Joe Diaz - Lytham Partners Michael Brigham - President & CEO.

Doris Rossiter - Shattemac Capital Steve Roberts - Northpointe Capital Sam Rebotsky - SER Asset Management Tony Pollock - Aegis.

Good afternoon, and welcome to the ImmuCell Corporation Fiscal Year 2015 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask question. [Operator Instructions]. Please note this event is being recorded.

I would now like to turn the conference over to Joe Diaz of Lytham Partners. Please go ahead, sir..

Thank you, Denise. And thanks to all of you for joining us today to review the financial results of ImmuCell Corporation for the fourth quarter and the full fiscal year 2015, which ended on December 31, 2015. As the conference call operator indicated, my name is Joe Diaz.

I'm with Lytham Partners and we're the Investor Relations consulting firm for ImmuCell. With us on the call representing the company today is 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, you can retrieve it through various financial sites on the internet or by request to the company. Before we begin with prepared remarks, we submit for the record the following Safe Harbor 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.

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

Such statements involve risks and uncertainties, including but not limited to, those risks and uncertainties detailed from time to time in filings the company submits to the 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 obligations to update forward-looking statements.

A more complete Safe Harbor statement was included in the press release announcing this conference call and with today's press release as well. With that, let me turn the call over to Michael Brigham, President and CEO of ImmuCell Corporation.

Michael?.

Thank you, Joe, and thanks to all of you participating on today’s call. All of us, at ImmuCell, greatly appreciate your time and interest. I have a few prepared remarks and observations before turning to the Q&A. This was a very positive year for us. I feel that our business continues to be headed in the right direction.

As you may know, we provide significant disclosures about the company and our financial results in our SEC filings. Today's press release includes significant details about the financial results and we expect to file our Form 10-K for the year ended December 31, 2015 before the end of March.

I encourage you to review these reports for the full details, but I will touch on five highlights here. First, let's talk about the fourth quarter of 2015, all of the following numbers compare the three-month period ended December 31, 2015, to the three-month period ended December 31, 2014. Product sales increased 22% or $489,000 to $2.7 million.

In addition to these sales out our door, we also had a backlog of orders aggregating approximately $381,000 as of December 31, 2015. We are proud of this significant and consistent sales growth. Gross margin increased by 23% or $315,000 to $1.7 million equaling 62% of product sales. Product development expenses decreased by 28% or $132,000 to $331,000.

Net income increased by 121% or $158,000 to $289,000. The earnings per diluted share increased to $0.09 from $0.04. Second, let’s talk about the full-year ended December 31, 2015. All of the following numbers compare the year ended December 31, 2015, to the year ended December 31, 2014. Product sales increased 35% or $2.6 million to $10.2 million.

As I noted, in addition to these sales out our door, we also had a backlog of orders aggregating approximately $381,000 as of December 31, 2015. Again, we are proud of this significant and consistent sales growth. Gross margin increased by 41% or $1.8 million to $6.3 million equaling 61% of product sales.

Product development expenses decreased by 43% or $944,000 to $1.2 million. Net income increased to $1.2 million in contrast to a net loss of $167,000. Earnings per diluted share were $0.38 in contrast to a loss per share of $0.06. Third, I would like to comment on the market dynamics and the drivers to this improved financial performance.

Above all, we are benefiting from an increase in sales of First Defense and the resulting increase in gross margin from these growing sales.

A competitive product experienced interruption of its supply to the market during the early part of 2015, beef prices are strong, more than anything I believe our sales and marketing team is doing excellent job in the field. This is evidenced by the 36% increase in year-over-year sales of First Defense.

This sales growth has created a backlog of orders since the first quarter of 2015. We have responded to this backlog by increasing our production capacity. The investment to increase our First Defense liquid processing capacity by 50% was completed during the fourth quarter of 2015.

The investments increased our First Defense freeze-drying capacity by 100% is proceeding on schedule and is expected to be completed before the end of the first quarter of 2016.

