ImmuCell Corp (ICCC) 2020 Q1 法說會逐字稿

Good morning, and welcome to the ImmuCell Corporation Reports First Quarter Fiscal Year 2020 Financial Results Conference Call.

(Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Joe Diaz with Lytham Partners.

Please go ahead.

Thank you, Brendan.

Good morning, and welcome to all of you.

My name is Joe Diaz.

As the operator indicated, I'm with Lytham Partners, and we're the Investor Relations consulting firm for ImmuCell.

Again, I thank all of you for joining us today to discuss the unaudited financial results for the first quarter which ended March 31, 2020.

I would 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 are available under the cautionary note regarding forward-looking statements or, in other words, the safe harbor statement in the company's press release and its Form 10-Q, which were issued last night, and can be obtained from the SEC or by visiting the Investors section of the company's website at immucell.com.

With that said, let me turn the call over to Michael Brigham, President and Chief Executive Officer of ImmuCell Corporation, after which we'll open the call for your questions.

Michael?

Okay.

Great.

Thank you all for taking the time to join today's call.

I do appreciate that.

Just last night, we filed our Form 10-Q for the 3-month period ended March 31, 2020 and issued a press release summarizing some of the key results.

So I'm not going to rehash a lot of the detail that you can pick up from the Q and the press release, but I would like to highlight a few of what I see as some more important disclosures.

So first, with regards to the press release, I'd say about 3 things: product sales, top line, 11% growth, a good quarter for us, ending the quarter with an additional $1.4 million worth of demand on backlog.

And that brought us to a $14.2 million annual revenue trailing 12 months, $14.2 million.

The other number two on the press release, you'll see a link in there.

We talked a little bit about the leasehold improvements, the project to expand First Defense production capacity.

So that project's going well.

If you have a chance to click on those pictures or you can pick them up through our website, you can see that we're at the late stage of that project basically turning a warehouse into assembly space.

Really, really going well, on budget, on time.

I'll call that basically sort of Phase I, and we're approaching the certificate of occupancy.

We see that coming here pretty quick, the move in.

And we get up and running with assembly in that building.

Phase II is going to lyo, the freeze dryer, the third freeze dryer up and running in the space here at 56 Evergreen.

So that starts next.

We need to move equipment out of 56 Evergreen in order to make room for that freeze dryer, and then we'll move on to the expansion of our liquid processing.

So third and final, I guess, the press release is a good place for me to talk about some non-GAAP measures.

If you look at Page 4, there, we talk a little bit about what we call income before income taxes and certain noncash expenses generating about $600,000 in the first quarter.

It's a slightly different number than EBITDA.

We reconcile it back to EBITDA.

EBITDA was $770,000 first quarter 2020 versus $836,000 first quarter 2019.

And then if I may, turning over to the Q with a few highlights there.

I think I'd start with the subsequent event footnote, footnote #20.

Just pointing out the PPP, the Paycheck Protection Program, money.

We did receive $938,000 in funds under that federal program, and we have noted that we expect all but around $100,000 of that to be forgiven.

But it is subject to certification by our bank under federal guidelines.

And we've all seen a little bit of talk lately about public companies should not be taking this money or receiving this money.

And obviously, we're making the argument that we're not a big public company or a small public company.

And we do want it.

There was some ruling that came out yesterday that suggested -- I believe it was yesterday, very recently, that suggested PPP loans under $2 million would not be subject to deep scrutiny.

We're certainly under $2 million.

And just -- we're going to have to just work out this process to make sure there's not a public company, arbitrary, one-size-fits-all rule.

So that's a little uncertain right now, but I think we should prevail.

And we'll certainly make that argument to give us a little bit of that $800,000-ish of financial flexibility going into later this year and potential pandemic-related, economic-related challenges.

So probably too much set on that one.

But moving on, if I go into the MD&A, Item 2 MD&A of the Q. I do want to highlight the bank refi, a really good deal with Gorham Savings Bank.

We're able to lower our interest rates.

We're able to take out our variable interest rates to a fixed rate of 3.5% and avoid some balloon payments coming our way and just a better cash flow for us on principal repayments.

So a lot of detail on product sales follows that.

I highlighted the top line in the press release.

And let's see.

I wanted to highlight just sort of update on Re-Tain and the FDA process.

So we're moving straight ahead with that.

COVID or no COVID, the FDA is open.

They are responsive.

Norbrook is open.

They are responsive.

So we see our submission, the next critical submission of the manufacturing technical section going in fourth quarter.

