Joe Diaz - Lytham Partners, IR Michael Brigham - President, CEO, Treasurer, Secretary.

Tony Pollock - Aegis Capital Brad McCurtain - Maine Securities Brian McCauley - Moloney Securities Larry Brookes - Moloney Securities.

Good afternoon everyone. And welcome to the ImmuCell Corporation First Quarter Fiscal Year 2015 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 also note that today's event is being recorded.

At this time, I would like to turn the conference call over to Mr. Joe Diaz with Lytham Partners. Sir, please go ahead..

Thank you, Jamie. And thank all of you for joining us to review the financial results of ImmuCell for the first quarter of fiscal year 2015, which ended March 31, 2015. As the conference call operator indicated, my name is Joe Diaz. I am with Lytham Partners. We are the Investor Relations consulting firm for ImmuCell.

With us on the call representing the company today is Mr. Michael Brigham, President and Chief Executive Officer. At the conclusion of today's prepared remarks, we will open the call for a question-and-answer session.

If anyone participating on today's call does not have the full text of today's press release or the Form 10-Q, you can retrieve it from the company's Web site at immucell.com. Before we begin with prepared remarks, we submit for the record the following Safe Habor statement.

Statements made by the management of ImmuCell during the course of this conference call that are not historical facts are considered to be forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a Safe Harbor for such forward-looking statements.

The words such as believe, expect, anticipate, estimate, will and other similar words or statements of expectation identify forward-looking statements.

Such statements involve risks and uncertainties, including but not limited to those risks and uncertainties detailed from time-to-time in the filings that the company submits to Securities and Exchange Commission including its quarterly reports on Form 10-Q, its annual reports on Form 10-K and its current reports on Form 8-K.

Investors are cautioned that forward-looking statements made during the course of this conference call are based on management's current expectations and involve risks and uncertainties that could cause actual results to differ materially from the statements made. The company disclaims any obligation to update forward-looking statements.

A more complete Safe Harbor statement was included in the May 6th press release announcing this conference call and with today's press release and in the Form 10-Q. With that said, let me turn the call over to Michael Brigham, President and Chief Executive Officer of ImmuCell Corporation.

Michael?.

Thanks, Joe, and thank you to all of you participating on today's call. All of us at ImmuCell greatly appreciate your time and interest. As you may have seen in today's press release sales of First Defense during the first quarter of 2015 were very strong. And I would like to review ten key bullet points detailed review.

First, total sales – total product sales increased 49% to $3.1 million during the first quarter compared to first quarter of 2014. Sales of First Defense increased 62% to $2.98 million during the first quarter compared to the first quarter of 2014.

This makes for the 11th consecutive quarter of positive sales growth and a 17th quarter of positive sales growth of the last 18 quarters compared to the same quarter – same period in the immediately preceding year. During the first quarter of 2015, sales of First Defense surpassed 15 million units since market launch in 1991.

The first quarter of 2015 net income of $479,000 or $0.15 per diluted share in contrast to net loss of $13,000 during the first quarter of 2014. This first quarter 2015 was the most profitable quarter for the company since the first quarter of 2003. Cash and cash equivalents and short-term investments balance as of March 31, 2015 was $4.21 million.

During the first quarter of 2015, we completed the construction of 7,100 square foot addition to our facility. This expanded the size of company owned facility to approximate 35,000 square feet and increased our production capacity for First Defense.

Also during the first quarter, we announced positive results from a pivotal effectiveness study to expand the First Defense Technology to cover rotavirus infections in newborn calves; and lastly the Mast Out regulatory submission relating to the manufacturing objectives – the regulatory submission related to Mast Out is expected to go in the fourth quarter of 2015 covering the manufacturing objectives.

Those are my 10 key bullets; I would like to touch on a few more points and then open up for Q&A. More on First Defense; the First Defense product line comprised over 95% of our sales during the first quarter, this new level of sales demand has exceeded our current production capacity and available inventory.

This has resulted in a backlog of orders aggregating approximately $1.284 million as of March 31, 2015.

