ImmuCell Corporation

Q1 2024 Earnings Conference Call

5/15/2024

spk04: Good morning, and welcome to the MU-Cell Corporation Reports first quarter ended March 31, 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. Please note this event is being recorded. I would now like to turn the conference call over to Joe Diaz of Lithum Partners. Please go ahead.
spk05: Thank you, Nick. Good morning and welcome to all. As Nick indicated, my name is Joe Diaz and I'm with Lithum Partners. We're the investor relations consulting firm for Emucell. I thank all of you for joining us today to discuss the unaudited financial results for the quarter ended March 31, 2024. Listeners are reminded and cautioned that statements made by management during the course of this call include forward-looking statements which include any statement that refers to future events or expected future results or predictions about steps the company plans to take in the future. These statements are not guarantees of performance and are subject to risks and uncertainties that could cause actual results, outcomes, or events to differ materially from those discussed today. Additional information regarding forward-looking statements and the risks and uncertainties that could impact future results, outcomes, or events is available under the cautionary note regarding forward-looking statements or the safe harbor statement provided with the press release and the Form 10-K that the company filed last night, along with the company's other periodic filings with the SEC. Information discussed on today's call speaks only as of today, Wednesday, May 15th, The company undertakes no obligation to update any information discussed on today's call. Please note that references to certain non-GAAP financial measures may be made during today's call. The company included definitions of these terms as well as reconciliations of these figures to the most comparable GAAP financial measures in last night's press release in order to better assist you in understanding its financial performance. With that said, let me turn the call over to Michael Brigham, President and CEO of Emicell Corporation, after which we will open the call for your questions. Michael.
spk06: Thanks, Joe. And good morning, everyone. This is the story of the really good and a bit of the frustrating. With regards to the first quarter, I would like to speak about two financial disclosures that I think help demonstrate what we believe could be a critical turning point for our business. First, product sales were up 111% during the first quarter of 2024 compared to the first quarter of 2023. And sales were up 33% during the trailing 12-month period ended March 31, 2024 compared to the year the trailing 12-month period ended March 31, 2023. So, again, 111% quarter over quarter, 33% trailing 12 over trailing 12. This improvement is largely the result of increased production output. By implementing and optimizing a multi-year investment to increase our production capacity, we achieved $7.2 million worth of production during the first quarter of 2024, which annualizes to $28.7 million, or about 96% of our $30 million full capacity estimates. This level of production remains our aspirational goal, but we do not expect that it can be repeated or exceeded on a regular basis. The 7.3 million in sales recorded during the first quarter of 2024 represents an all-time quarterly sales record for us. The next highest quarter was 6 million recorded during the first quarter of 2022. Second, with those strong sales, we were able to turn earnings before interest, taxes, depreciation, and amortization, or EBITDA, of negative $1.6 million during the quarter ended March 31, 2023, to positive EBITDA of $377,000 during the quarter ended March 31, 2024. Our gross margin as percentage of product sales improved from 9%, during the quarter end of March 31-23 to 32% during the quarter end of March 31-24, but this is still well short of our 45% target. Cash is tight. In response, we have frozen certain capital expenditure investments for the time being, but we have no draw outstanding on our $1 million line of credit that is available to us until September of 2025. So that is the big picture. With regards to the other financial results, the press release provides the full unaudited P&L results and some unaudited summary balance sheet data. Further, our Form 10-Q provides all the unaudited financial details and management discussion and analysis. I will not take our time on this call to review all that in detail. I would like to add that we have been driven by data as we remediate the contamination events that have plagued us recently. Improvements made throughout our production process are allowing us to come back into full production. We believe that the operational improvements implemented are allowing us to run more effectively at a higher output level going forward. To be successful, we must avoid future significant contamination events and equipment breakdowns and operate with good production yields. So, we will remain focused on the commercial opportunity we have with First Defense, but as is often the case in a regulatory approval process, we are frustrated by yet another regulatory delay in our effort to bring Retain to market. The FDA recently issued a CNC technical section incomplete letter in response to our third submission of the CNC technical section for Retain. Pursuant to the incomplete letter, the FDA has provided some minor questions about our submission requiring a fourth submission of the CMC technical section, which is typically subject to a six-month review. However, the FDA has indicated that this resubmission 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 the inspectional observations at the facilities of our drug product contract manufacturer are resolved. Given the unique facts and circumstances, we are working with the FDA and our drug product contract manufacturer to obtain an expedited review. This is part of the process, and we are continuing to move forward. Regardless, we remain poised and excited to revolutionize the way that subclinical mastitis is treated in today's dairy market with a novel alternative to traditional antibiotics without FDA-required milk discard or meat withhold claims. So lastly, I encourage you to review the press release and the quarterly report on Form 10-Q that we filed last night. Also, please have a look at our corporate presentation slide deck. I believe it provides a very good summary of our business strategy and objectives, as well as our current financial results. A May update was just posted to our website last night. See the Investors section of our website and click on Corporate Presentation or contact us for a copy. With that said, I'll be happy to take your questions. Let's have the operator open up the lines, please.
