ImmuCell Corporation (NASDAQ: ICCC), a leader in bovine health products, has announced a significant recovery in its third quarter financial results for the period ending September 30, 2024. CEO Michael Brigham highlighted the absence of production contamination incidents since April 2024 and reported a robust demand for the company's First Defense product line. Despite inflationary pressures and production yield losses, gross margins improved slightly to 26%, and EBITDA turned positive. The company's cash position strengthened, and the FDA is currently reviewing ImmuCell's Re-Tain submission with a potential expedited review process.
Key Takeaways
- Sales for ImmuCell's First Defense product line increased by 11%, 51%, and 46% for the three, nine, and twelve months ending September 30, 2024.
- Gross margins improved to 26% for Q3 2024, despite being below the target range due to inflation and production yield losses.
- EBITDA for Q3 2024 was positive at $119,000, a significant improvement from the negative $95,000 in Q3 2023.
- The company's cash position improved to approximately $3.8 million, partly due to an at-the-market offering.
- The FDA is reviewing ImmuCell's Re-Tain submission, with a potential expedited review process underway.
- CEO Michael Brigham discussed strategies to reduce the significant backlog and restore gross margins to the targeted 35%-40% range.
- The number of outstanding shares increased from 7.7 million to 8.8 million, with future capital needs to dictate further actions related to the ATM program.
Company Outlook
- ImmuCell is focused on reducing the significant backlog of orders, especially during the peak season from December to April.
- The company is exploring strategic partnerships to support development expenses and is working on the development of a new bulk feed powder product to reduce costs.
Bearish Highlights
- Gross margins remain below the targeted 35%-40% range due to inflationary pressures and production yield losses.
- Costs of goods sold have increased significantly, impacting profitability.
Bullish Highlights
- Strong demand for the First Defense product line has led to sales increases.
- The company has successfully recovered from past production contamination issues with no incidents since April 2024.
Misses
- There was no mention of specific misses in the earnings call summary provided.
Q&A Highlights
- Brigham provided updates on the FDA submission process and the inspection of the contract manufacturer, expected in December.
- There was a discussion about the increase in outstanding shares and the flexibility of the ATM program.
- The next earnings review is scheduled for the week of February 24, 2025, for the year ending December 31, 2024.
ImmuCell's earnings call reflects a company in recovery, bolstered by strong product demand and strategic financial management. The company's focus on improving production efficiency and navigating regulatory processes indicates a forward-looking approach to growth and stability in the competitive bovine health market.
InvestingPro Insights
ImmuCell Corporation's recent financial performance aligns with several key metrics and insights from InvestingPro. The company's revenue growth is particularly noteworthy, with InvestingPro data showing a robust 48.05% increase in the last twelve months as of Q2 2024. This strong growth trajectory is consistent with the reported 46% increase in sales for the twelve months ending September 30, 2024, as mentioned in the earnings call.
Despite the positive revenue trends, ImmuCell faces profitability challenges. An InvestingPro Tip indicates that the company "is not profitable over the last twelve months." This is reflected in the negative operating income of $3.35 million and the negative EBITDA of $0.63 million for the same period. However, it's important to note that the company reported a positive EBITDA of $119,000 for Q3 2024, suggesting a potential turnaround in profitability.
Another InvestingPro Tip highlights that ImmuCell's "liquid assets exceed short-term obligations," which supports the company's improved cash position of $3.8 million mentioned in the earnings call. This financial stability could be crucial as ImmuCell works to reduce its order backlog and invest in future growth initiatives.
For investors seeking a more comprehensive analysis, InvestingPro offers additional tips and metrics that could provide deeper insights into ImmuCell's financial health and market position. The InvestingPro product includes a total of 12 tips for ImmuCell Corporation, offering a broader perspective on the company's strengths and challenges.
Full transcript - ImmuCell Corporation (ICCC) Q3 2024:
Operator: Good morning and welcome to ImmuCell Corporation Reports Third Quarter September 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. Please note, this event is being recorded. I would now like to turn the conference call over to Joe Diaz of Lytham Partners. Please go ahead.
Joe Diaz: Thank you, Wyatt, and good morning and welcome to everybody on today's call. As the conference call operator indicated, my name is Joe Diaz with Lytham Partners. We're the Investor Relations consulting firm for ImmuCell. I thank all of you for joining us today to discuss the unaudited financial results for the quarter ended September 30, 2024. Listeners are reminded and 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, 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, 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 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 ImmuCell Corporation, after which we will open the call for your questions. Michael?