I think it's interesting to note that if we were – could have shipped the $1.284 million backlog of orders before April 1, 2015, a 62% increase in sales of First Defense during the first quarter would have been increased further to approximately 114% that all was in comparison to $1.843 million in sales during the first quarter of 2014 with a backlog of approximately $155,000 as of March 31, 2014.

In my opinion these sales results are primarily driven by three key factors, first, our Vice President of Sales and Marketing, Bobbi Jo Brockmann and our team of five regional sales managers and one inside sales rep continue to do a very effective job positioning First Defense against the competition and further penetrating the dairy and beef calf markets.

Secondly, a competitive product is experiencing interrupted supply to the market presently; and thirdly, the beef economics are better than they have been in recent years, which means that beef producers and dairy bull calf raisers have been more willing to invest in a product like First Defense.

So as to the backlog, we are making the investments necessary to increase our production capacity to meet the growing sales demand. The goal of these investments is to increase our liquid processing capacity by approximately 50% in our freeze drying capacity by approximately 100%.

Due to the long order lead-time on some of this critical equipment, we don't expect to be able to fully complete this investment program until the first quarter of 2016. Regarding the market for First Defense, calf scours take a heavy tool in terms of economic on the farm.

We estimate that the annual scours related costs are approximately $328 million to the dairy industry and approximately $412 million to the beef industry. We are pleased that the market is responding to the superior performance of First Defense and its ability to provide immediate immunity to new born dairy and beef cows.

These are large market opportunities with great potential going forward and we have a leading edge product to continue to gain market share in the coming years. Driven by improved efficiencies and increased production volume, gross margins during the first quarter of 2015 improved to 60%. This is compared to 55% during the first quarter of last year.

Our expectation going forward is that the gross margin can consistently be above 50% on an annual basis. Speaking a little to product development now; our product development expenses decreased by 44%, or $264,000 to $331,000 during the first quarter 2015, it's compared to $594,000 during the same period in 2014.

These expenses aggregated 11% and 29% in product sales during the first quarter of 2015 and 2014 respectively.

During the first quarter of 2014, product development expenses included approximately $412,000 and expenses pertaining to the investment in a small-scale Nisin production facility which is necessary to achieve regulatory approval of Mast Out as compared to just $11,000 of such related expenses during the first quarter of 2015 and that project was completed in the third quarter of 2014.

Speaking further to Mast Out, sales of Mast Out are subject to FDA approval of our New Animal Drug commonly known as NADA. The FDA-phased review process of NADA allows us to breakdown the regulatory development process into five separate technical sections.

We have three technical sections complete letters in hand those being environmental impact, targeting animal safety and effectiveness. Our remaining efforts are focused now on completing the Human Food Safety and the manufacturing technical sections.

Given all these variables which are discussed in greater detail on our Form 10-Q, we believe we could be in a position to achieve approval of our NADA and test market Mast Out in 2017. We do rely on our third-party to have our syringe sterile-filled in an FDA approved facility for us.

The recent communications with this company have given us significant concern about their readiness to provide these services which are needed to address the FDA regulatory requirements filed by Commercial Scale Production Services. Finding an alternative for this service provider if necessary could cause this timeline to be extended.

Some general comments about the market and I will turn it over Q&A. The highly favorable market conditions of 2014 have a moderated to some extent annual average, milk prices and the milk to feed ratio for 2014 were very strong. But these ratios have both dropped to lower level during the first quarter of 2015.

Despite this, we continue to further penetrate the market and gain new customers, the fundamentals of our business are very strong and we continue to be in a good position to grow our business in the coming years.

All in all, we are pleased with the continued momentum and the consistent sales growth of our First Defense product line and the continuing progress we are making towards the FDA approval of Mast Out.

We continue to execute on the two core components of our business strategy, number one, expanding market penetration from First Defense, our best-in-class treatment for calf scours, and secondly, advancing the development of Mast Out, our novel treatment for sub-clinical mastitis for lactating dairy cows without a milk discard or meat with hold requirement.

