Q1 2020 Earnings Call

I will now read the company's safe Harbor statement, except for historical information the matters discussed in the news release, maybe considered forward looking statements within the meaning of section 20 Sevena. The Securities Act of 1933 as amended and section 21, and the Securities Exchange Act of 1934, I submit that such statements include.

Cancellations regarding we intend guardian belief or current expectation that the company and its management, including those related to catch one gross margins revenues and expenses, which are dependent on a number of factors outside of the control the company, including internally in the markets, where the company's products and services cost of goods and services.

Other expenses government regulations litigation and general business conditions.

He risk factors and the company's Form 10-K for the fiscal year ended July 31, or 2019 investors are cautioned that any such forward looking statements are not guarantees of future performance and involve a number of risks and uncertainties that could materially affect actual results. The company disclaims any absent any obligation to.

Update any forward looking statement as a result of developments occurring after the date This conference call.

During this conference call. The company May refer to EBITDA, a non-GAAP measure EBITDA is not and should not be considered an alternative to net income or loss income or loss from operations or any other measure for determining operating performance. The company has provided a reconciliation of the difference to gap on its website www.

And so dot com and and its press release issued this afternoon.

I would like to inform you that the company, it's directors and certain of its executive officers are participants in the solicitation of proxies from the company shareholder in connection with a 2019 annual meeting.

The company has filed and is now melinta shareholders definitive proxy statement in the company proxy card with the FCC in connection with a solicitation of proxies for the 2019 annual meeting.

Shareholders other company or strongly encouraged to read the proxy statement the accompanying proxy card and all other documents filed with the FCC carefully and in their entirety as they contain important information.

These documents can be found on the Fccs website at Www Dot FCC dot Gov, what the company's website at www Dot Ensign Dot com foreign slash corporate Ford flush Investor Dash information, we will not be commenting on the 2019 annual meeting.

Well Harper Discovery fund on this call on.

Our speaker today is very Weiner precedent at this time all participants have been placed on the listen only mode and the floor will be open for your questions and comments. Following the presentation I would now like to turn the floor over to your host Mr. Weiner. The floor is yours. Thank you.

Thank you good afternoon, and thank you for joining US today, we distributed our first quarter results. After the market close this afternoon and I hope you've had a chance to take a look at them.

Before we get into a discussion of the financial and operational results for the fiscal quarter I thought I would take a few minutes to talk about our position in the marketplace progress against our three prong plan and several important developments in initiatives designed to unlock value and advanced the company's stated goal of establishing.

Compelling new paradigm for our modern day diagnostics company, which includes both advances in sophisticated technologies and innovation as well as addressing the cost reality of today's industry dynamics. The company has never been better positioned to achieve the school.

We are excited today to announce that is part of the company's continued focus on actively managing our business portfolio to create value for shareholders. The company is considering various avenues to unlock value when its therapeutic subsidiary.

And so therapeutics designs and develops enabling therapeutic platforms based on all the immune modulation and regulation of specific signaling pathways that are implicated in a variety of cancers and immune mediated disorders.

The company is at a crossroads to enhance the development programs targeting treatments for a broad range of indications such as Crohns disease, Nash, which is non alcoholic steatohepatitis in various cancers.

Well the company range remains committed to this strategic path events or therapeutics. The board of directors made the determination that given the significant capital requirements necessary at this point to fully recognize the therapeutic subsidiaries value and address the opportunities for further validation to drive commercially.

Station it would consider various alternatives.

The alternatives under consideration include a spin off shale joint venture or licensing of its intellectual property.

Our legal and finance teams along with our investment bankers are working diligently on this initiative and we will look forward to updating our shareholders on the next steps as they emerge.

In June [noise], we shared with our shareholders a three prong short and medium term strategy designed to drive profitable growth more effectively manage our operations and build off our substantial legacy of innovation manufacturing platform development and intellectual property we are.

Please to report that Enzo is making progress against each of these objectives.

As we announced earlier today.

We have formalized three lab to lap relationships and are actively negotiating terms for additional relationships with small to midsize clinical labs.

We know that's a lower cost and vertically integrated manufacture and service provider of molecular testing, we have to wherewithal to serve as a central capability for the laboratory community, which desperately needs to manage their businesses under pressure and a continued declining reimbursement rate marketplace.

We're gratified by the reaction from these labs, who see the value in our offering and in the creation of this new model.

Also working with our investment banker Lazard, we are engaged in several discussions with strategic partners for our diagnostics businesses, we hope to be able to disclose and update in the near term.

In the labs business and to be clear, we're talking about a new model of diagnostic testing, we continue to take steps to reduce operational costs, while also investing in high growth areas.

