Good morning, and welcome to the ImmuCell Corporation conference call to discuss unaudited third quarter 2026 financial results. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. 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.
Thank you, operator. Good morning, and welcome. As the operator indicated, my name is Joe Diaz with Lytham Partners. We are the investor relations consulting firm for ImmuCell. I thank all of you for joining us today to discuss the unaudited earnings for the third quarter and nine months ended September 30, 2026. Listeners are reminded and cautioned that statements made by management during the course of this call include forward-looking statements, which include any statement that refers to future events or expected future results 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 under the cautionary note regarding forward-looking statements provided with the press release that the company filed last night, along with the company's other periodic filings with the SEC. Information discussed on today's call speaks only as of today, Friday, November 13, 2026. The company undertakes no obligation to update any information discussed on today's call. Please note that references to certain non-GAAP financial measures may be made during today's call. With that said, let me turn the call over to Olivier te Boekhorst, President and CEO of ImmuCell Corporation, for some opening remarks. Olivier?
Thanks, Joe, and good morning, everyone. It's my pleasure to welcome you today to the discussion of ImmuCell's results for the third quarter of 2026. Our discussion of results will be accompanied by a few key slides that are also part of our updated investor presentation. You can find that on our investor page, immucell.com/investors. I will start off today's call with a quick summary of ImmuCell's strategy, which we have developed and refined over the past year. We made the decision in December of 2025 to focus exclusively on First Defense, our bovine scours preventative product line, to take advantage of attractive market tailwinds. High calf values drive producer interest in effective preventatives, and we saw significant opportunity for growth in the U.S. and future international markets.
We stopped investing in a new product for subclinical mastitis called Re-Tain, also driven by our contract manufacturer's inability to obtain GMP approval from the FDA. Our mission became to ensure we had sufficient supply to meet demand for First Defense and to restore our customers' confidence in that ability to supply after a protracted period of supply challenges leading to back orders. We invested in leadership, in expanding our commercial team, in colostrum sourcing capabilities, and importantly, in manufacturing. Our first imperative was to increase manufacturing yields to reliably produce more with existing equipment. Then we followed that with a plan to invest $8 million to increase manufacturing capacity by the end of 2027. We are now looking more closely at improving our product costs and investing in longer-term growth strategies such as international expansion and innovation.
The results this quarter, $8 million in revenue representing 46% growth compared to the third quarter of 2025, 44.2% gross margin, and $1 million net income compared to a $140,000 loss in the third quarter of 2025, tell us that our focus on First Defense is working. Our results reflect the benefits of restored product availability, a favorable domestic calf market, increased commercial activity, and significant improvements in how we manage our supply chain from sourcing to processing colostrum. For a company our size, the singular focus on First Defense and managing our supply chain to support increasing customer demand continues to make a lot of sense, and we are excited to report on our progress today. I will now turn the call over to Timothy Fiori, our Chief Financial Officer, for a deeper review of our third quarter financial results. Tim?
Thank you, Olivier. I will start with a short recap of product sales results, which are unchanged from our October 12th press release. All the numbers I will speak to are approximate and rounded. Product sales for the third quarter of 2026 came in at $8 million, an increase of 46% compared to the third quarter of 2025. The large year-over-year increase in the third quarter sales reflects, in part, the absence of distributor restocking headwinds that had adversely affected the third quarter sales in 2025. Domestic sales for the third quarter grew 29.2% compared to the third quarter of 2025 to $6.9 million, while international sales for the third quarter grew 573% to $1.1 million in the same period. Sales to Canada accounted for the majority of international growth, boosted in large part by clearing of 2025 back orders.
In the first nine months of this year, we achieved $25.6 million in product sales, a 27.8% increase compared to the first nine months of 2025. Tri-Shield, our flagship product that offers the most advanced protection against neonatal diarrhea, had strong 32.1% growth for the first nine months of 2026. We also assess commercial performance by looking at volume growth at the distributor level. In the first nine months of 2026, distributor volumes grew 23% compared to the same period last year, and 18% in the third quarter of 2026 compared to the third quarter of 2025. Gross margin as a percentage of product sales was 44.2% in the third quarter of 2026, compared to 42.9% in the third quarter of 2025 and 33.9% in the second quarter of this year.
The year-over-year increase in the third quarter primarily reflected higher pricing and improved manufacturing execution, partially offset by the shift of expenses formerly associated with Re-Tain into cost of goods sold. That is an important dynamic that I want to explain a bit more. The shift of Re-Tain product development expenses to cost of goods sold due to the decision to repurpose the Re-Tain facility and equipment to First Defense resulted in approximately $400,000 of expenses being shifted to cost of goods sold, which reduces the Q3 stated gross margin by 480 basis points. The improvement sequentially from the second quarter of this year to the third quarter was primarily driven by increased manufacturing output across all departments, lower scrap, and greater benefits from product pricing. We are seeing benefits from our manufacturing yield improvement projects.