The financial underpinning of the company remains strong; we generated $815,000 in income before income taxes during the first quarter of 2015. This was our most profitable growth since 2003 as I mentioned earlier. We had approximately $4.2 million in cash and only $847,000 in bank debt as of March 31, 2015.

And we continue to fund our operations from internally generated cash flow. We are making measurable progress on our strategic goals and look forward to the balance of 2015 and beyond with great enthusiasm. And with that, let's open the call up for some questions Jamie..

Ladies and gentlemen, at this time we will begin the question-and-answer session. [Operator Instructions] And our first question comes from Tony Pollock from Aegis Capital. Please go ahead with your question..

Good afternoon..

Hi, Tony..

Hi.

I was wondering, if you could give us a ballpark number of how much sales increase because of the interrupted supply of a competitive product and you foresee that product coming back on the market?.

The latter is a little bit easier to answer, but I can only answer sort of what we hear in the street. The company is called Elanco with the Animal Health division of Eli Lilly does not made any public announcement despite our increase, we are not getting any official position.

That product has been available stop-and-go on a spotty basis over the years. This is a more consistent or more longer term interruptions. So I'm not sure exactly what you read from that. But, we just haven't seen it in months and so it's a more prolonged disruption. So without an official position from the company, I don't know what their strategy is.

As far as allocating the impact, couple or few years ago, we had one sales rep, now, we have six out there in all the major dairy pockets spread across the U.S. and I can't take any credit away from that crew, begin on the right place doing the right thing. I think that's a huge impact.

And I also think this beef market is just very different very valuable, I mean beef calves are used to be – a dairy bull calf used to be a liability, now, its worth $300, $400, $450, so a lot better ROI, a lot more beef raisers who want to spend 6 bucks on that calf just six months ago was liability.

So how to allocate it Tony, I honestly don't know, but, I think those are the three major factors that competitive situation the beef and really a good job by our sales team..

Okay.

Has the interrupted supply come back?.

No. We haven't seen that yet. We haven't seen that at all at this point..

I think you addressed that the market for both dairy and beef is huge, were you talking about the First Defense product?.

Thanks for clarifying Tony. Absolutely, those figures were our estimates which are detailed on our Investor Relations slide deck, which is on our Web site. We put the exact calculations how we got there on the Web site – on that IR deck. But, yes, those were estimated cost to scours to the new born calves both in the beef side and the dairy side.

So scour is not mastitis by this, First Defense not Mast Out..

And it's just in the U.S.?.

That is just U.S..

Okay.

Do you any international sales in this product?.

Limited good market up in Canada and really not significance sales outside of that a little bit in Japan, a little bit into South Korea. Some initial increase in the Mexico. We really rely on another company and in-country expertise to do the regulatory work and then the in-country sales and marketing and those are not – Canada is our big ex-U.S.

market right now..

Do you expect the production capacity to go up fairly quickly or is that going to take time?.

It is normal. I think so we are increasing as we go through the year, but that comment I made about 2016 that's based on a 9-month quarter lead-time for a large piece of equipment. So we won't totally complete the project and get to where we really want to be until the first quarter of 2016.

But, we are growing as we go because there is – we are addressing multiple aspects of production and some of them can be addressed sooner than others. But, the big one towards the freeze dryer that I mentioned – taking our freeze dryer capacity up 100% that's the one that is – the longest lead..

Okay. Thank you very much..

Thanks Tony..

[Operator Instructions] Our next question comes from Brad McCurtain from Maine Securities. Please go ahead with your question..

Hey, congratulations, Michael, Bobbi Jo, what a quarter that is, a delight to see sales up revenues like that. Just some follow-up questions on what Tony was talking about here.

First off, the backlog that's out there, how sticky is that, do you deposits on any event and when do you see yourself being able to fulfill those orders?.

No. Those are not – we don't see deposits. We see purchase order. So we have indications from customers, distributors that they want product that we don't have. So we are producing full out and trying to meet that backlog as fast as possible.

What's tricky and what I can – what makes it difficult to answer your questions, I know what my production line is, but I don't know what the sales line is.

