ImmuCell Corporation

Good morning, and welcome to MU-Shell Corporation Report's second quarter, ended June 30th, 2025, unaudited financial results conference call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Joe Diaz of ListenPartners. Please go ahead.

Thank you, and good morning to everyone. As the conference call started, Operator indicated, my name is Joe Diaz. I'm with Letham Partners. We're the investor relations consulting firm for In Yourself. Thank you again for all of us for joining us today to discuss the unaudited financial results of the second quarter ended June 30, 2025. 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 sets the company plans to take in the future. These statements are not guaranteed 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 better known as a safe harbor statement provided with form 10q and the press release that the company filed last night along with the company's other periodic fines with the sec information discussed on today's call speaks only as of today friday august 15 2025 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 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 Emusel Corporation, for opening remarks. Michael.

Great. Thank you, Joe, and good morning, everyone. So, yes, I would like to make a few opening comments. We are in the midst of a very positive transition right now at Emusel. Our investment to increase production capacity for the First Defense product line to support $30 million or more in revenue per year is now complete. For sure, this took longer than we had planned, as the process was plagued by certain contamination events and other challenges. That said, it is done, and we are in a good place going forward. With regards to our very long development timeline with Retain, we are now initiating investigational product use studies to test market acceptance in the field over the second half of the year. While, of course, we would prefer commercial sales under an FDA approval, we like to say that that we are going to get paid in data. This data will inform our exploration of strategic options and the future plan for this product as we continue to anticipate the FDA approval. So at this point, I'm going to turn this call over to Tim Fiore, our CFO, to review some second quarter financial highlights. Then I would like to offer a few comments from a strategic perspective, after which we will open the call for your questions. So, Tim?

Thanks, Michael. Product sales during the second quarter of 2025 increased by 18% or $972,000 over the second quarter of 2024. Product sales during the first half of 2025 increased by 14% or $1.8 million over the first half of 2024. Product sales during the trailing 12-month period ended June 30, 2025 increased by 22% or $5.1 million over the trailing 12-month period ended June 30, 2024. This period of increased production output allowed us to effectively eliminate our backlog of orders and rebuild inventory and distribution. During this period of short supply, we often ship direct to critical customers to keep them in supply. Now we are back to only shipping to our normal distribution channels. Reselling the distribution pipeline after an extended backlog likely provided a temporary boost to sales. Because this inventory rebuild is not expected to repeat, we may experience a softening in sales during the second half of 2025. We also realized some good gross margin improvement during the first half of 2025. Gross margin as a percentage of product sales increased to 44% during the second quarter of 2025 compared to just 22% during the second quarter of 2024. Gross margin increased to 43% during the first half of 2025 compared to just 28% during the first half of 2024. Gross margin increased to 37% during the trailing 12-month period ended June 30, 2025, compared to just 26% during the trailing 12-month period ended June 30, 2024. To remain successful, we must regain customers that we lost during our period of short product supply and increase market share, while operating without significant contamination events or equipment breakdowns, and also achieve strong production yields. I'd like to talk for a moment about adjusted EBITDA because the impact of non-cash depreciation expense on our bottom line is significant. To be clear, adjusted EBITDA, as opposed to just EBITDA, includes an add-back of stock-based compensation expense, which is another non-cash expense that is included in net income as calculated in accordance with GAAP. We created an adjusted EBITDA of $1.4 million, $3.7 million, and $5.3 million during the 3-month, 6-month, and 12-month periods ended June 30th respectively. These strong results compare very favorably to adjusted EBITDA of negative 619,000, negative 161,000, and negative 370,000 during the three-month, six-month, and 12-month periods end of June 30, 2024, respectively. These strong results helped us increase cash to $6 million as of June 30, 2025 from $3.8 million as of December 31, 2024. On a final note, you may have seen our press release Tuesday night about the refinancing of a portion of our bank debt. We were able to reduce our interest rate and avoid large balloon payments that were due during the third quarter of 2026 with a new five-year note payable through the third quarter of 2030. With that, I will turn the call back to Michael. Michael?