Additionally, product development expenses were higher through the first half of 2014 as we incurred expenses to construct a pilot plant for the production of Nisin, our active ingredient in Mast Out.

Fourth, I would like to talk about our financing strategy to build the commercial scale plant for the production of Nisin, our active ingredient in Mast Out.

We investigated several strategic options, including a contract manufacturer that we found to be prohibitively expensive, as well as several possible corporate partnerships that would have taken a large share of the gross margin from sales of the product.

After much deliberation with our Board of Directors, we settled on a combination of debt and equity financing to augment our available cash and cash to be generated from operations. On January 19, 2016, we signed a commitment letter with TD Bank covering $4.3 million credit facility which is subject to customary closing conditions.

On February 3, 2016, we raised $5.9 million in gross proceeds from an underwritten public offering of 1.1 million shares of common stock at a price to the public of $5.25 per share.

The net proceeds from the common stock issuance were approximately $5.3 million after deducting underwriting discounts and other expenses incurred in connection with the offering.

Craig-Hallum Capital Group LLC of Minneapolis acted as our sole underwriter and placed approximately 27% of our stock, largely with institutional investors, resulting in an increase in our shares outstanding to almost $4.2 million.

As a result, we now for the first time, have a clear roadmap to complete the development of Mast Out and bring the product to market. Our preliminary estimate for the cost of this project is approximately $17 million to $18 million and we aim to complete the construction and installation work in late 2017 or 2018.

This is an important milestone in the history of ImmuCell and we look forward with great anticipation. Fifth, and lastly, our balance sheet has been strengthened principally by our continued profitability. We closed on the purchase of land intended for the Nisin facility.

In December 2015, we had cash and investments of $6.5 million, and equity of $10.6 million as of December 31, 2015. These balances are before the effect of the new debt and equity financing discussed above.

To summarize, we continue to execute on the two core components of our business strategy, as to the first core strategic action, we are expanding the market penetration of First Defense our best-in-class treatment for calf scours. The addition of a bovine rotavirus disease claim to our existing claims against E.

coli and coronavirus infections could allow us to bring the first passive antibody product with this breadth of disease claims to market in 2017. As to our second core strategic action, we are advancing the development of Mast Out, our novel treatment for subclinical mastitis in lactating dairy cows.

Our groundbreaking product innovation is unlike all other mastitis treatments on the market today, and they're all sold subject to a milk discard period.

Our goal is to revolutionize the way mastitis is treated by making earlier treatment of subclinical infections economically feasible by not requiring a milk discard or meat withhold during or for a period of time after treatment. No other product presently on the market can offer this value proposition.

Work is underway to complete the two remaining technical sections required for approval of the new animal drug application for Mast Out by the U.S. Food and Drug Administration is presently uncertain, when our FDA approval of this product will be achieved.

But we have disclosed a timeline of events that could lead to our achieving this approval during late 2018 or 2019. Again, we provide extensive additional details in our press release, and will provide more detail in our Annual Report on Form 10-K. I encourage interested investors to review these filings. With that, I would like to move on to the Q&A.

Let's open up the call for your questions.

Denise, could you help us with that?.

Certainly sir. We will now begin the question-and-answer session. [Operator Instructions]. And our first question will come from Doris Rossiter from Shattemac Capital. Please go ahead..

Congratulations on all the fundraising that's terrific that you got it done so quickly. Yes, my question is about the First Defense market, and if I have the right number I think somewhere in my notes or in the slides there is reference to 9% penetration of First Defense and any competing products out there which seems very low.

I guess we can assume there are some pieces in market that you'll never pick up because they're just not going to go the preventative route maybe like homesteaders or that kind of thing you're never going to pick up.

But I’m thinking 9% still seems low even if you cut those people out, and I'm wondering you're going to be increasing your capacity towards the end of the quarter, correct? And so, I'm wondering what kind of discussions you're having about -- without market penetration with your sales people? Do you have any goals there; do you have any expectations or any plans in terms of growing that number?.