That will be subject to a 6-month review.

That's a standard statutory review.

So we get it in fourth quarter 2020.

6 months later, we get a response.

Obviously, we're hoping that will be a complete -- we think we reduced a lot of risk in order to get that first time complete to -- 2 ways we reduced risk is, one, we've already submitted the drug substance section of this technical section, in other words, the making the active.

So this is really adding drug product to complete the submission, that being the drug substance we make here in Portland, having it aseptically filled into a syringe by Norbrook.

So it's that final submission there.

And working with Norbrook, who is a world-class aseptic filling expert, reduces some risk as well.

But we'll see.

We just won't know.

And so if it's complete 6 months after submission, there's about a 60-day admin review, and we would expect approval.

If it's incomplete, we'd have to answer their questions and resubmit for another 6 months.

My last couple of points.

COVID is with us all in every way, in many ways.

We've put a couple of new risk factors in and around Page 37, first, talking about the economic downturn.

And I'd like to just read one on that note.

So milk is being dumped on farms largely because of the loss of demand for dairy products from closed restaurants and school lunch programs, and other negative impacts of the COVID-19 pandemic.

There is also uncertainty for beef producers as the supply chain is interrupted due to closures of processing plants and reduced throughput caused by the COVID-19 pandemic.

This is a very unusual situation for farmers.

They worked so hard to improve production, quality and efficiency in order to feed the growing population.

So there are other disclosures in here about milk price.

And it's just as recent in January and February, we were projecting basically a banner year on milk price, and it's now back down to low levels.

So we've got some -- our customers have got some challenges.

Our job is to maintain First Defense as a superior technology position in its market.

So if the total market does shrink a little bit, we are able to maintain or grow because we take more of that market share competitively.

And then the second risk factor I was going to highlight was the next one around Page 37 just talking specifically about COVID.

It's what you all might expect.

Our exposure to this risk is mitigated, to some extent, by the fact that our supply chain is not heavily dependent on manufacturers in a lot of these affected countries, and the ongoing cross-training of our employees, the implementation of remote work practices for us wherever feasible and early compliance with recommended hygiene and social distancing practices.

But we're going to just continue to live through this unprecedented period of economic and market risk.

So far, so good.

I'm really proud of the team and the way we've been able to keep supply and keep producing.

And to me, it's day-by-day and week-by-week as we go forward here into the second, third and fourth quarter and manage this pandemic risk.

So that's a bit informal, not really scripted, as you may have noticed, but we've spent a lot of time writing the Q and writing the press release.

So I just referred to those sources and picked out what I saw was important.

I also want to highlight one more thing.

So lastly, we did just issue a press release this morning regarding the 2020 Annual Meeting of Stockholders.

And given all the safety precautions we have implemented around our facilities during the COVID-19 pandemic, we have decided it is best not to open our doors for an in-person visit at this time for the safety of our employees and for your safety as well.

So today's press release provides instructions on how you can access our virtual meeting on Wednesday, June 10, at 3:00 p.m.

Please review those details and let us know if you have any questions.

So in conclusion, I, again, encourage you to review the Q, the Form 10-Q and the press release that we filed last night also.

Please take a look at our updated corporate presentation slide deck.

A May 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.

You would see it in the Investors section of our website and click on corporate presentation.

So with that said, let's have the operator open up the lines for your questions.

I would be happy to take your questions.

(Operator Instructions) Our first question comes from Sam Rebotsky with SER Asset Management.

I hope everybody is staying safe and well, and we'll sort of get through all this.

My first question relates to the $1.4 million backlog relative to the First Defense.

We couldn't produce this.

What is the rationale for the backlog?

And how -- do we need the new facility to be up and running to sort of reduce the backlog?

Or give me some color on that.

Yes.

I mean, one answer is great work by the sales team.

I mean, the first quarter was largely in front of the impacts of the COVID pandemic.

Sales team was fully charged in the field, and the market was strong and looking -- as I said, looking to be strong for the rest of the year.

So great demand.

Great work with our sales team.

And then to production, yes, we need this expansion.

We're pushing every button in this building as we can.

That first quarter was $4.9 million.

If you annualize that out, we're getting close to $20 million worth of production.

Of course, I'm not suggesting we would be there.

First quarter is our highest season.

I'm just saying that's a lot of product to push out the door, and it wasn't enough.

So we've come to find our capacity is around $18 million and needing this expansion to get up to $27 million.

