ImmuCell Corp (NASDAQ:ICCC) Q3 2021 Earnings Conference Call November 16, 2021 9:00 AM ET
Joe Diaz - Lytham Partner
Michael Brigham - President, CEO, Principal Financial Officer, Treasurer, Secretary & Director
Conference Call Participants
Scott Billeadeau - Walrus Partners
Good morning. This is Betsy from Chorus Call. I will be assisting with your conference call this morning. To get things started, let me ask Joe Diaz to open up the call.
Thank you, Betsy. Good morning, and welcome to everyone. As Betsy indicated, my name is Joe Diaz. I'm 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 third quarter of 2021.
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 is available under the cautionary note regarding forward-looking statements or better known as the safe harbor statement provided with last night's press release and the company's quarterly report on Form 10-Q.
With that, 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?
Thanks, Joe, and good morning, everyone. I appreciate the opportunity to provide some updates on what is going on at ImmuCell. The press release and the quarterly report on Form 10-Q that disclosed last night, cover all the financial details. Since you have that information, I will not take your time here to review all the line item detail. But I would like to review some highlights and -- after I make a few strategic comments about where I see our business today.
First Defense continues to generate strong cash flow. We are grateful for the interest that our customers have in protecting their newborn calves using our antibody technology rather than scours vaccines. The First Defense product line is the only veterinary biologic with our breadth of claims that can remove the unpredictability associated with scours production that results from a variable vaccine response. This benefit is being realized in the field, and we aim to continue our market share gain with more great work by our production and sales teams.
Earnings before interest, taxes, depreciation and amortization increased to $852,000 during the 3-month period ended September 30, 2021, compared to $354,000 during the third quarter of 2020. EBITDA increased to just under $2 million during the 9-month period ended September 30, 2021, compared to approximately $1 million during the 9-month period ended September 30, 2020. These non-GAAP financial measures of our cash flow should be considered in context with our statement of cash flows that is presented in the financial statements included in our quarterly report.
We are completing our most recent investment in First Defense production capacity, which will increase our annual production capacity from about $16.5 million to approximately $23 million. The production required to achieve our third quarter sales of First Defense when annualized is the equivalent of about $20.1 million of production per year. This is a testament to our production team's ability to maximize throughput during the expansion process. We are not resting at $23 million. We have initiated an additional investment to further increase this annual capacity to $30 million or more by the third quarter of next year.
At the same time, we are investing a significant amount of the cash generated by First Defense into completing the marketing and regulatory work required to being retained to market. We aim to demonstrate that our bacteriocin Nisin A can play a productive role in the treatment of subclinical mastitis in today's dairy industry. Because label requirements of all intramammary drugs on the market today require that milk be discarded and that meat be withheld during treatment and for a period of time thereafter. It is common practice in the dairy industry today to not treat sick cows that are still producing saleable milk.
Re-Tain provides an animal welfare benefit by removing this economic disincentive to treating subclinical mastitis and allowing sick cows to be treated without the milk discard and meat withhold penalties.
In addition to improved animal welfare, Re-Tain enhances food safety and sustainability by utilizing a bacteriocin that is not used in human medicine. The overuse of traditional antibiotics is thought to create antibiotic resistance, which is an ongoing public health concern.
So we are on track to make a second submission to the FDA before year-end of the fifth and final significant technical section required for approval of our new animal drug application. The next fork in the road comes 6 months after submission when the FDA either approves our NADA or ask for the questions requiring another submission.
As you may know, on October 6, we issued a press release covering our preliminary top line sales results. We have been making these optional announcements to give investors a very timely look at what I view as the most critical measure of our operations and financial performance, that being product sales early in the reporting period. I have no changes to that very strong previous disclosure.
Again, product sales were up 38% during the third quarter of '21 and up 19% for the first 9 months of the year in comparison to the respective periods of the prior year. The gross margin as a percentage of sales improved to 47% during the third quarter of 2021 compared to 46% during the third quarter of 2020. We started the year with a first quarter sales drop of 16%, which reduced our gross margin to 39% for the 3-month period ended March 31, 2021. We have recovered from this first quarter sales drop and are on track to report positive sales growth for the full year 2021 over 2020 as projected, and our gross margin percentage of sales improved to 44% during the 9-month period ended September 30, 2021.