Great. Thanks, Tim. So we are very focused on the commercial opportunity that we have with First Defense. we are pleased to see traction of the new product format, the First Defense, that we have introduced to the point where the First Defense product line now should be seen as a suite of related products with expanded uses and appeal. Our financial recovery and improvement shows up on the favorable adjusted EBITDA results that Tim just touched on. Eliminating the order backlog has been a critical business objective for some time now, Our focus remains on both recovering from the disruption caused by the prolonged supply shortage and capturing increased market share with the goal of building a long-term growth track. With regards to retain, we expect producers to become excited about identifying and treating cows at the subclinical stage with retain, thereby creating substantial animal welfare benefits. That is because animals infected with subclinical mastitis often go untreated and progress to the clinical disease state. Once cows are that sick, they require antibiotic treatment and may die or be culled from the herd. The success of this product will depend largely on our ability to implement treatment protocols in a way that the nice and we deliver to treated cows does not interfere with starter cultures that are used in some milk processing methods to make, for example, cheese and yogurt. One of our challenges is to find optimal treatment and milk processing practices to avoid such issues. The following comment is a very important issue to me. We hope that milk processors will engage in this evaluation with us in order to help the dairy industry improve the health of certain sick cows that often go untreated, while at the same time improving the quantity and quality of milk that is produced and also reducing abortion rates. We believe that treating subclinically infected cows could enhance best practices in the industry. It is common practice for cows to be treated with traditional antibiotics that are also used in prevention of certain diseases in humans, which is a growing public health concern in our society and an active issue with the FDA, largely because the growing evidence that this overuse of traditional antibiotics contributes to antibiotic resistance and the rise of superbugs or pathogens that are resistant to these antibiotics. Our bactericidin is an alternative to these traditional antibiotics that are used in human medicine because our active ingredient, niacin, is not used in human healthcare. We think it would not contribute to this significant public health concern and could help the industry address an important sustainability objective, that being the overuse of antibiotics that are medically important to human healthcare. while at the same time improving the quantity and quality of milk produced by treated cows. While sustainability objectives call for reducing the use of antibiotics in food-producing animals, no new FDA-approved drug to treat mastitis has been developed in years. In the big picture, we are introducing an entirely new class of antimicrobial as an animal drug, a bactericidin, that does not promote resistance against antibiotics used in human medicine, making it more socially responsible. The industry could keep treating this very significant disease with traditional antibiotics, but it takes innovation to bring a bacteria from like nice into market. We believe our product fits very well with where the industry is going to be in the coming years. So while being mindful and prudent of how much cash we invested in inventory, that would have a short expiry date if market launch were delayed, we did build inventory during 22 and 23 to support potential initial sales of retains. Over the second half of 2025, we plan to use this inventory on hand that now has a relatively short shelf life in investigational product use studies, collecting market feedback about product performance in the field in collaboration with Michigan State University. We do not anticipate the investigational product use to generate sales or growth margins. Although the FDA granted zero milk discard period for retain in 2018, we decided to introduce a short discard period in these studies out of an abundance of caution. This is because nitrogen levels, while considered safe for adult human consumption, can impact certain milk processing applications. Even if we conclude that a milk discard period is required by milk processors at launch, we expect it to be significantly shorter than those associated with traditional antibiotics currently on the market. Further, discarded milk is often fed to calves, and we believe that this discarded milk would be much healthier for calves than antibiotic-laden discarded milk. It is our objective to complete the investigational product study and data analysis during the first quarter of 2026. At the same time, we are reducing product development expenses and exploring potential strategic options for our novel technology. Our go-to-market strategy for retail has evolved in response to FDA approval delays and cash constraints. A full commercial launch will not proceed until three key conditions are met. One, FDA approval is obtained. Two, a validated aseptic fill solution is in place. And three, adequate cash is available to produce commercial inventory. In the meantime, we are focused on three key projects, that being, one, conducting the infield investigational product use trial, which could provide valuable insights into how producers receive the product benefits and integrate the product into their herd health protocols. And two, evaluating strategic options that could offset some cash requirements and enable a mass market launch of repaying. And three, investigating alternative uses for the retained manufacturing plant and equipment. This disciplined approach is intended to protect shareholder value, ensure regulatory compliance, and support a successful market entry. So 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. With that, we would be happy to take your questions. Let's have Nick open up the lines, please.

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one 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 two.