So we're going to just keep going and build that backlog, but it will ultimately take the expansion to get us to the point where that backlog goes away and stays away.

Did we eliminate the backlog as of now?

Or when do we expect to eliminate the backlog?

As soon as possible, but not yet.

So it's a moving target because we've got new orders coming in just as soon as we're filling old orders at the same time.

But yes, we're working through that in the second quarter, but I don't know if it'll be 100% clear on June 30, but we're making progress.

Well, that's wonderful.

Now as far as the submission to the FDA, we expect by 2021 and a response in 6 months, if we get a complete, do we have to do something else?

Or what do we have to do as far as the Re-Tain and the Mast Out?

Right.

Yes.

I mean, so I think really the answer's no, nothing else.

I mean, we're -- I mentioned the 60-day administrative review.

So we do -- don't just go right to market, but we -- there's one more step in the process.

But basically, 5 technical sections, 4 complete.

We need to skip on complete, a manufacturing one, plus the 60-day admin review and the go-to-market -- we're approved for market sales.

So -- and the submission is basically that the plant is functioning properly and you're producing the quantity that you're going to sell in the plant.

That's what the submission is?

It's a little different than that, Sam.

So the first phase submission was strictly more what you described, drug substance, the Nisin, the active ingredient we make in Caddie -- at the Caddie Lane facility.

So we're responding to the questions that they raised when they issued an incomplete on that.

And it was incomplete because they had questions, and it was incomplete because we hadn't submitted drug products.

So the real new focus of the pending submission is to answer those questions and then submit all the drug product, that being the drug substance aseptically filled in the syringe.

So that is new material that they've not seen yet.

And that's where we partner with Norbrook to hopefully get them something that they are -- is acceptable.

Okay.

Now -- and as far as treatment of coronavirus in cows, have we had any further discussions or results whether this is utilizable for any other animals or anything else?

Yes.

It's a very fair question, Sam.

I didn't highlight it on my talking points there.

But on Page 26, we did put a pretty definitive answer, and it's no.

I think what we expected, the human coronavirus is different than the animal coronavirus.

We've had to test it in a lab, and those results were confirmed.

It's just -- it's not -- the cross-protection is not there.

So we're not going to be able to provide a viable solution to this pandemic, but that's it.

That's under there.

Okay.

And one final, do we need to raise any more funds?

Are we suitable through the end of the year the way we are?

Yes, yes.

Suitable, I guess, yes, sure.

I do want to make sure we achieve forgiveness on that PPP loan.

That's critical to financing going forward, but, yes, no plans of go-to-market this year.

I mean, I just don't know how deep the crater is going to be, how deep the economic collapse is going to be.

So it's hard to say definitely, but I don't see that.

We've just tested it.

We can handle a drop in sales with the PPP covering us.

So yes -- no, my expectation is not to raise money.

Okay.

I want to congratulate you and ImmuCell on the performance, on the sales and on the growth of new products.

Keep up the good work, Michael.

Great.

Thank you, Sam.

(Operator Instructions) Our next question comes from Paul Nouri with Noble Equity.

It looks like the gross margin was around 45% or so this quarter.

Given your product makeup now, is this what we should think about as a normal gross margin for you guys?

Or once you get the expansion complete, should we expect a higher gross margin?

Yes.

That was a little surprising to me.

It's definitely the 46% is lower than we want.

Our goal is 50%.

I don't worry about the depreciation component, which is in there, at least cash margin's obviously a little bit better than 46%.

But this -- our growth is being fueled by the Tri-Shield business, the gel tube business.

And the gel tube product and process is more expensive.

So we have got a real repeatable and solid 50% plus margin on the capsule.

But that business was maturing and didn't have a growth -- the explosive growth we're seeing out as Tri-Shield.

So we may suffer a little bit on the percentage, but we feel it's worth it because we're going to grow on the total dollar, receive the total dollar gross margin.

And yes, we just think that's going to get better over time.

We're going to get better yield out of our cows.

We're going to get better throughput out of the expanded capacity, more throughput over fixed costs.

So I don't think we're going to go back to the old bolus days of well over 50%, but I think we can get back to that 50%.

And those are the drivers, yields out of our cows, our expanding herd of source cows and more throughput over fixed costs.

Okay.

And I guess that given that you're still working through your backlog, I guess, the virus has not negatively affected demand for the product here?

Not extremely negative.

So we're seeing the signs, and we're seeing the stress that our customer's under, so that's definitely not positive.

But we're offsetting it with the value proposition.