Sales, marketing, and administrative expenses increased to $2.4 million in the third quarter of 2026 compared to $1.6 million in the third quarter of 2025. This was driven by investments in leadership and expanded commercial activities, as previously announced and as Olivier will be discussing shortly. Product development expenses declined from approximately $700,000 in the third quarter of 2025 to approximately $175,000 in the third quarter of 2026, driven by reductions in spending on Re-Tain product development and the previously mentioned shift of former Re-Tain-related expenses to cost of goods sold. At this point in time, we are not planning any significant future spending on Re-Tain. To wrap up our income statement discussion, our net income was approximately $1 million during the third quarter of 2026, compared to a net loss of $140,000 in the third quarter of 2025.
For the first nine months of 2026, net income was $4.7 million compared to $1.8 million during the same period last year. The nine-month 2026 results include the one-time $2 million legal settlement received from our former contract manufacturer during the second quarter, and the nine months of 2025 results were augmented by a $427,000 insurance settlement. As usual, we provided adjusted EBITDA figures in yesterday's earnings release, together with a reconciliation against net income under GAAP. We believe that looking at adjusted EBITDA assists management and investors by looking at our performance across reporting periods on a consistent basis, excluding certain charges from our reported income before income taxes. Adjusted EBITDA was $1.9 million in the third quarter of 2026, compared to $800,000 in the third quarter of 2025.
For the first nine months of 2026, adjusted EBITDA was $7.3 million compared with $4.4 million during the same period last year. The nine-month year-to-date 2026 figure includes the aforementioned $2 million one-time legal settlement, and the nine-month 2025 results were augmented by the aforementioned $427,000 insurance settlement. To wrap up with financials, let me highlight a few key balance sheet items. Our balance sheet as of September 30, 2026, continues to be in a strong position with $7.9 million of cash on hand and $9.9 million of inventory. We have started spending cash on the First Defense manufacturing capacity expansion, and I will speak more to that in a bit. We are very pleased at this time to be headed into what is typically our busy season with a finished goods inventory of around $3 million.
Working capital increased from $13 million at the end of 2025 to $16.9 million at the end of the third quarter of 2026. The settlement contributed $2 million to our cash and working capital improvements. You may have read in our press release that we are anticipating the signing of a new $3 million line of credit with a term of three years, which replaces our previous $1 million one-year term line of credit, which expired in September. Additionally, we have announced that we've notified our investment banking firm that we are terminating our at-the-market sales agreement, which has been unused since May of 2025 with no plans for use in the future. Historically, manufacturing capacity has been a constraint on ImmuCell's growth, so ensuring reliable supply remains a strategic priority.
ImmuCell previously announced investments in freeze-drying and liquids processing capacity to build scalable manufacturing capabilities and ensure continued reliable supply of First Defense. We mentioned in the last earnings call that during the first half of the year, our team completed an extensive planning process encompassing process design, equipment and facility requirements, cost estimates, and implementation planning. The resulting plan combines new equipment with our established expertise in preserving, concentrating, and purifying colostrum-derived antibodies. We are now at the beginning of the implementation process and have already ordered a lot of the key equipment. As of September 30, 2026, we had spent $1.7 million on the expansion project, mainly for the purchase of equipment. The construction process will be starting soon. We still expect to complete the initial phase of the expansion, which is freeze-drying, in the first half of 2027.
The liquids processing expansion is also on track and expected to be completed by the end of 2027. This overall project continues to be on track to our original $8 million overall budget. This level of expansion was made possible thanks to management decisions to repurpose our former Re-Tain® manufacturing facility and equipment. With that, I'll turn the call back to Olivier. Olivier?
Thanks, Tim, and congratulations to the entire team for an excellent quarter. As I mentioned in my initial remarks, ImmuCell made the decision in late 2025 to focus on our scours preventative products known as First Defense. The combination of factors led to this decision, and let me touch on calf values before discussing commercial activity and our new products. Our industry continues to benefit from historically strong calf values. Whether it's a calf born in a traditional beef herd or one originating on a dairy, their value has risen fivefold since 2021. Calf values are expected to remain strong in 2027 and 2028 as tight cattle supplies continue to underpin the market. These higher calf values are reshaping farm-level economics, making newborn calf health an increasingly important priority.