We have validated a number of diverse products on multiple platforms that reduce costs significantly.

And these have been granted approval in New York for a broad menu of diagnostic tests.

And we have demonstrated we can achieve our primary goal of a 30% to 50% reduction in costs.

Our molecular diagnostics women's health panel has now been fully instituted in our lab. It is run over 100000 samples and is generating high margins on these tests.

This utilization of our independently developed test is a meaningful development, resulting in better returns for these products in our lab as well as for others in the industry.

There was a great opportunity in front of us but to achieve these milestones it will require a careful balance of investment in innovation in science and manufacturing, while reducing operating costs in a difficult environment of continued declines in reimbursements, which affect our profitability.

As we said in our earnings release in the first quarter, we made investments in new billing systems, New personnel, we've opened up new patient service centers, and we've onboarded new payers, while at the same time implementing a series of initiatives to reduce the routine expenses in our labs by about $10 million.

Others in the coming year.

On another front to broaden our depth of our management team. We also announced today the appointment of David bench as Chief Financial Officer.

David is an experienced executives in the diagnostics laboratory industry, the healthcare technology industry with a long career in day to day financial management oversight advisory work and investment banking.

Mr Bench joins us from Okay, where he was the chief financial Officer of this healthcare information technology company that services diagnostic laboratories, electronic medical record providers payers health and hospital systems and ambulatory practices.

Prior to his tenure at El came Mr. bench served as president of DBC group and advisory and consulting firm working with emerging public companies and he was an investment banker every well wealth management covering the telecommunications media and technology industries.

Mr. Ben started his career in the investment banking Division of Lazard and subsequently was vice President of research and aren't Holden as below Shriver.

He will take over my role as Chief Financial Officer at Enzo I will retain my position is present in the company and as a director and will now be able to spend more time, focusing on the day to day operations and perhaps more importantly on the exciting growth initiatives in front of the company today.

Before we get into the quarters financials. It is worth noting that our results were impacted by several nonroutine charges this quarter.

In the quarter 800000, and cash was held by a provider and ongoing dispute where we are hopeful for a favorable resolution and another 600000 was spent and legal expenses related to the pending proxy contest at the company.

I would like now to turn to review the financials for the quarter.

Total operating revenues for the quarter amounted to 20.2 million compared to 21.3 million the prior year.

And this is a 5% year over year decline, yet clinical accession volume was up 4%.

Private segment revenues increased to 7.4 million from 6.9 million, a 7% year over year again, reflecting increased us volume and greater sales of diagnostic products as compared to research products.

Clinical lab service revenues amounted to 12.8 million compared to 14.3 million a year ago.

This decrease reflects lower reimbursement rates with $1.4 million of the decline due to reduced genetics testing reimbursements and insurance company related changes in medical and procedural requirements.

Legal and related expenses amounted to 1.7 million compared to 1.3 million with the fiscal 2020, Corp. first quarter, including a charge of 800000 related to a dispute over prior fiscal year reimbursements by a third party payers and so is can testing.

Overall.

The cost of revenues were up slightly due to the previously cited factors.

R&D expenditures increased to 1.1 million from 700000, this is up 45%, reflecting investments in new assays and ldcs.

Total operating costs increased 1.2 million or 4.3%, including approximately the 1.4 million I commented on that are unusual expenses.

At clinical services cost of revenues remained flat at approximately $11 million with a higher volume of lower margin testing that was offset by cost reductions.

Private cost of revenues increased by about 200000 to three and half million largely due to higher volume.

The consolidated margin was 28% versus 33% a year ago.

Clinical service and product margins were 14, and 52%, respectively compared to 23, and 53% respectively a year ago.

The product segment operating income doubled to 600000 from 300000.

The operating loss of clinical services amounted to 4.8 million. This is up from a year ago operating loss of 2.8 million reflecting.

Primarily reduced revenues and higher R&D expenses.

The GAAP net loss totaled 7.6 million or 16 cents per share compared to a net loss of 6 million or 13% or 13 cents a share the year earlier.

Adjusted for unusual expenses totaling approximately 1.4 million the fiscal 2021st GAAP non-GAAP net loss per share equal last year's 13 cents per share during which there were no unusual expenses.

EBITDA, a non-GAAP get calculation amounted to a negative 7.1 million compared to a negative EBITDA of 5.5 million a year ago. Adjusted first quarter 20, EBITDA was a loss of $5.7 million.

After adoption of new accounting standards for leases, which resulted in the recognition of 4.6 million of current operating lease liabilities in the current period and changes in other operating assets and liabilities. The working capital as of October 31, 2019 totaled $54.3 million.