Michael Brigham: All right. Thanks, Joe, and good morning, everyone. I'm excited and I say that for a few reasons. First, I say that because someone told me that my voice does not always demonstrate that. Please judge my -- judge me by my words and our disclosures. I'm excited to have a really difficult period largely behind us. Best evidence of that is that we have not had another contamination in our production process since the first half of April of 2024. We have a great opportunity to increase 2024 sales over both 2023 and 2022. We can see the potential of achieving FDA approval of Re-Tain around the corner after all these years of investment and we are here to find out what the market thinks of our new novel product. 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 investments around the end of 2022. Around the same time as we began to operate at this higher output level, we began experiencing production contamination events that became more frequent during 2023 and continued into April of 2024. We have investigated these events thoroughly. We are optimizing raw material mix to maintain acceptable bile 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 2024 in response to the most recent contamination events appear to be very successful so far because, as I said, we have run without contamination since then into the present. We do not see one smoking gun as the root cause to the contamination and yield losses. We think the solution is more about optimizing and controlling critical process parameters and multiple production inputs and process steps. The remediation steps of the contamination events required several adjustments, all within our USDA approved outline of production. Further, I would like to confirm that throughout these contamination events, all product that was sold to market had passed final USDA release testing requirements. 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. We work with a high burden source material that being farm milk. We needed to better control the quality at 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. To be successful, we must avoid future significant contamination events and equipment breakdowns and operate with good production yields. So turning to the P&L results. Product sales increased by 11%, 51% and 46% during the 3, 9 and 12 month periods ended September 30, 2024, respectively, in comparison to the same periods ended September 30, 2023. This helped us reduce the order backlog to $6.8 million as of October 30. This is exciting, but this top line success has not been matched with adequate gross margin to the bottom line. 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 in the production yield losses that we have incurred during -- excuse me, I just wanted to say 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 the recent periods. That being said, our gross margin as a percentage of product sales did improve from 23% to 26% during the comparable three month periods from 21% to 27% during the comparable nine month periods and from 22% to 27% during the comparable 12 month periods, but this is still well short of our 35% to 40% target. We do believe that by both remediating the contamination events and optimizing the operation of the new equipment installed to increase production output, we can improve process yields beginning during the fourth quarter of '24 and into '25. With these strong sales, we were able to improve earnings before interest, taxes, depreciation and amortization or EBITDA from negative $95,000 during the three month period ended September 30, 2023, to positive EBITDA of $119,000 during the three month period ended September 30, 2024. And we did reduce negative EBITDA of $2.3 million during the nine month period ended September 30, 2023, to negative $221,000 during the nine month period ended September 30, 2024. 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 2024. It has helped us improve our cash position from just $979,000 as of December 31, '23 to approximately $3.8 million as of September 30, 2024, as we stabilized our production systems at a higher output level. Concurrently, we are reducing product development expenses as we await approval of Re-Tain by the FDA. 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 and the initiation of our previously disclosed limited distribution control 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 Re-Tain. So, we will remain focused on the commercial opportunity we have with First Defense as we work through what we see as the final stages of the regulatory approval process in our effort to bring Re-Tain to market. In May, the FDA issued a CMC Technical Section Incomplete Letter in response to our third submission of the CMC Technical Section for Re-Tain. Pursuant 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 ends are not complex. Most critical to the time line, 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. 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 and meat withhold label restrictions. So that's the big picture. With regards to the other financial results, the press release provides the unaudited P&L results and some unaudited summary balance sheet data. Further, our Form 10-Q provides all the unaudited financial details and management's discussion and analysis. I will not take your time on this call to review all that in detail. 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. A 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. With that said, I'd be very happy to take your questions. Let's have the operator open up the lines, please.
Operator: [Operator Instructions]
Joe Diaz: Michael, this is Joe Diaz. I did have a question while the queue start filling up. With regards to First Defense, the business has been strong. What do you attribute that to?
Michael Brigham: The product works. I mean efficacy rules. I mean we just have 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 newborn. We compete extremely effectively against the vaccine that is given directly to the newborn calf with its naive immune system and I would say limited ability to respond to that vaccine. So just great work by a sales team with a product that is pretty well known for its efficacy and providing that value to the customer to keep those newborns healthy. But thanks, Joe. Good question.
Joe Diaz: Leveraging off of that, how do you see the backlog working out here over the next three to four quarters?
Michael Brigham: Well, I would say this, Joe, if the customer demand weren't so strong, it would have worked itself down quite a bit more by now. So I always say backlog is a problem but it's a good problem, especially compared to the alternative of having product on the shelf with expiry dating issues. But -- so the more direct answer to your question is we will just have to see because it obviously depends on the volume of incoming orders. But with this new production level that we -- the output level we've reached, we're making progress on that every day. And it's a matter of months, not -- certainly not a year. But we're getting into peak season here. So it's a little extra challenge to clear the backlog right now because this first quarter here, December-ish into March, April is the highest demand for us. So we'll just keep working at it and you'll see quarterly how we work that down to 0.