In addition, as dairies adopt more beef genetics to meet demand for beef, there are fewer dairy replacement heifers to support dairy herd expansion, which makes those heifers more valuable. For ImmuCell, this means that producers are interested to learn more about our premium products. The return on investment from using Tri-Shield has always been highly positive, even back in 2021 before calf values increased so dramatically. Certainly, protecting a calf worth more than $2,000 with a $15 product makes a lot of sense today. Another driver for our top-line growth is our commercial activity, and we've made significant investments in our team and capabilities. Since last November, we have expanded our commercial team from nine to 13 people. The expanded sales team continues to increase customer engagement.
As new hires gain traction in their territories, quality sales calls increased significantly from the second to the third quarter, and revenue per field sales representative also grew year-over-year. New customers contributed about 46% of our net growth in the third quarter of 2026, and increased utilization of existing customers contributed the remaining 54% of growth. In the third quarter, dairy customers largely drove demand, as relatively few traditional cow-calf operations calve during this part of the year. This is great news for our business, as dairy demand tends to be stable from quarter to quarter. The last driver I will touch on is our new product line, Functional Feed. This line was developed for the calf ranch segment that we believe raises more than 4 million calves. Calf ranches manage large populations of primarily beef-on-dairy calves sourced from multiple farms that have varying newborn calf health protocols.
Managing the inherent variability in these incoming calves that are two to seven days old when they arrive at the ranch can be a challenge. Ideally, these calves benefited from Tri-Shield at birth, but that's difficult for the calf ranchers to determine. We developed a Functional Feed product line that is based on the same hyper-immunized colostrum we use for our biologicals line and is manufactured using a different and lower-cost drying technology. It has a much lower price per dose to encourage calf ranchers to administer it to all incoming calves. We have demonstrated 50% lower pre-weaning removal rates at these customers, which increases the number of calves that get to the market weight and generates a robust return on investment for the calf ranchers.
Although we do not report on this product line as a separate segment, we are very pleased to have met our full-year targets already and are optimistic about the runway for further growth. Sales of First Defense are recovering after setbacks related to contamination issues that created back orders. We estimate that First Defense captures about 34% of the spending on bovine scours biological products in the U.S., and we are very pleased with our premium positioning. Let me share this unsolicited remark from a dairy farmer on the Dairy Girl Network, an online community connecting women in the U.S. dairy industry. Quote, "For any lady struggling with newborn calf scours and loss, I highly recommend First Defense. I am not a salesperson, but this stuff works. In seven months, we've only lost three out of 650 heifers born.
This has been a miracle on our farm, and I wish someone would have told me about this years ago." End quote. These types of unsolicited endorsements remind us why we do what we do and drive our commitment to getting First Defense into the hands of more producers. Changes in our manufacturing process have been a key part of our performance year to date. In the past few years, we have worked to reduce the impact of bacterial contamination, and we have made great progress preventing scrap events. Now, we have shifted our focus to managing yields to increase output. Ultimately, output drives our gross margin, given our relatively fixed manufacturing cost structure. So far in 2026, we have produced an average of about 435,000 manufacturing units per month.
Manufacturing units are a standard measure we use to account for differences between Tri-Shield and Dual-Force products in our product line and are not the same as doses or revenue. Our average monthly output in 2026 has been 14% higher than 2025, and that compares to just 252,000 units per month in 2023 during the height of our contamination issues. Essentially, we now have a better understanding of our bottlenecks. We plan ahead to maximize their output. We have changed our shift schedules to accommodate all these efforts, and we have made some changes to technology and equipment. While we look forward to bringing new equipment online for greater First Defense capacity by the end of 2027, we believe we can meet customer demand in the meantime with improved yield management.
This quarter, we spent significant effort looking further back in our supply chain, specifically sourcing of colostrum and manufacture of the vaccines that we use to hyper-immunize the cows that give us the colostrum. We hired a team leader for our farm team, we developed a new value proposition for our source farms, and we are running trials to improve yields from the collected colostrum. It is a competitive market for colostrum sourcing, and we are seeing an increase in prices. Nevertheless, our new value proposition and approach should improve our colostrum sourcing and increases our confidence in our ability to meet future demand. One final comment on Re-Tain. As we mentioned, we stopped investing in this new product development project. Recent clinical trials were unsuccessful in supporting incremental or new claims.
We have entered into a minor licensing agreement with an aquaculture company for rights to use our intellectual property for certain marine species, and this may generate future cash flows. Throughout ImmuCell, we remain focused on First Defense and on strengthening process discipline and improving execution. I want to thank the team, from sales to farm management to vaccine manufacturing and colostrum processing, and all the other functions that support the business, for their excellent work. It is a pleasure to work with the team as we execute our focused strategy to deliver today while we secure the future. With that said, we would be happy to take your questions. Let's have the operator open up the lines.
