ImmuCell Corporation (NASDAQ:ICCC) Q2 2023 Earnings Call Transcript August 11, 2023
Operator: Good day, and welcome to the ImmuCell Corporation Reports Second Quarter Fiscal Year 2023 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Joe Dorame with Lytham Partners. Please go ahead.
Joe Dorame: Thank you. Good morning and welcome. As Betsy indicated, my name is Joe Dorame with Lytham Partners. We are the Investor Relations consulting firm for ImmuCell. Thank you. As I indicated that we will be discussing ImmuCell’s unaudited financial results for the quarter ended June 30th, 2023. With us today on the call is Michael Brigham, President and CEO. After the conclusion of today’s prepared remarks, we will open the call for questions. Before we begin with prepared remarks, I would like to remind everyone certain statements made by management during this conference call include forward-looking statements which include any statements that refer to future events or expected future events 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 on the cautionary note regarding forward-looking statements or the Safe Harbor statement provided in the quarterly report on 10-Q that the company filed last night along with the company’s other periodic filings with the Securities and Exchange Commission. Information discussed on today’s call speaks only as of today, Friday, August 11th, 2023. The company undertakes no obligation to update any information discussed on today’s call.
Please note that references to certain non-GAAP financial measures, which may be made during today’s call. The company included definitions of these terms as well as reconciliations of these figures in the most comparable GAAP financial measures in last night’s press release in order to better assist you in understanding its financial performance. Now I’d like to turn the call over to Michael Brigham, President and CEO of ImmuCell. Michael?
Michael Brigham: Great. Thanks, Joe, and good morning, everyone. First, with regards to the financial results, last night’s press release reports no change to the — our product sales that were first reported on July 11th. The press release also provides the full unaudited P&L results and some unaudited summary balance sheet data. We also filed our Form 10-Q for the quarter ended June 30, 2023 last night. I won’t take your time here to review those financial results in detail. Last night’s press release also includes our non-GAAP earnings before income taxes, depreciation, and amortization or EBITDA. Please see page five for that. You can see a significant swing of $3.4 million from positive EBITDA of $1.2 million during the six months ended June 30, 2022 to negative EBITDA of $2.2 million during the six months ended June 30, 2023.
This negative swing in EBITDA pretty much matches a $3.5 million increase in our net loss from a loss of $171,000 during the six months ended June 30, 2022, to a loss of $3.7 million during the six months ended June 30, 2023. The increase in the net loss was in turn, largely caused by the $3.5 million decrease in gross margin earned from $4.8 million during the six months ended June 30, 2022, to $1.3 million during the six months ended June 30, 2023. So what is going on here? Let me try and speak to that. First of all, we are very fortunate to have the support of our partners at Gorham Savings Bank and the Finance Authority of Maine through a combined $3 million debt facility that we closed in July. This was very important to our cash flows.
Second, I would like to point you to a disclosure on page 30 of the quarterly report under the heading Production Capacity Increase, Product Contamination and Related Events, in which we review some of the significant challenges we have faced over the last 12 months that contributed to our current financial results. I would like to discuss some of these changes here. So as of July 2022, we have completed almost all of the facility expansion work and new equipment installations needed to significantly increase our production capacity. However, the most critical piece of new equipment being freeze-dryer number four was delivered six months late by the fabricator. This caused us to lose six months to our plan, but by the end of 2022, we have freeze-dryer number four approved for use by the USDA.
Just as we began to operate at this higher level of capacity at the beginning of 2023, we are forced to slow down production to remediate a contamination event related to our incoming raw material. At the same time, freeze-dryer number two stopped operating requiring a six-month repair, getting us back to three operating freeze dryers. As of early July 2023, we were back to operating four freeze dryers, and the contamination event was largely behind us. I will speak more of that remediation in just a moment. Then during the second week of July 2023, the USDA arrived on site to conduct a routine unannounced inspection and we were required to divert much of our quality and manufacturing personnel to support this inspection, so we could promptly submit our detailed responses to the inspectional observations to the USDA.
As we were preparing our responses under the timeline agreed with the USDA, the USDA imposed a voluntary stop distribution and sale, a VSDS order and hold release on first events until two of the inspectional observations were resolved. This meant we were prohibited from shipping products beginning with the week of July 24th and continuing until these two inspectional observations were resolved. It’s important to note that we were not prohibited from continuing to produce inventory during this period. As of August 4th, the USDA had verbally rescinded the VSDS and the hold release, allowing us to return to near-normal shipping conditions. And since then, that verbal rescind has been updated in writing. Despite this significant diversion of our resources, we anticipate that we will make our third submission of the CMC technical section for retain to the FDA shortly.
This submission will be subject to a six-month review by the FDA. We remain poised and excited to revolutionize the way that subclinical mass studies is treated in today’s dairy market with a novel alternative to traditional antibiotics. So as I said, the last 12 months have been very challenging for us for sure. We have worked incredibly hard to address these challenges and move forward. Based on our responses, I am optimistic about what we can do in the coming quarters. So I’d like to go back to that contamination comment. I’d like to make an additional comment about the remediation of the contamination events. So we have been driven by data as we resolve this temporary production problem, I’d like to explain what I mean by that. All production batches are routinely tested by our quality control team at the beginning, middle, and end of the production process.
During the four month period ended August 4th, all three of these standard quality control tests have met specifications 100% of the time. Improvements throughout the production process from the depth of the contamination problem in January are allowing us to come back into full production. We believe that the operational improvements we have implemented will help us run more effectively at higher output level going forward. Our goal is to be able to produce about $6 million worth of product per quarter, which would annualize to about 80% of our estimated $30 million full production capacity annually. So lastly, I’d like to encourage you to review the press release and the quarterly report 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. And August update was just posted to our website last night, see the Investors section on our website and click on corporate presentation or contact us for a copy. With that said, I’d be happy to take your questions. Let’s have Betsy open up the lines.
Operator:
Joe Dorame: We would like to thank you for participating in today’s call. We look forward to talking with you again when we host our third quarter call on or about Tuesday, November 14th, 2023. Have a great day.
Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