So when they cross later in the year and I know we are going to be ahead of it going into 2016, which month and say the second half of 2015 that production line gets ahead of the sales line is so depending on how steep the sales line keeps increasing.

So back to one of Tony's points, say for instance that product comes back in the market, we are going to get back and balance quicker.

So not knowing what's that sales line is going to look like over the next six months, all we really focused on is producing as much as possible that's possible to achieve shipment on the orders from customers that are in hand..

What's the generally the calf age where First Defense is most effective, where I'm going with that is, do you want to risk that if you can't deliver that product for another couple of months somebody has gone and bought a competitive one because they don't want to wait for yours or is not going to be as effective any more?.

Right. Now, it's a really concern. It's an issue we manage as best we can trying to keep it the product we have available out in the market to the end producer and not stocked up in a warehouse as quickly as possible.

So I like to think that there are two kinds of backlogs, one, where you have either some kind of a production shutdown or regulatory problem or a yield problem when you are feeding the market. That's the worst. Ours is, we are not able – we are feeding the market. We are trying to find those new born calves.

Our backlog is not being able to reach the sales above that 62% growth level up to the 114. So Bobby spends unfortunately a lot of time allocating those releases lot by lot releases by the USDA to those priorities because the answer to your question directly is 24 hours.

First Defense is for the new born calf, it needs to be delivered to that calf right after birth. We know the first 12 hours.

If it's delivered in the first 12 hours that's where we see the best efficacy this product is delivered right before the immune system starts to function for the calf or itself, right where she is naïve, right after she hits the ground, we deliver those antibodies that the calf is not producing.

So it's a 24 hours and within those 24 hours is sooner the better..

Okay. So people generally order in anticipation of the birth or after, I mean I would guess that you obviously know a cow is pregnant.

So what point a dairy farmer typically buy First Defense, a week or so before the anticipated birth or?.

No. No. When we walk on to our customer farms, they have got it on the shelves..

Okay..

So it's – I mean some farms did see no [capping [ph], but most dairy operations are capped pretty steady through the year. So they all know about how many calves they are going to have every month. And they know about how much to buy from their distributor every week or whenever the down health distributor comes by their farm..

Just another question probing that sales increase a little bit, what can you tell us about the make up of that, are those existing customers increasing their purchases because of the mouth feed ratio, is it a lot of new customers coming in and if they are new customers, how is profile of that demographic compared to your current customer base?.

Yes. Also the milk feed ratio and the milk price most importantly actually working against us that's turned negative after that hugely strong 2014, it's working against us in 2015. So it's not that. Our growth is despite the declining milk price.

Again, sort of back to Tony's question, the answer to Tony's question, how much of it is the interruptive supply, how of it is new customers, I know our sales team being more focused and more located in the hot pockets is reaching new customers everyday and then I know we reached a lot of new beef customers.

But the tricky thing for us is when we shipped the distributor, we don't get the detail of whether that distributor took it out to a dairy farm or beef ranch. So our customers, the distributor, and we just try and grow all segments..

Okay..

Thanks Brad..

[Operator Instructions] And we do have an additional question from Brian McCauley from Moloney Securities. Please go ahead with your question..

Hey, Mike, great quarter..

Thanks Brain. Good to hear from you..

So the sales team did a bang up job, are we pretty well set on the number of sales people, you want to head out there right now or do you see that expanding this year..

Given our situation with the backlog having another sales rep really doesn't help us right now. So even without the backlog I think we are digesting these territories. They are just still big territories but they are lot smaller than they used to be.

And I don't – I think we are always open to fair, what's the most efficient way to grow sales in the future, but that's more of a 2016 seasoned in 2015. We don't need to do a better job just to increase the backlog here in the next few months..

I got you. Thank you..

Thanks Brian..

[Operator Instructions] We have an additional question from Larry Brookes from Moloney Securities..

Hello.

What about the shelf life for the First Defense, how long does something like that last before it has to be used?.

Its 24 months from when we sell it. So its usually at least 18 months by the time it gets to the farm, it could be a little less depending on how the – right now it's very fresh product in the market, its being utilized as soon it hits the farm. But the stability – answer to your question is, 24 months from date of filling..