We will now begin the question-and-answer session. To ask a question, you may press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. As a reminder, to ask a question, please press star then one to join the question queue. The first question today comes from Frank Gasker, a private investor. Please go ahead.
A very good quarter. What specifically changed between Q2 and Q3 to restore gross margins to 44%? Are those improvements sustainable?
Hey, Frank. Thanks for your question. This is Tim. I would say the biggest driver was really the manufacturing volume. I mean, we did have a price change in August that helped a little bit as well. Our margins are fairly sensitive to output, and as we discussed in the Q2 call, we were doing some work on improving yields, and there were some experimentation going on in manufacturing. That definitely had an impact in Q2. In Q3, all the manufacturing teams, so we have vaccine, liquids manufacturing, and then formulation and fill are kind of the three primary legs of it, and they all had really good output for the quarter, and that helps a lot. That is the primary driver, is just the change there.
Okay. With finished goods up 50% and work in progress actually down 15%, are we seeing permanent improvement in manufacturing throughput? How much additional demand, rather, can existing capacity support?
This is Olivier. Thank you for your follow-up question. We are seeing an increase in manufacturing throughput to the 435,000 manufacturing units per month on average, which is a 14% or so increase from last year. That explains both our gross margin, but it also is the result of some very specific yield improvement projects that we have implemented over the last, I would say, year or so to improve output. Could you repeat the second part of your question, please?
How much additional demand can existing capacity support?
That's a very good question as well, and it's somewhat of a moving target. We believe we can continue to improve manufacturing yields as we have been to meet demand until the new drying capacity expansion project has been completed, because drying is our current bottleneck in our process. As Tim discussed and showed on the slide, the new freeze dryer that we're planning to have installed in the first half of 2027, that should triple or so our capacity for freeze-drying. We are working towards achieving that big milestone. In the meantime, we believe we have enough capacity and further improvement potential to meet demand.
Thank you very much. I'll get back in the queue.
The next question comes from George Melas with MKH Management. Please go ahead.
Good morning. Thanks for taking my question. Congratulations on really wonderful progress. I have a question on the mix between Tri-Shield and Dual-Force. Does the persistently high value of calves drive more Tri-Shield versus Dual-Force, and does that impact gross margins?
Thank you for your question, George. Happy to take this one. We do not comment on the gross margins of individual products, but I will say that, in general, Tri-Shield is priced higher. It also takes a little more effort to produce because there is a third, it protects against rotavirus, compared to Dual-Force that protects against corona and E. coli. Yes, with higher calf values, what it does, it makes it a little bit easier to get in front of the producer to have a conversation about how to protect these calves. Then once you are in that conversation, it really depends on the producer's understanding of what is going on in their particular production, that then drives whether they will use one or the other product. Of course, we are focused on promoting Tri-Shield.
We believe it provides the highest value to producers, and that is why you will see very healthy growth rates on that product line.
Okay. Regarding the freeze-drying capacity, I believe you have four freeze dryers. How many are you adding, and what capacity expansion do you expect on the drying function?
Yeah, so right now, you're right, we have four freeze dryers that are operating here at the facility. We're adding only one more, but it's very large. It's much bigger than the four that we have currently in operation, and actually will produce more than all four of those combined. We'll have the capacity for equal to that. So, yeah, it's one, but it's not equal to the four.
Okay. That one will be located in the formerly Re-Tain space?
Yep. It's a building just down the road from where we are, that used to be for nisin production for Re-Tain.
Great. Okay. Thank you very much.
Thanks, George.
As a reminder, to ask a question, please press star, then one to join the question queue. The next question comes from Tom Fox, a private investor. Please go ahead.
Yeah, good morning. Thank you for having me on the call. I did catch that last part about Re-Tain. Do you guys have any plan to still pursue mastitis treatment with Re-Tain? Thank you.
Thank you for your question, Tom. The trial that we completed this quarter effectively changed nothing in the sense that we did not find new use cases for the product, so Re-Tain activities remain paused. As Tim mentioned, we are not planning to invest further in that product, and none of that will have any material impact on ImmuCell. We are a First Defense company focused on maximizing our returns by really driving a market-leading, high-value proposition premium product. That is the way we are looking at it from our perspective.
Okay, thank you, and congratulations on a nice quarter.
Thank you.
Thank you.
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 all for participating in today's call. We look forward to talking with you again to review the results for the fourth quarter and full year 2026 in the coming months. Have a great day.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.