All right. So it depends a little bit on how you define the market. So we define the market very narrowly as those products given to the newborn calf, a broader definition of the market is how do you prevent scours.

So there are products, there are dam vaccines given to the mother, we have not included that in our market, but that 9% in our market study, our market research sample it reflects just that direct market, those oral antibodies, those products given to the newborn. So we know there is about 23% incidence of scours.

So we know there is room to grow both in increasing that market research number of about 9% or 10% but also in competing with the dam vaccines and our sales team can do six times a better job now that it is six people, when it used to be just one person of just telling that story of what First Defense does, how you can avoid another vaccine to your cow by delivering the antibodies right to the newborn calf.

We're having that conversation every day and then, the sales team being located in California and Texas, Idaho, Wisconsin, Ohio, and Iowa, yes, it's competing in our narrowly defined market with a three or four competing products, and then it's also competing with the broader market of the -- all products available to reduce the scours incidents on the farm..

Okay. I’m just wondering if you have any goals or thoughts about getting that 9% number higher..

Yes I mean goals, I would never give Bobbi Brockmann a limit. She is going to do her best job to sell whatever she can sell. So her goal is as high as we can go, '15 was a good year; I’d love to repeat that year. We're going to solve this backlog problem first. So we have the available inventory, so it is all the above.

It's trying to continue the good momentum we have, it's teaching the benefits of our products so that we can still compete against the dam vaccines and then it is competing head-to-head with products which I believe we have the better technology as far as in the oral products delivered to that newborn calf..

Okay. So you think you can take some share.

I'm just thinking, gosh, you don’t even need to take share given how low the penetration is, but right, will it be good to do both?.

Yes, it is all of the above. It's -- we compete in the field everyday on the benefits of our passive antibody versus a vaccine to a newborn are treating the calf versus vaccinating the mother, equine [ph] antibodies versus bovine antibodies. So grow the market, continue to shift the market share.

We've seen our market share grow, we are increasing our market share and increasing the total market. So it's all fronts, its work the sales team is doing every day in the field..

Okay. A related question on just framing the market, I'm wondering much of the best we're seeing commodity prices come down in general, live cattle prices have come down a little bit, it’s not anything near what oil has done, but somewhat in sympathy.

And I'm wondering first I guess do you have a view on cattle prices? And then, secondly, what would you expect the impact to be as an offset to demand this year?.

Well 2015 was a banner year. [Indiscernible] producers made good money in 2015. Now the beef prices, as I mentioned, is still strong, I think what we saw was real good spike in the beef price coming out of the 2012 drought.

I think current projections are it's going to level-off, it's not going to -- 2015 might have been a little higher, '16 is not going to crash, the milk price has come down, but these guys are used to that. Our customers are used to that. This milk price cycle that goes up and down. So '15 was high, it's down now.

It's going to influence our customer's ability to buy a $6 product. But we can show a value proposition. We can show we can justify that $6, $6.50 investment even with the low milk prices, even with a lower but still good beef price..

Yes, prices in your mind, where you would like to see milk and beef stay above?.

I would love to see beef stay where it is right now that has people paying attention to the newborn bull calves. They did not do that a couple of years ago. The value of the bull calf, it was -- he was a liability.

So beef could stay about where it is and any rebound in milk will be good for us, it does cycle, it just runs up and down like this, and hope we're at the lower end of this pricing measured in hundredweight, $11, $12 per hundredweight is not a bad place to be. I don't want to see going lower than that.

But again those economics, these guys -- they still to raise a healthy calf in one way there is more pressure to raise a healthy calf when the return on the milk is lower. The healthy calf produces more milk. You got to be efficient. We're not asking for a huge investment to create a healthy milk producing cow 24 months later.