spk04: Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster. Again, if you have a question, please press star, then 1. Please hold while we queue for questions. The first question comes from Frank Gasker, private investor. Please go ahead.
spk02: First of all, Mike, it's sure a relief having that kind of sales for the quarter. Keep it up.
spk06: Yeah, I share that sentiment. Very exciting. Thank you.
spk02: My question deals with the a shelf in the offering. Could you clarify that in regards to at the market and your, how you go about designating or allowing a certain quantity at a time?
spk06: Yeah, Frank, I think One of the big benefits of the ATM is its flexibility. So the answer to your question can change day to day, week to week, month to month. I think the biggest distinction between the ATM instrument versus the more traditional offering is the traditional offering would have gone out at likely a significant discount to market. And with this vehicle, we can just sort of watch the market and make adjustments as appropriate The downside is it takes a lot longer to raise some money because you're just sort of nibbling at the market. So we kind of looked at that real hard around year end and going into the first quarter and pros and cons and kind of decided this was a good opportunity to raise a little bit of money without the anticipated more significant discount. But I guess the short answer to your question is it's a management discretion, board discretion, really on a day-to-day basis.
spk02: Okay. So some shares have, in fact, been authorized and sold.
spk06: Yeah. So perhaps I should have included that in my comments, but it is in our disclosures. You can see that... in both the financial footnotes, there's an equity section footnote, then there's a subsequent event footnote, and then in the very beginning of the MD&A, really the three places repeat the same information. About $300,000 has been raised of gross proceeds.
spk02: Okay. I did see that. And as far as you do not disclose or Do you when, in fact, you are selling or not selling?
spk06: Well, the board, you know, through me, the board communicates to the banker and sets thresholds of both volume and price. And I think through our quarterly, I know through our quarterly reports, we would report the results of that. interaction in that activity.
spk02: Okay. You've answered all my questions. Thank you very much.
spk04: All right. Thank you, Frank. The next question comes from Michael Potter with Monarch Capital Group. Please go ahead.
spk03: Hey, Michael. How are you doing?
spk06: Hey, very well. Thank you.
spk03: So certainly in next quarter, on the news front, congratulations operationally, obviously kind of scratching my head in regards to retain. Can you walk us through the inspectional observation? What is the process here and the timeline to get through the process?
spk06: Yeah, honestly, it is. It is active. It is undetermined. There's going to be a lot of back and forth that we're not going to be party to. It's directly between the FDA and Norbrook. But Norbrook does communicate very well with us, so we'll get status reports. But their ability to respond is at their discretion. I would add they're a big company. They have other products. They're motivated beyond just Retain. to get it right. And then once they do that, it will be up to the FDA to determine how quick they review and how quick they are and what the results of that review is. So it's frustrating not to have a more definitive answer to you, but we just don't have that at this point. It's just very fresh.
spk03: Okay. And when... When were we notified by the FDA that they were not moving forward with the approval?
spk06: Yeah, it was right on the, as expected, right on the 180 point. And that was, well, I think we'd even disclosed it was May 10th.
spk03: It was May 10th. So this is all fresh. So we're just getting our arms around this to go forward.
spk06: exactly right it's like going that's what i meant by the good and the frustrating the good you pointed out the sales you know the frustrating is just wow we thought you know this was this was end stage late late in the game um and uh didn't didn't didn't get didn't we didn't get to complete so yeah very over the weekend over the the week so far and over the coming weeks, there'll just be a lot of back and forth. How quickly can Norvip respond? How effectively can Norvip respond? And how quickly can the FDA, you know, concur? Got it.
spk03: Okay. Thanks, Mike. We look forward to more information as you get it.
spk06: For sure.
spk03: Thanks, Michael. Yep.
spk04: The next question comes from Maynard Fernandez with MacDill Columbus. Please go ahead.
spk00: Good morning. ICC has now achieved 95% of maximum production volume but still has not turned a profit for the border. How can ICC turn a profit if not with 95% of production volume? That's the first question. The second question is when do you project to produce a profit? Thank you.
