At this stage in our development, I think we should focus on our cash flows more than on our bottom line as reported in accordance with GAAP. Page 4 of last night's press release provides a look at some non-GAAP financial measures and the impact of certain non-cash expenses on our financial results. We reported increases in EBITDA during both of the three-month and six-month periods ended June 30, 2021 to $843,000 and $1,101,000, respectively, in comparison to the same periods during the prior year. But the most complete measure is the statement of cash flows in the financial statements to our quarterly report. Full details about the capital expenditure investments that we are working on can be found in our quarterly report in the MD&A section under liquidity and capital resources. Of the $10.7 million of cash that we had on hand as of June 30th, we expect to use about $7.6 million to complete these identified projects. About $5.3 million of this investment is for First to Fence related activities. and the balance of $2.3 million is directed towards Retain. This would leave us with about $3.1 million of cash available for other purposes. Lastly, I would like to offer a few comments about Retain, our new subclinical mastitis treatment for lactating dairy cows without a milk discard or meat withhold requirement, which is currently subject to FDA review and approval. The road to FDA approval of Retain has been long and expensive, but we are nearing completion of the required work. We aim to demonstrate that our bacterias in Niacin A can play a productive role in the treatment of subclinical mastitis in today's dairy industry by providing a novel alternative to traditional antibiotics. Our objective is to gain market acceptance of this new product concept as we develop a new product category. Ultimately, the market determines the value of any new product. Retain will be no different. Later this quarter, we expect to issue a press release announcing the FDA's response to our last of five major technical section submissions. This response from the FDA will determine whether we will be able to commence an initial limited market launch of Retain around year end. But it is important to confirm that we cannot predict the timing or the outcome of the FDA's review. So in conclusion, I encourage you to review the press release and the quarterly report on Form 10-Q that we filed last night. Also, please have a look at our corporate presentation slide deck. An August update was just posted to our website last night. I believe it provides a very good summary of our business strategy and objectives, as well as our current financial results. So see the investor section of our website and click on the corporate presentation. With that said, I will be happy to take your questions. Let's have the operator open up the lines.