Joe Diaz: All right. Thank you. I will get out of the queue. Wyatt?
Operator: Our next question comes from George Melas with MKH Management.
George Melas: My question about the gross margin and I appreciate all the detail you put in the Q to try to help us understand it. If I go back to certainly late '21, early '22, when you had similar revenue levels, in two quarters, December '21, March '22, revenue was $5.4 million and $6 million, which is exactly what you had in the last few quarters. The cost of goods sold was significantly lower. I think probably it was $2.9 million and now it's on average, the last few quarters is $4.3 million. So the delta is like $1.4 million of added costs. And I think we talked a little bit about inflation. We talked about yield issues. But is there a way you can help us understand a little bit better the increasing the cost of goods sold? And do you have more batches going through the process with lower yields? But I guess on the cost of goods sold, you probably can have pretty good granularity about every aspect of that cost. So maybe help us understand that, if you could.
Michael Brigham: Yes. Certainly, an important question, George. I think you almost asked it and in part at least answered it but I'll repeat. And thank you, I do use the Q to try and get into some of this detail because I think -- I know it's important. I know you and others are curious. I know we are curious and concerned. It's critical. We spent the better part of basically '23 so laser focused on contamination. That was just such a critical event. It'd be nice to report to you, we fixed the contamination and we're right back to our old gross margin. Well, I can't. But I do think you talked on the -- touched on the key factors or variables. Yes, I think if I remember, you were comparing sort of '23-'24 to '21-'22, yes, that is -- those are two different periods for a lot of reasons. But again, the first one in contamination, those costs are just written off as we go. When we were losing those batches, that was -- there was, I guess, expensive write-offs of scrapped inventory that certainly weren't in our gross margin budget. But you also touched on yield, and I think that's right. Coming out of this period of contamination, it would be nice if we could just say we jumped right into the higher output level and have the same yields, but we don't. So there's a lot of work we're doing on yield. It's a very tricky biological process. Little things make a big difference. I feel like we are addressing a lot of factors that are going to positively impact the yield going forward. But that's the key -- I think that's the number one key goal or initiative going forward is -- yes, you said yes, you're right, more and more cheese batches. That's probably a good metric for measuring our production. More and more cheese batches at less and less yield is not going to work, but 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, yield's 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 Q and I believe the prior Q as well. Product line format mix, when I bragged there a bit about efficacy and growth and customer demand and customer support for the product, our original bivalent format in a bolus is still in the market and some customers love it. But a lot of our growth is coming from the trivalent, the newer format, the Tri-Shield. And that product simply is more expensive to make. You go -- we go back to cheese batches. It essentially takes one cheese batch to make a bivalent bolus capsule product. It takes two cheese batches for every dose of Tri-Shield to get that third antibody into the tube. So I'm kind of going on top of mind here after spending a lot of time with this issue every day and certainly in preparing the Q, but contamination, yield and product mix are the challenges we need to fix to get that gross margin back to that 35% to that 40% level.
George Melas: So that means that essentially if you compare to a period of time roughly two years ago or two, three years ago, when you had similar revenue levels, now you have more batches. So that is one of the factors in the high cost?
Michael Brigham: Yes, more batches, but also -- more batches total to increase the output but more batches per dose to get the Tri-Shield, 2:1. So that's definitely a factor. Yes, I think -- yes. And I think -- I mean we even had some 50% margin back in the days when we had a bolus or capsule business of about $10 million in sales. That's -- it's the same company, but it's a different business when we started doubling that over to $20 million plus adding in the Tri-Shield. It's a very different look. It's a very different look for the staff, for the equipment, for the facilities. And we've got to work it in -- as I said in the Q, I don't expect to get back to 50%. It's a different business, but we're growing the sales and growing the gross margin dollar even at that lower 35%, 40% level – target.
George Melas: Yes. Quick question on the P&L. Some of the costs were down, especially product development but you explained that. Sales and marketing was down a little bit as well. Is there a way to explain that?
Michael Brigham: It's a big ask. We're asking the sales team to do two things; grow sales and save money. So it's a balance. But the team is consistent as far as headcount, so no increase, no decrease. We've managed programs that we'd like to spend and fund the ones we have to spend. Because when you're in that cash crunch, when you're in that contamination period, we look at all levers to reduce cost. So yes, it's that simple. We -- there are some selling expenses that our VP of Sales, Bobbi Brockmann has done a great job of managing and controlling and reducing, at the same time, not cutting anything critical to fuel that growth. So good expense management by the sales team. And yes, the product development is kind of very different now. All the inventory we want -- need for this control launch has been produced. We simply don't need to produce more inventory so we can reduce costs, but we can't have chosen not to eliminate those costs because we want to stand ready for an FDA inspection in a plant that we call aggressive idle. So it's ready to be brought into -- back into service. It's not mothballed, but it's not actively producing inventory, and that is simply to save some money.