spk06: Yeah, that's a fair question, Maynard. The best answer I have is, you know, our The first thing I turn to is saving the cash flows, and I just look at the depreciation. So while it's not a bottom-line profit, it is cash flow positive when you look at EBITDA, and that's obviously not a gap measure. While the depreciation expense is in our gap reports, the EBITDA figure is just in our press release. So I think that's step one in a transition from this product development, retain-driven loss to cash flow and then to P&L next. But I didn't put a projection on the date for that. It really is a transition here that we're looking at 24 as how strong we can keep the sales going. how quickly we can reduce some expenses as this retained project that drives almost all of our product development expense as that moves from development to commercial. So a lot of events in 24 to answer that question.
spk00: Thank you. Free answers.
spk06: Thank you, Maynard. Yes.
spk04: The next question comes from Sean Kirkwood with SRK Capital. Please go ahead.
spk01: Hi, Mike. Good morning. Hey there, Sean. How are you? Good. So I have a few questions about margins. From the 10Q, it sounds like maybe it was yield that is causing margins to be lower than the 45% target. can you just kind of speak a little bit more detail about what is affecting those margins?
spk06: Yeah, yield is always a big one, and it is variable. I mean, just a biological process, and we try and manage it as tight as possible, but they do go up and down. Milk is our source raw material. Cows that produce it. You know, not to digress too far, but one of our marketing projects positions that we take is that don't vaccinate your cows, use first defense so you don't have to be subject to the variability that is inevitable with the commercial vaccine response. So what our customers see on the commercial side, we see every day in our production plant. So it is variable. And the other factor I would add to that is these contaminations are expensive. They did drag down the margin. And so moving forward with better yields and moving forward with lesser or limited contaminations would certainly improve the margin. That's definitely the goal. And I think we also need to accept the fact that this is a difficult product to make. It is expensive to make. I was looking at some numbers just last night. Back before TriShield, we were a $10 million company, $10 million in sales. TriShield has really changed our top line. A lot of growth, a lot of customer demand coming from TriShield, but it is more expensive to make. I'm disappointed, not surprised by the stress on the margin when you consider those three factors, but I'd much rather be a multi-format with TriShield than a smaller company with just the relatively less expensive bolus offering.
spk01: Okay. So, I mean, it looks like contamination was only about 1% of the margin in the quarter, if I read that correctly. But how do you improve margins from here to your target of 45%?
spk06: Yeah, we're going to push all those buttons. There are things we can do to influence yield and control the process. Controlling the process eliminates, hopefully eliminates or at least mitigates those contamination challenges. And then volume. We had a lot of fixed costs. Higher volume over those fixed costs is always going to work in our favor. And, yeah, it's certainly a priority, but, you know, I respect the question, and it is a management goal to get that percentage, but I also have to balance that with the dollars. We don't pay the bills with percentages. We pay it with dollars, and, you know, we need more gross margin dollars to pay the bills and to get back to Maynard's question, get back to profitability, you know, it's total dollars. And even if that comes with a slightly less margin, that, that may, that, that, that, that may, I think that's, that's a better alternative than being that, that bolus company at 10 million.
spk01: Okay. I mean, so like these are, these margins are historically much lower than say what you even did in your highest quarter of 2022. Um, Do you see any improvement moving forward? What should we expect, you know, going forward in Q2 and the remainder of the year? Is this a new normal of 33% margin?
spk06: Well, yeah, the improvement, the first step, as I mentioned, both in the call and in the filings, is moving off that disastrous 9-232. So now the huge focus is how quickly and how close can we move from 32 to 45. You know, we do always talk about the gross margin gap percentage, but the other thing I do look at is, again, cash. And depreciation is a component of our cost of goods. I'd be happy with a near 45% margin that could be 45 when you remove the the non-cash depreciation. So we're looking at that measure, the cash flow measure, and all those buttons to increase that yield. So, you know, it is a future-looking thing. It would be subject to performance and subject to future disclosures. How quickly and how close can we move from 32, 33 to 45, at least 45, you know, before depreciation?
spk01: Right. I mean, is there any improvement As the, as of today from the first quarter or, or we're still looking at 32%.
spk06: Yeah, this answer may not satisfy you, Sean, but it is the truth. We, we really, the costing, the production process is so complex. We get a, we get a view as with our auditors quarterly. There's really not a weekly or monthly way to accurately measure that. We can watch certain metrics and expect and anticipate certain trends. But, I mean, this is a six-month production process. So the best answer to that is quarterly to quarterly. And interim views are not disclosed because they're just not accurate.
spk01: Okay.
spk06: That's fair. I appreciate the details. Thank you.
spk01: Cool, Sean. Thank you.
spk04: This concludes our question and answer session. I would like to turn the conference back over to Mr. Joe Diaz for any closing remarks.
spk05: Thanks, Nick, and thank all of you for joining on today's call. We look forward to talking with you again to review the results of the second quarter, which ends on June 30, 2024, and that will be sometime during the week of August 12. So thank you for your time. Have a great day.
spk04: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

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