And finally cash used in operations for the quarter was $2.1 million.

On that note I would be happy to take questions.

The floor is now open for questions.

Have a question or comment please press the star followed by one on your Touchtone phone is at any point. Your question is and you may move yourself from Q by pressing the pound Keane questions will be taken in the order they are received.

We do acid, while you pose your question you pick up your handset to provide optimal sound quality.

Thank you. Our first question is coming from Richard Miller with Labella Miller property.

Hi, Barry.

I'm going to shareholder for over 20 years and so far.

All I have to show forward or losses.

Originally bought the stock because of those therapeutic programs more I heard about ends I was expanding list of therapeutic targets. The more excited I became.

I want to ask questions today, because I'm confused about enzos current therapeutic programs and I, one for myself and other shareholders to understand what Enzo is doing in the therapeutics area.

Just to give some flavor as to.

As to where Mike my concerns arise.

Back in quarter, two 2017 conference call, which was March 13.

2017, which was two years nine months ago.

Rodman and Renshaw ask your question.

Yes.

Can you talk a little bit about Alec well and what is needed to move into the pivotal development stage.

The answer was.

Well as the product that is complete.

The product.

Completed actually two phase to be studies for the treatment of Crohns disease, It's interesting that you.

Asked that question because we have been getting we've completed trial and we've been looking at the next steps in that process.

Our focus has been more in the area of diagnostic universe, because we've had more of a strategic focus and in terms the opportunities that we have in front of us on the laboratory side, but Alec well certainly park, there and we've actually been and recent dialogue, we're getting interest for this product by those that have used it within the clinical study.

Ladies and there are some dialogue, how we may try to now accelerate the opportunity of Alec well and get it and get it out there if not within the United States outside the United States.

So two years nine months later.

You know, we hear that you're coming up with four different alternatives as to what you might do at some point in the future with your therapy.

Peter its program.

Im just wondering if you can give enzo shareholders a flavor as to what that program actually is.

And give shareholders some level of comfort.

After all these years and some of these programs had been in existence for over a decade.

Why we should feel confident now Enzo will in fact be doing something with just what I thought was a very valuable.

The company.

Thank you Richard.

It's actually a very good question the L. call you referred to.

Did complete two phase Twob study there was a long period of data digestion and the the issue for the company was to invest significantly to move it to a phase three study or to utilize various.

Approaches to be able to bring it into a commercialization mode without investing.

Tens of millions of dollars, which might be required to bring it into a program in the United States I wouldn't like to say something else about eloqua because the time issue that you speak about has to do with the evolution of what is taking place within the industry in the transition from chemical and biological.

Medicines to more personalized medicines that sure you've heard that word referenced many times I know at the point of time I believe we worry a four run or in the development of a personalized medicine. This is a medicine, which is created from biopsy specimens taken from a cold enough skipping individually.

Realized for each person that is administered do.

Pharmaceutical companies have evolved now with the emergence of personalized medicines you see the event of card teach technologies, which now are used to treat certain types of cancers by extracting certain sales from individuals transforming them and putting them back the process that was a.

I won't call it a hindrance, but a educational process in Ela quell resulted from the.

Evolution of pharma to now become comfortable with tests that are more individualized in personalized I think we are seeing that take place within our industry. It is resulted in a resurgence in interest now in this type of capability in process, we are actively explaining that.

We have a program, which is now being put into place where this type of testing will be able to be broad more broadly.

Administered internationally and that is part of the process that we are developing and exploring and are planning to put into what we think will be a very interesting therapeutic entity that will be able to exploit not only that particular immune modulation technology.

But also technologies, we're developing that are that are targeting certain pathways for cancers that we believe may have extremely valuable therapeutic effect dealing in the therapeutic spaces is a very different paradigm than what we have been doing in the diagnostic space we realize.

Yes that and we're now moving forward to exploit that opportunity.

A more large scale methodology with b with the ability to fund and drive that type of technology.

In in in an accurate and effective way and you could see that in the announcement that we made in todays press release.

I hope that give you some clarity.

Sir there appears to be no further questions at this time.

Thank you very much for participating in the call. We look forward to sharing with you the developments as they arise we are looking forward to an active quarter and do a we will regain and recoup with you in March. Thank you.

A replay of this broadcast will be available until Friday December 27 at 12 Midnight you may access this replay by dialing 18558 fivenine to zero five sex pin number is 20198 fivenine.

This replay is also available over the internet at Www Dot in zone Dot Com. This concludes today's teleconference. You may disconnect. Your lines at this time and have a wonderful thing.