This higher level of sales and improved gross margin helped us report net income of $148,000 during the third quarter of 2021, in contrast to a net loss of $323,000 during the third quarter of 2020 and helped us reduce our net loss to $152,000 during the 9-month period ended September 30, 2021, in comparison to a net loss of $1.2 million during the 9-month period September 30, 2020. Of the $10.5 million of cash we had on hand as of September 30, we expect to use about $4.45 million to complete certain capital expenditure projects. This would leave us with about $6 million of cash available for general working capital purposes, including anticipated inventory builds for both First Defense and Re-Tain. Full details about the capital expenditure investments that we are working on can be found in our quarterly report in the MD&A section under Liquidity and Capital Resources.
So in conclusion, I encourage you to review the press release and the quarterly report on Form 10-Q that we filed last night. Also, please have a look at our corporate presentation slide deck and November update which was 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. So see the Investors section on our website and click on corporate presentation.
With that said, I will be happy to take your questions. Let's have the operator open up the lines.
[Operator Instructions]. The first question comes from Scott Billeadeau with Walrus Partners.
Just wondering, as you bring on the new capacity for First Defense is -- last time you had a little dip. Any issues with as you bring that capacity on? I think you mentioned by Q3 of next year or into Q3, you'll have up to $30 million of capacity maybe kind of the staging of that. Will that scale up or maybe give us a little sense of that?
Sure. Scott, I'm not sure about the -- which dip or a dip that you might be referring to, but let me see if this answers your question. So pre-expansion, we were running capacity of about $16.5 million. So this first investment was to get it up to $23 million. I look at -- right now, basically, everything we make, we're shipping. So basically, sales kind of reflects production. So when I annualized the third quarter, we're at $20 million, $20.1 million. So you can see us stepping right in the middle of the path from $16.5 million to $23 million, we're at $20 million. I think in the fourth quarter, we'll finish that.
The last pieces of this project are being plugged in. So that gets us to $23 million. What we did on -- for that next level that you referred to as we started that investment really as part of the first phase. We made the space for the equipment at that time so that construction work is done. But we didn't buy the equipment yet because we wanted to see the first phase equipment work and actually make sure we are confident with it. So something like a month to 6 weeks ago, maybe it's almost 2 months now, we did order that piece of equipment. It is a long lead, and it's a complex piece of equipment and a big installation, and that's the one that will be in place third quarter of next year. So the order is placed, the fabrication is started in third quarter, that's what gets us up to that $30 million level. Does that answer the question, Scott? Yes.
Yes, it does. Great. And I know -- have you had pretty much worked through backlog at this point? And how are -- are customers still ordering in advance? Or maybe give us a little view of that. That would be great.
Yes. That's a really good question. The way -- I want to see the backlog go away. But there's 2 ways it goes away. One is demand goes away and we're not seeing that at all. So I'm seeing this backlog turning a little bit into the good news. It's not -- I don't mean that truly. It's not good news. I got a customer who wants product, he wants to pay for it. I want to close that sale. But it is better than the alternative. So the backlog is persisting, but it's persisting with this increase in sales. So we're chasing both. We're chasing it right off the ladder, and we will catch it. But as long as the sales are increasing, I see the backlog as a little bit of a good sign, but something nonetheless, that we've got to fill. And that ladder we talked about $16.5 million, $20 million, $23 million to $30 million, we're going to catch it in that step up.
Yes. Great. I think that's all I had. I mean, so Re-Tain kind of is what it is. I guess you submit, and it's 6 months before you really get the result. Anything you're doing for pre-marketing in advance of that or what you need to do or how you're situated at this point?
Yes. So that is something that our Director of Sales and Marketing, Bobbi Brockmann is getting more and more active in. Splitting -- she splits her time between First Defense initiatives and Re-Tain. One of the positive things we've done lately is hired veterinarian, Raffael Lichdi on to our staff. He's very involved with that Re-Tain launch. So yes, as we hope that approaches, say, we submit here yet in the fourth quarter, so 6 months later, we get to a response, if it's positive. That's what the team is working on right now. So yes, we're starting that work, working with some very influential veterinarians, very well-experienced veterinarians, some other consultants and some large dairy producers. And yes, you start to see the end of this 20-year development and start to anticipate commercial sales.
[Operator Instructions]. 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, Betsy, and thanks to all of you for participating in today's call. We look forward to talking with you again to review the results of the full year ending December 31, 2021, sometime around the end of March. Have a great week, stay safe and well. Thanks.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.