So this is clearly something where you could filled up inventory later during the year when there is not as much demand it seem to me, having an inventory and then market it, would that be a logical idea?.

You mean, if I were a distributor, is that how you are --?.

No, no, as far as the manufacturer, in other words just manufacturing during the slower times because --.

We are not going to take it, pull out the accelerator on production. And we have even longer shelf life at the work in progress stage in frozen work in progress. So the goal is to fill the freezer, fill the freezer, fill the shelf with inventory.

I have no problem caring, our inventory levels are very unusually low right now due to this surge in sales during the first quarter. We build them right back. We have had the good place for us to put cash..

This is just a general question Mike, why is it in other countries don't use or don't have as much of a need for that First Defense product?.

I would not argue if they don't have a need. The calf health issues, the new born calf health issues, I think are very similar around the world.

Some pathogens are more prevalent in different territories, for instance E-Coli is a big pathogen in the U.S., rotavirus is a bigger pathogen in the EU and down in Australia, New Zealand where we don't have a claim for rotavirus yet.

So I think really our barrier to entry there is more the regulatory and that in-country regulatory expertise and of course, sales and marketing with the approved product..

What would be the procedure to expand into some of these other areas, Australia or Europe, how does one go ahead and get the --?.

I think a lot opens up with rota, so that's definitely where we spend a significant amount of time in financial resources on that rota development.

That opens up a lot of – a lot of these territories and then find the right partner, so we do talk to a lot of people and we have – we hope for their success, let's get rota in a deliverable – approved USA – approved claim and then put them to the test see if they can make it happen.

This is a trusted relationship with in-country regulatory expertise..

Sounds good. Thank you..

Thanks Larry..

And we have an additional question from [Steven Farber from Far Ventures] [ph]. Please go ahead with your question..

Hi, Michael, and congratulations on the quarter..

Hey, Steve, thanks very much..

Just a question, in light of the fact of your backlog and the fact that you have a competitor who is pretty much out in the marketplace for a while, do you think the market can – the overall market can – they have a price increase of your product?.

We put a price increase through back in August and we are in this for the long-haul. I think the norm in the industry is annually. We have been a little off the norm because we have gone several years without a price increase prior to August of 2014.

So I hear your point, financially something that we obviously and clearly do think about my position would be don't get greedy. We are in this for a long haul. I don't want to [indiscernible] distribution and I don't want them to see us taking advantage of – what essentially is a production problem that we created.

But it does lend to value and therefore a price increase in the future. But, I don't see it that more annually. We did I should mention put a little price increasing on the gel tube product line just because of that products explosive growth and related cost of good. But, we want to be real careful.

We are going to have a short-term financial benefit and burn some important relationships over the longer term. The other thing to mention on that end – to that point is the – do get some good sales up in Canada that exchange rate has deteriorated significantly. So they are seeing an exchange related price increase already based on we do sell on U.S.

dollars..

Okay.

And just unrelated, but just can you remind us what your NOL is?.

Yes. Put me on a spot, I know where to go for that, Steve, give me one second. No, I'm just kidding, I just had a couple of numbers in my head and I want to get that one right. So as of the tax year 2014, State NOL is approximately $1.9 million and then the Federal is almost $1.4 million..

We are hopefully on the way to using it up..

Yes. And that tax I'm reading out of our tax number 11 on page 13 of the Q. But, yes, its – that's why I mentioned the income before taxes because for us right now that tax expense is a non-cash item..

That's it. Thanks for answering the question..

Thanks, Steve. Good to hear from you. Appreciate it..

And ladies and gentlemen at this time, I'm showing no additional questions. I would like to turn the conference call back over to Mr. Brigham for any closing remarks..

Well, I put my big guns upfront. I don't have any brilliant closers here. Just want to thank you all for participating in today's call. It's an efficient way for us to communicate with the growing group of investors. And we look forward to talking with you again at the conclusion of the second quarter. Have a great day and a great week..

Ladies and gentlemen, that does conclude today's conference call. We do thank you for joining. You may now disconnect your telephone lines..