At this time, we will pause momentarily to assemble our roster. Once again, if you would like to ask a question, please press star, then one.

And your first question today will come from Andrew Rem with Odinson Partners. Please go ahead.

Morning, gentlemen. I guess my first question is, you noted that second half sales down because you kind of worked through the backlog. Can you say what organic growth, if we exclude the benefit of backlog sales in the first half, was?

Hi, this is Tim. No, I don't think we are going to specifically mention a number. I would mention that the backlog at the end of March was, at March 31, 2025, was $4 million. And we have worked through that backlog during the second quarter with some of the orders being canceled, most of them being filled. And I think that's as far as we can go. I don't know, Michael.

Yeah, no, I think you're right, Tim. I mean, we really stay focused on gas, sales out our door. Our sales team has discussions with distribution and, you know, obviously tries to keep them full, but we don't have reporting requirements there or reporting results there. Yeah, I think we stick the gap out our door, but we're in enough conversations to raise it as a caution. It's essentially a one-timer, and I think that answer is going to play out over Q3 and Q4. I do think the long-term plan is solid, but we've got to get through this bubble. All right.

And then can you guys give an update on kind of briefing? I think in your 10-2 from the first quarter, I think you had mentioned you had had a facility inspection and were kind of, I think you got a 483. I think you responded to that. But has there been any additional updates? back and forth with the FDA relating to that, or can you speculate on the delay in potential approval?

No, it's a good question, Andrew. And just for clarity, there's sort of two sides to this. So there's the end result side where we make the drug substance. We have past infection. We do not have a 483. We've been in that good condition for quite some time now. The challenge... The frustrating challenge is that we do use the CMO for filling, aseptically filling our drug substance into the tubes, and that CMO is under, has to resolve 43 inspection observations. And I wish as much and probably more than you that I could put a timeline on that. It's extremely frustrating. It's been going on for over a year now. I do know with confidence we're working hard on it, but I don't know the timing on either end. There are their success or the FDA's agreement for their success. It's an open inspection that they are motivated to resolve, not just for Retain, but for other products in their suite. And it is the final hurdle to FDA approval, and we're eager to get it resolved, but it is almost totally out of our control, and the FDA and the CMO are working on it.

Okay, that's helpful. You guys had also mentioned you've got inventory, which it sounds like it's coming up close to expiring, so you're going to use that as part of your investigational. Can you just comment on how much inventory will be expiring in that, let's say, the second half of the year that would be part of that investigational use?

Well, not in, like, numbers of tubes and certainly not in dollar value because it will not generate sales, as I mentioned, but the answer is all of it. This is product that was produced in anticipation of commercial launch. It will all be used for investigational. It will not generate revenue. And I think, as I mentioned, coming back to commercial launch will require new production, and we have not put the cash to that at this point because we think it's better to get the approval. complete the investigational, and then see what our strategic options are. And that will really have some comment on the P&L impact.

Yeah, so that inventory for retains has already been expensed, so there is no P&L impact coming in the future. Right.

Okay. And then can you just maybe provide maybe some examples of When you mentioned a few different times here, including in the press release, pursuing some strategic options, like what might be some of the different forms that that could reasonably take?

Yeah. So, you know, I think the number one priority would be we are a relatively small company with a relatively small sales team, and that team is very, very focused on first offense. So bringing in a larger marketing group that could, we hoped they would look at our investigational study data and get excited and then help us with that launch financially and, you know, in the barn. Introducing a very different, a very novel, very new way to treat a disease-state subclinical mastitis that's not treated today. So we were looking for financial support and marketing support to take this to the next step. And, you know, we like to think that we would be a manufacturer, but, you know, those negotiations are really open and really flexible as to what form that takes, but conceptually it would be financial support and introducing a novel product to commercial launch requires you know, a lot of time in the barn, a lot of time with producers. And so some combination that brings us that commercial launch with less financial exposure based on good data that we hope to get from this study during the second half of 2025.

Would a distributor not necessarily be a good partner just because they might have the distribution channel, but they would not kind of be experiencing or knowledge around on the manufacturing side or even maybe the willingness to put up capital?