George Melas: Okay. Great. And then power question you also discussed and I appreciate that very much, the increase in the debt. But then you have section, where you talk about a possibility of having a spray product that would actually reduce that -- I think that it's lower cost, it's slightly different product and it would be a way to absorb the [WIP]. Can you talk about that just a little bit more?
Michael Brigham: Yes. 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 going into '25, we're going to get that to market and see if that is a less expensive but different format way to use up some of that [WIP] that you're talking about. I mean the inventory of hyper-immunized raw colostrum, frozen raw colostrum. So it simply is different. We spend a lot of time and thereby money to 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 going to be more of a bulk product. It would be more for a different customer, a large calf ranch, say, that's mixing bags of feed rather than a capsule of First Defense or two of First Defense. So I'm kind of excited about it, but it's unproven. But we're trying to be creative and just find new customers and new sources of revenue.
George Melas: I see. So it’s a spray that you spray on the feed rather than give it separately to the.
Michael Brigham: Well, no, George, the spray refers to the production process. So you got your liquid colostrum. You either run it through the cheese and all the filtration process for the concentrate, those antibodies to a small dose and then we lyophilize it. That's freeze-drying it. This new -- potentially new format would be skipping all those process steps, taking the raw colostrum and spray drying it. And so it's a powder that will be added to a batch of milk to be fed to calves. So the spray refers to the one of the key production steps. The application would look like a capsule, only it takes a lot more capsules because we haven't concentrated down to that 4 gram level for the current First Defense capsule. It'd be the -- a bulk feed powder.
George Melas: Got it. Okay. Interesting. And then on Re-Tain, any possible update on your contract manufacturer and then getting through that inspection process?
Michael Brigham: Yes. The best update is that I don't have an update. And what I mean by that is it hasn't been delayed and it hasn't been accelerated. We are confident that they are working very diligently towards resolving these answers and we'll have their -- they've made progress submissions along the way. But the final-final is still on schedule for December and that's been consistent that -- as I said, hasn't moved forward, hasn't pushed back. The issue is what does the FDA do with that submission. Because as soon as that submission is cleared, we can get through what I said was the non-complex response on our side on the -- what's called the CMC or the manufacturing Technical Section.
Operator: [Operator Instructions] And the next question comes from [Jane Lindenman] as a private investor.
Unidentified Analyst: Michael, it's Bruce. Congratulations on getting all that stuff behind you.
Michael Brigham: A little bit of progress. Thank you.
Unidentified Analyst: We're just curious, about how many shares were sold? And are you going to continue -- do you need to continue the ATM?
Michael Brigham: Yes, that's fair. So for the specific or the detail, I would refer you over to the Q. I've got a subsequent event note in there and I've got a detailed description of the specific shares and -- shares issued. But at a high level shoot, I wish I had my notes right in front of me.
Unidentified Analyst: I'm just looking for an approximate number.
Michael Brigham: Yes. I think we went from like -- it was like 1.1 million. We went from 7.7 million to 8.8 million shares outstanding.
Unidentified Analyst: Okay. Is that -- do you think you're finished for now?
Michael Brigham: With this ATM, what we do is -- and this is across the board with all public company ATMs is the specific disclosure is historical and quarterly as to what happened and we leave a little flexibility into what will happen as far as Board discretion. But at the cash levels that I mentioned to you, take me off the sort of the super-hyper-concern level to, yes, we can work with this. And then -- because the answer really -- the future really depends on what are our capital needs, what do we need to spend money on and also as far as price. So 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 Q is very specific on the year-to-date.
Unidentified Analyst: Okay. I was just curious because it seemed like you got the cash balance to a decent level so that it's different to sell stock at [3.5 or 4] as opposed to higher levels.
Michael Brigham: Exactly. That's true. And you can see that just if you compare the nine month numbers to the subsequent event, it very significantly sort of lowered the big volume, was back in the third quarter.
Unidentified Analyst: All right. Well, good luck. We're looking forward to the launch.
Michael Brigham: Great. Appreciate you, Bruce and Jane, for your patient following.
Unidentified Analyst: Long over 20 years.
Michael Brigham: Is it 20?
Unidentified Analyst: Before Pfizer (NYSE:PFE), right? Was it before Pfizer?
Michael Brigham: My goodness. Isn't that amazing? Time flies. Wow, thanks for reminding me of that. Holy cow.
Unidentified Analyst: Okay. Thank you, Michael.
Michael Brigham: Be well. Thank you, Bruce.
Operator: 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.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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