So we're subject to those swings but I don't see -- I didn't in the 22% up in the fourth quarter I don't see a great negative impact that's pretty good in the phase of a drop in milk and a little bit of a drop in the beef. So --.

All right.

And would you remind us Mike what was your breakup between beef and dairy?.

We really don't know that, we sell to distribution and that data isn't available. So we sell to distributor and how they move it out to a beef farm or a dairy farm, we don't see that data. I can just give you sort of anecdotal gut feel with Bobby and I look at, sort of guess that.

We've done a lot more marketing to beef recently and we've seen a sales increase. So I think our feel we're with more beef producers and we're seeing the benefit of some beef advertising campaigns. But that's just gut feel, it's not a direct link, I don't have market research data that state as evidence..

Okay. All right.

So with the capacity expansion we have, I guess, will that be fully -- will you be working operating at a full capacity?.

Yes..

Right. We are out of the box I mean --.

Absolutely, yes, and it's pretty exciting time right now, this freezer-dryer in the building it's being connected, it's being validated, it's quite a complex piece of equipment and like I said we're on schedule to get that product, in freeze-dryer number two right around the 1st of March..

Okay. Thanks..

Just after the 1st of March. And we still see more weeks it's installed ago. So the impact of that really is going to benefit second quarter and not so much first quarter..

Right. I'm just wondering what's going to happen with the backlog, do you work that down gradually or how do you feel then..

As quickly as possible but again mostly it's going to be the benefit of the double-in capacity really doesn't help the first quarter, it's large, it's heavily weighted towards second, third, and fourth. So there is no other higher priority than filling that backlog but it's just -- we're not going to see that benefit in the first quarter, it's not..

I understand that, I understand that, Mike. I'm just wondering if you think, you take care of it in the second quarter or is it something that's going to be spread out over the year..

It depends on the new orders. I mean we will take care of all the orders we have in right now for sure. And as new orders come in, our sales team is on full go, it's a little bit of competition, if they can keep orders ahead of double-in production, it’s a nice problem to have.

But we will capture pretty quick though, we’ll capture pretty quick and with that kind of double that allow us for a lot of new customers, a lot of sales growth. So I think I would put it more in the middle of six months so not the first quarter and not the fourth quarter..

Right. Well that sounds healthy. Well then congratulations Mike on everything it sounds like everything is going really well there..

Great. Thanks, Doris. Thanks a lot. I appreciate that..

Sure absolutely. Okay, I guess I should pass along to the next person..

Okay, thanks..

The next question will come from Steve Roberts of Northpointe Capital. Please go ahead..

Sure, thanks guys.

Yes just working on by model for next year, on the R&D side are you basically looking for that to be flat with this year of about $1.2 million, $1.3 million?.

Yes, I think the number we need to take out is that first half of '14, that was higher than usual, that's not a repeat kind of level. So we finished that investment right in the second quarter of '14. So when you go into 2015 and compare those six months '15 is a more regular run rate, and the second half of '14 is more of a regular run rate.

It's the end of '13, and the first half of '14, where we put through all those pilot plant expenses. So I think the short answer to your question is yes, '15 is much more typical because '14 was loaded up with the pilot plant..

Okay. And then on your gross margins, you've been running in the low 60s like several quarters.

Is anything that stop you from keeping that up in '16?.

That's a really good gross margin. So, yes, I'd like to keep it there. But we do making some pretty significant investments. I wouldn’t be surprised to see that come down just a little bit, but no radical change there. I think that's about as good as it can get.

And I wouldn't mind it, if it costs us a couple of few points to get the production at the higher level, I would sacrifice that for the total production gains..

And then the -- the tax rate kind of went all over the place.

Can you just kind of help us on that?.

Yes, taxes is an interesting line item for us. First of all because it's non-cash and with regard to net operating loss carryforwards and it's bouncing that 41% is pretty, it is unusually high to me. We work carefully with both outside consultants who helps us directly, and then, of course our auditors to review this work.