Yeah, I think you've almost answered your own question, and I would agree with your answer. I mean, distribution partners are essential. They're key. They do a great job for us. Our sales team is leveraged by them, largely, obviously, right now, getting first offense to market. But as far as selling and changing practice and educating the industry and working with milk processors and lending financial support, I mean, the phone line's open, but I don't think that's likely. I think it's going to come more from a strategic than a distributor.

Maybe my last question is just, I think you also mentioned before,

banking capacity from 30 to 40. Does the timing of that, what is that kind of dependent on?

Yeah, so we're continuing to evaluate the timing of that. There's no change in what we've announced in the past, which is essentially that that project is on hold. There's some disclosure in the queue about the relative cost of moving from supporting $30 million in revenue to $40 million plus approximately. But no news on the timing, I think.

I think it's a very important decision for our management and for our board, and timing is essential. And we're just going to watch this over the second half of the year just to make sure the cash flows are right. We're very happy to be over 30, and we're very optimistic that we will need to be over 40 and not too far out. So careful evaluation and under consideration. Timing is everything. Cash flow is everything.

Okay, maybe last question. On first offense, it sounds like the sales team maybe has had some distractions but now or more recently have greater focus. Can you comment on how you think that will help that product line, first offense?

Yeah, I'm guessing, and if there's a distraction to our sales team, that would be, I think you might be referencing, how does the sales team sell product when it's on short supply? Okay. We've been very distracted dealing with a lot of very irritated distributors and customers that couldn't get the product they need. They did the best they could to manage that short supply, but that is distracting from new business, new territories, new customers. Out of essential needs, we couldn't, it would only make our backlog bigger if we brought in new business. So it's a great flip here right around June 30 going into this. going into the third quarter where now they are confident that we have adequate, very sufficient inventory. Go get the customers that we may have lost during short supply. Go get the new business wherever they can find it. Very beefed new territory. Go back to what they like doing, which is selling.

Is some of that too part of... I may be using the wrong word, but kind of rebuilding your reputation in the marketplace. But I assume some of that is not necessarily starting on June 30th. Your ability to unwind the backlog, I would hope that kind of helps in that process. But maybe you could talk about some of the challenges of, you know... Yeah, I mean, I would be very fair to say...

very open to say our reputation was tarnished when we didn't deliver what the market wanted. They got frustrated with us. You know, and efficacy rules. They want this product because it works better than others. So, yes, they were frustrated. That's what the sales team was distracted on, deal with that frustration. But, you know, with the expansion, capacity expansion complete, that phase, that era is over, and we just go back with, you know, we were – We were unreliable in supply in the past, but we are ready to ship every day going forward, so come back to us, because efficacy rules, and that's how we'll get them back, the product performance.

Yeah. All right. Well, I appreciate the time. It sounds like you've kind of been in some ways, at least for defense specifically, a little bit of blue sky, which is kind of a nice environment for you guys to be in, so looking forward to watching you guys and the team kind of execute. So I appreciate it. Thanks a lot. Great quarter.

Thank you, Andrew. Very, very fair comment as felt by each employee and himself for sure.

Your next question today will come from George Mellis with MKH Management. Please go ahead.

Thank you. Hi, Michael. Hi, Tim.

Hey, good morning, George.

Good morning. You mentioned that you're starting to get some traction for the new format for First Defense. And I think that's this trade-ride classroom. Can you talk a little bit about that and maybe if you've already had some sales there and how you sort of see the market opportunities?

Yeah, just on sales, we're not specifically breaking it out. We definitely did have our first sales in Q2, and we're going to continue to be on the market. And I think we'll start breaking that out in the disclosures in Q3. So we'll provide a little bit more detail as it becomes hopefully more material over time.

Yeah, I think the numbers are early. But the feeling and the momentum is certain. I know Bobby and the sales team are really excited about it. It's a new niche. It's customers. It's large ranches of calf feed as opposed to, you know, the traditional, you know, dairy milking operation. And, yeah, so far so good. And I'll stand with Tim's comment. And I think third quarter is the right time to start. We've always recently given that Tri-Shield product line break out And I think it's appropriate to see where we get to in the third quarter and start trying to spray dry another. But an exciting start. You know, it's quite a buildup. A great job by the production team and by the sales team to get this new format out there. And that's how we grow. Same in technology, different formats, different packages, different markets, different customers.