And this market is resilient.

We are selling a product that helps them save money.

We've had comments -- like one interesting comment was I need to get that Tri-Shield.

I don't have labor to treat sick cows.

So there's opportunity for us like that even in this low milk price environment.

And the second and third quarter was also an answer to that question.

It's just we've got to play it out.

And on the last call, I think you've it brought up casually that you had sent in your animal coronavirus vaccine or product to the health authorities just to see if there was anything they could do with it.

Are there any developments with that or no?

Yes, that's -- I was -- I think that was Sam's question.

I was referring to our short paragraph on Page 26, just above the gross margin analysis, where we did work hard to get that -- our antibodies tested.

It took a little longer than we would have liked, but we did ultimately get them tested, and the answer was what we expected.

No, there is not that cross-protective opportunity for our antibodies.

The data was not there.

So it kind of confirmed that we did believe that this animal bovine coronavirus is different than the COVID-19 human virus, and there's not cross-protection.

Okay.

And then last question.

The sales marketing and admin expenses as well as the product development expenses, should we expect any significant increase in these lines in the next few quarters?

Or should they remain about where they are now?

Yes.

No.

I think in this environment -- but, honestly, even without the pandemic, those figures that -- we're not looking.

We're controlling those expenses.

If we can reduce them, we will.

Right now, we're not making drastic cutbacks, real harsh and extreme cutbacks.

So -- but at the same time, no increased plans.

Just we're kind of going to level through these next 2, 3 quarters.

(Operator Instructions) Our next question comes from Brad McCurtain with Maine Securities.

Great to see sales moving ahead here in this environment through the end of the quarter anyway.

Can you give us a little color on how they have looked here for April and so far into May?

No.

I mean, I just don't do that.

I mean, that would be in violation of Reg FD.

We're going to announce these results as soon as we have them, and we've just sort of not been in the projection business.

I don't have an analyst that works on that with me, and we've just done 2-monthly sales reporting.

So that's my short answer, no.

I think that probably doesn't surprise you.

But in general, we're going full steam ahead.

It's whether we -- the first level of business is to fill the orders we already have, and orders have not dropped to 0. So we're bringing in new orders as we go.

But how the second quarter plays out here on May 14, halfway through the quarter, yes, I don't want to make a -- I don't have a good way to make that projection.

Sorry, Michael, I didn't mean for the quarter, just how things are looking so far here in April.

A lot of businesses have seen their business fall off quite a bit here, and we read a lot about what's going on in the dairy industry.

So I was just trying to see if things are essentially consistent with what they've been here in the past or if you're really seeing something a little bit different from what a lot of companies are seeing.

Right.

Yes, you're asking that was speaking to really not making monthly public sales disclosures, but yet we make quarterly.

So it's something I want to see how not just the first half of the quarter and the whole -- put the whole 3 months together and put it out there.

But the point I was trying to make is customers are resilient.

Our product, I think, has a place to play even in a down market.

And the sales team is aggressive and creative and trying to make that happen.

But it's too early to know what ultimately is going to happen here.

Sure.

Just kind of moving from there a little bit over to the Paycheck Protection Program loan.

Cash at the end of the first quarter, net working capital in the first quarter looked pretty similar to what it was at the end of the year.

And was there really a need for this?

I mean, we do have access to capital.

You've obviously sold a lot of stock over the past few years.

You just refinanced with the bank.

Was there a need for this?

Or did you take it because it was out there?

Oh, I think when you do contingency planning for a pandemic of this size and the economic potential harm that's your way, you look for every opportunity you have to mitigate downside.

And that's what this planned program was designed for.

And we kept our -- we met the primary objective of the program, which is to keep people employed, cover payroll.

That was based on a run rate of payroll in 2019.

The actual will be adjusted to -- we're about halfway through this 8-week measuring period.

And it's allowed us to not miss the payroll dollar to keep the business going.

And it's a security for what may happen here going forward.

But I think that was the purpose of the plan, is to get payroll dollars out into the market, keep businesses moving forward.

And we fit that description quite well.

We've done the best we can to do that.

And I'm happy to be a relatively small participant in this mega dollar program.

Right.

Well, I think the plan was for businesses that were planning on laying off their employees to be able to keep them on.

But I won't debate, but if you feel you met the obligation.

It just there's a lot of backlash against public companies, as you know.

And you may be smaller, but it just strikes me that the working capital, the cash level here, the sales up in the first quarter, it seems like a stretch to make the case there.