And that's going to be in that 36% to 40% range, I think the 41% is high. I think 36% is little aggressive. So I go to 38% to 39% in there is a pretty good estimate..

Okay. And then on last couple of years our Q4 to Q1 you’ve increased sales quite a bit sequentially.

Should we look for that this year or you capacity constraint?.

Yes, the capacity will limit that a little bit, but the first quarter is always our best quarter.

So very seasonal, the other three quarters are pretty similar, but the first quarter when the beef calves are born, and when the winter weather is ugly, and calves are getting the freeze spot, there is lot of scours the first quarter has always been our best quarter..

[Operator Instructions]. The next question will come from Sam Rebotsky of SER Asset Management. Please go ahead..

As far as Elanco are they a 100% back in the market?.

We are seeing that's true, yes I think somewhere in the middle of '15 they started coming back in and I think they're back at the full speed as of like latter part of '15..

So are we able to keep the customers that we got from Elanco well they weren't able to ship?.

Yes, I was looking to some -- some are going right back, some are going right back and some we keep. We had some great, I'm talking about anecdotals here, like a sales rep in -- one firm just saying hey, I'm -- I'm not -- I'm never switching back. But some that they just prefer their product and they are going to go back. So they are achieving sales.

So we didn't get them the easy way, they didn't quit, we got them in the hard way, we got to earn it and that's farm by farm and that's competitive sales..

And with the new freeze dryer equipment you are able to double capacity, what timeframe will you be able to double sales with the double of equipment?.

Well they are not too related right, Sam. I mean, so we're going to grow sales as far as our sales team can get those purchase orders in the building. So we want to get production ahead of that.

So we've been able to double, will get us, like we're saying with Doris's question there get us caught up, get us evening, get us ahead I need some inventory on the shelf through the middle six months of the year.

So we know what we can do with production and we will be ready for those purchase orders as they come in but they are going to come in independent of our capacity..

So once you could double capacity say well say, well, is there -- after the first six months of running capacity, will you expect to be able to double sales?.

No, I mean say for instance look at that backlog at the end of the year $381,000. I mean that's not -- that's the backlog we need to sell but that's not going to get us to double.

So we'll have the capacity to meet that kind of sales growth but what I see us doing is as we continue to grow sort of rationally, absent some major invention like a wild increase from milk price, a wild increase in beef price, the absence of a competitor will just continue to grow. And in the meantime we will just run the double capacity.

One, first objective fill the backlog, second objective as the backlog is filled, and we have buffer stock then we move into what we need to run both restarts at 100% we have run in enough just to keep ahead of sales as the sales come in..

And our next question will come from Tony Pollock of Aegis. Please go ahead..

Hi.

Could you tell us what the capacity is with the 100% increase in capacity for this plant, this liquid processing production?.

Right. So you know it's a double, it’s what we 90-plus-percent of our sales are First Defense. So we can then 90% of 10.2% is First Defense and we would have the capacity to produce twice that..

Okay. So, we can assume --.

Really that is simple. We are running our first freeze-dryer full out and the second freeze-dryer is the exact same capacity and will have the ability to run both of them at same time, so twice as much production. But back to Sam's question that doesn't necessarily mean twice as much sales..

Right, now I understand that..

Thanks..

But essentially you could possibly do $20 million annualized starting after the first quarter of this year if you got the orders?.

Yes, that's exactly where the bottleneck is the freeze-dryer and I don't see us running two at a 100%. But I also no longer can run one at 100%. So we will get that balance and but yet that good math..

And ladies and gentlemen, this will conclude our question-and-answer session. I would like to hand the conference back over to Joe Diaz for closing comments..

Thank you, Denise, and again we would like to extend our thanks to all of you for participating on today's call. We look forward to talking with you again in May at the conclusion of the current quarter with those financial results. So thank you for your time and have a great day..

Ladies and gentlemen, the conference has concluded. Thank you for attending today's presentation. You may now disconnect your lines..