That sounds really good, and it would be great if you could appreciate that we will break it out. That would, I think, sort of enrich the conversation. Regarding the gaming customers, are you talking primarily about sort of second tier distributors that were somewhat neglected? Are you talking about end customers, or are you talking sort of about both?

It is a little bit of both, but mostly it's end customers. You know, distribution will move whatever they have available. And, you know, some got more than others, so, you know, same balancing act or rebound act is important. But, you know, it's the end customers that just had to switch to a different product. They have to try something else to take care of their cash. Those are the ones that got to get back, and they can call their distributor, and the answer will be it will ship tomorrow.

Okay. Is your sales force really energized right now that they can actually really sell as opposed to sort of take phone calls from customers that they couldn't, you know, deliver on?

Energized? How do I say that more strongly? I mean, it's a new world, George. I mean, it was really hard for them. It was really hard for everyone. And this is what they do for a living. This is what turns them on, and they are fired up. Yep, it's a great – I'm sorry that they had to go through what they went through on short supply, and I'm excited for what they're going to deliver with tubes in the cooler.

Okay, great. And then a couple more questions. I looked at the frozen colostrum inventory, and it's relatively flat. It came down a little. So it seems after two very strong quarters of production, I was a little surprised that it didn't come down. So you still have a very strong inflow of cholesterol of the elk and the cows. How do you see that over the next six or 12 months?

Yeah, just on inventory in general, you're right. We do have a strong network of farms that can provide cost to us, and we're going to evaluate inventory over time as we see sales come in during the second half and manage that appropriately.

I think just preventing a return to backlog is probably the number one priority. And so, yeah, cash management is essential and obviously super important, but this inventory, this frozen classroom does have a long shelf life, so it's a little bit of a security blanket, and the rebound plan would be to work it down, and spray dry is part of that strategy. But yeah, it's pretty high right now, and back to Andrew's question on when do you go from 30 to 40, those are the things we're managing. Whatever steps we take are influenced by cash and by no return on the backlog.

Okay. Let me make progress on those counts this quarter because net debt is down significantly and backlog is gone and we have some finish for this year. So it seems like we can shake there.

You said backlog is down. We agree. The other piece we missed. What else?

Your net debt went down meaningfully, so you made progress both on the cash position and on being able to serve customers.

Yeah, I'm sorry, George. We're definitely agreeing with you.

Backlog down, that was key. Did you say debt went down? I missed that.

Yeah, the net debt went down.

Yeah, so we were able to refinance for a couple of our loans, and... As part of that, we eliminated a balloon payment right around $2 million. And so the debt in total is around the same amount, but we did eliminate a balloon payment in 2026. Right.

Taking a 2026 balloon and spreading it over five years, like Tim said, total is so, it was kind of a wash on the total, same totals.

And then on the beef segment, that's my last question, it's very seasonal and it's coming December and January. How big historically has that segment been for any sale? And sort of what are you trying to do to build that side of the business?

Yeah, it's hard because, again, we sell the distribution and we don't know where they ship to. We don't get that kind of data, but we know just by historical seasonality, we know the way that beef guys do their trapping early in the year. We know that that spike is largely due to beef, but also there can be seasonal challenges on scours and maybe some people do treat more in a stressful cold winter. But beef is important and beef is difficult. We can do big dairies and one sales call can address thousands 10,000 calves. Beef is much more spread out, much more smaller, so a lot of that work is done by marketing and just in the right pockets with the sales reps in the beef area do the on-site, on-farm, on-ranch visit, but what's new on that area to address beef is probably the biggest new thing is what Bobby at the VP of Sales has done with the marketing campaign so we can reach a lot of people without a lot of truck rides.

Okay, great.

Okay. Thanks very much.

Thanks, George. Appreciate it.

Once again, if you have a question, please press star and then 1.

Please stand by as we poll for questions.

Seeing no further questions, this will conclude our question and answer session. I would like to turn the conference back over to Joe Diaz for any closing remarks.

Thanks to all of you for participating on today's call. We'll look forward to talking with you again to review the results for the quarter ending September 30, 2025, sometime during the week of November 10. Thank you and have a great day.

The conference has now concluded. you for attending today's presentation. You may now disconnect.