ImmuCell Corporation — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2022. The unaudited filing was submitted August 11, 2022. ImmuCell develops and sells animal-health products, principally First Defense for preventing scours in newborn calves, and is developing Re-Tain for subclinical mastitis in dairy cows.
Financial performance and position
| Metric | Three months ended June 30, 2022 | Six months ended June 30, 2022 | Comparable 2021 period |
|---|---|---|---|
| Product sales | $3.86 million | $9.86 million | $4.54 million; $8.65 million |
| Gross margin | $1.71 million; 44% of sales | $4.81 million; 49% of sales | $2.07 million; 46%; $3.68 million; 43% |
| Operating income (loss) | ($619,000) | $174,000 | $216,000; ($159,000) |
| Net income (loss) | ($684,000), or ($0.09) per share | $52,000, or $0.01 per share | $141,000, or $0.02; ($300,000), or ($0.04) |
Second-quarter sales declined 15% year over year, while first-half sales increased 14%. First Defense accounted for 99% of first-half sales. The second-quarter sales decline was attributed in part to a shortage of plastic syringes for gel products, despite approximately $799,000 of unfilled orders at quarter-end. First-half gross margin improved as higher sales spread fixed costs over more production, though quarterly margins fluctuated.
Operating cash flow was $1.01 million for the first half, compared with $107,000 in 2021. Capital expenditures were $1.75 million, and financing activities provided $1.59 million, including $2.0 million of additional mortgage debt. Cash increased to $11.04 million from $10.19 million at year-end. Net working capital was approximately $14.82 million.
Total debt obligations were $10.70 million at June 30, including current and long-term portions; the company also reported a $1.0 million undrawn line of credit. The additional $2.0 million mortgage borrowing carries a fixed rate, and the amended mortgage extended and increased the balloon payment. Debt is secured by substantially all company assets and subject to financial covenants.
Material changes and business developments
- First-half sales rose $1.21 million year over year, driven by domestic sales; international sales fell 24%. Second-quarter domestic and international sales declined 12% and 41%, respectively.
- Inventory increased to $4.60 million from $3.09 million at December 31, 2021, as the company built production to address demand and supply constraints.
- Sales and marketing expenses rose 54% for the first half to $1.47 million; product development expenses rose 7% to $2.17 million, and administrative expenses rose 17% to $991,000.
- Capital spending and commitments support First Defense capacity expansion and construction of an in-house Re-Tain formulation and aseptic-filling facility. Management’s stated capacity objectives included approximately $35 million in annual First Defense sales capacity by the end of 2022 and approximately $42 million by 2024; these are capacity estimates, not sales forecasts.
Outlook, commentary and risks
Management stated that cash, together with anticipated gross margin from product sales, should fund planned working capital, capital expenditures and operations for at least 12 months from the filing date. The company’s objectives include total annual product sales of approximately $23 million or more by 2023. Management described an expected controlled Re-Tain launch, if approved, with approximately $1 million in first-year sales and roughly twice that in the second year; these estimates are uncertain and depend on regulatory approval and market adoption.
Re-Tain had four of five FDA technical sections complete. After quarter-end, the company reported receiving a third-quarter 2022 incomplete letter on its CMC submission. Management said the principal remaining issue was a successful FDA pre-approval re-inspection of its manufacturing facility, intended to be requested during the third quarter, and planned another CMC submission during that quarter. FDA approval timing remains uncertain. The contract manufacturer’s supply agreement was due to end in 2022; the company was building inventory while pursuing in-house capability, for which FDA approval was anticipated in late 2023 or the second quarter of 2024, depending on review cycles.
Key risks include supply-chain disruption and inflation, the syringe shortage, biological production-yield variability, backlog-related customer losses, dependence on First Defense and a small number of distributors, and competition from larger companies. Dairy and beef customer economics, including milk and feed prices, may affect demand. The company noted that it might not meet the original 1.35 debt-service coverage requirement for 2022; the lender reduced the minimum to 1.0 for that year. Management also cited potential costs and delays in production expansions and regulatory approvals. No material reportable subsequent events were identified as of filing, apart from developments specifically described in the filing.
The company reported no material legal proceedings, and management concluded disclosure controls and internal control over financial reporting were effective as of June 30, 2022. The filing also disclosed significant customer concentration: two customers represented 69% of second-quarter sales and 67% of first-half sales.
Important facts for investors to verify
- Progress and timing of the FDA CMC review, facility re-inspection, and Re-Tain approval and launch.
- Resolution of the syringe supply disruption, backlog trends, customer retention, and subsequent sales performance.
- Execution, cost and timing of production-capacity projects, including remaining commitments and the proposed leased expansion space.
- Gross-margin performance amid input-cost inflation, production variability and changing product mix.
- Debt-service covenant compliance, scheduled repayments, liquidity needs and the effect of continued capital investment.
- Customer and distributor concentration, and the extent to which sales remain dependent on First Defense.