But other question I had for you, syringes, there seems to be a lot of talk right now if we're able to find some sort of vaccine that one of the issues is finding enough syringes for the vaccine for the pandemic.

Do you see that -- obviously, there's nothing in the Q speaking to that, but do you see that as a potential issue?

Or are you pretty firm with the supplier?

Yes, I see no issue with the supplier.

This is a huge company, Hubert De Backer, providing these sort of different syringes.

They're not the human injectables.

They're intramammary infusion pieces of plastic.

No indication that there's any problem there.

In fact, to make this submission later this year, we're needing to access syringes for the studies.

So we've been successful.

And yes, I don't see any indication or problem with Hubert De Backer.

Okay.

Excellent.

And then just the final is just a question.

Would you consider moving these to Webex presentations going forward?

I have not seen the presentation that you've put out there, but I'd like to, but it'd be great if you could walk us through during these meetings the presentation that you've put out.

So I'm guessing the annual meeting will be a Webex or equivalent, correct?

Yes.

It's either/or option or both for the annual meeting, and you'll see that in this morning's press release.

But yes, it's going to be the Webex.

But as I speak live here, actually, the way this Webex, I believe, is going to be set up is just another access to come in.

So we're leaning on the website for the slide deck.

I think the slide deck that we put up last night is the same slide deck I'm going to use on June 10.

So people will have a chance to look at it in advance, but I definitely want to walk through it.

But the -- some of these services that you see from bigger companies are up to $10,000.

I mean, I just couldn't see spending that kind of money.

So we've got a much more cost-effective approach.

It will be the audio connection and the slides on the website, again, that are there now, and we'll talk through them.

But yes, we'll -- I'm learning.

Everyone's learning the new virtual world.

So this will be a first for us on the annual meeting.

Brad, back to the small company and the PPP, it does support payroll.

I don't -- I'm not aware of a rehiring criteria.

I think it's supporting payroll.

So the fact that we had the money and then didn't need to furlough or lay off, I think, is relevant and is meeting a criteria.

And that's ultimately going to be the calculation.

75% of our forgivable piece will be payroll.

And then the argument I'm going to be making is to the small sides.

And we've pointed out that we did raise money, and that's really part of my argument.

We scratched and we worked hard with Craig-Hallum to raise the money.

We did raise to fund the 2 programs that we are funding.

And the ability to go back to market right now for a stock like ours, of finding serve stock or the market cap where it is, I don't think it's there.

I think that the public company outcry is towards the big guys, who have ready access to raising money.

And we're a little different than that broad categorization of all public companies anyway.

We'll play that one out and see how we prevail.

(Operator Instructions) Our next question comes from [Frank Castle] with [Andover].

Would you just describe the plant and where you are?

I was on the website, saw the pictures, et cetera, this morning.

I took a tour of the plant quite a -- when that opened, I guess.

And I'm wondering what the goal is.

Again, are you meeting your goal?

And is everything going well here?

Is it -- are those pictures really relevant?

Or are they pretty historical?

Well, yes, good, Frank.

I think we're confusing 2 different plants.

So let me describe.

So the headquarters is 56 Evergreen.

That's where we make First Defense today, all USD operations.

I think the facility you toured because we really haven't had tours over at the First Defense facility.

I think the facility you remember touring was the Re-Tain facility at 33 Caddie Lane.

So that was the 20 -- yes, okay.

That's the $21 million investment.

That's complete.

That's where we're running and producing drug substance to complete that FDA application.

So no new construction over there.

That's complete.

That's been complete.

What you're seeing as construction photos that are relevant is what I've been trying to show is that the third facility is 175 Industrial.

So Caddie's out our back door.

Industrial's at our front door.

Industrial's lease property, we essentially leased a 14,300-square-foot warehouse and built in these assembly rooms, where we're going to finish the product.

So that's the $3.5 million investment.

That's the certificate of occupancy I'm looking for in the next weeks.

That's the move-in, the next stage there to get all of the assembly of First Defense out of 56 into 175, so that we can move the new freeze dryer into the vacated space at 56.

So 56 becomes a liquid processing plant, and 175 becomes final assembly and fill.

This concludes our question-and-answer session.

I would like to turn the conference back over to Joe Diaz for any closing remarks.

Thank you, Brandon.

Again, we appreciate all of you being on today's call.

And we will look forward to talking again at the conclusion of the current quarter sometime in early to mid-August.

Please stay safe, and we look forward to talking with you again soon.

Have a great day.

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