Q2 2020 Earnings Call

Good morning, and welcome to the end so bio Ken Inc. fiscal second quarter 2020 operating results conference call I'll now read the company's Safe Harbor statement.

Except for historical information the matters discussed in this news release, maybe considered forward looking statements within the meaning of section 27 eight of the Securities Act of 1933 as amended and section 21 E. Other Securities Exchange Act of 1934 absent minded.

Such statements include declarations regarding the intent belief or current expectations at the company and that's management, including those related to cash flow gross margins revenues and expenses, which are dependent on a number of factors outside of the control of the company, including inter alia the mark.

For the company's products and services cost of goods and services other expenses government regulations, litigations and general business conditions.

So you risk factors and the company's form 10-K for the fiscal year ended July 31st 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 obligations to update any forward looking statement as a result of developments occurring after the date of this conference call.

During this conference call the company may refer to EBITDA, a non-GAAP measure.

But it's not and should not be considered an alternative to net income was.

Income 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 Dot Enzo Dot Com and then its press release issued yesterday afternoon.

Our speakers today, our Barry Weiner, President and David bench, Chief Financial Officer.

At this time, all participants have been placed on in listen only mode and the floor will be opened for your questions and comments following the presentation.

I'd now like to turn the floor over to your host Mr. wine or the floor is yours.

Thank you good morning, and thank you for joining us today.

We distributed our second quarter results after the market close yesterday and I hope you've had a chance to look at them.

Before we get into a discussion of the financial and operational results for the fiscal quarter I want to address a topic that is on everyone's mind.

The recent perona virus or C O V I'd 19 outbreak.

Many investors shareholders and partners, who have asked what we're doing regarding the testing and detection of this new virus that was infected more than 93000 people globally and many people as you're aware within the United States.

As we announced in our press release. This morning, our wholly owned subsidiary Enzo clinical labs will begin accepting specimens for this novel Corona virus testing next week.

And so has many years of experience processing specimens for the detection of viral pathogens.

Test used by Enzo is a molecular test that determines the presence of viral our name respiratory specimens collected from patients by health care providers.

We're concurrently applying our technical expertise and molecular diagnostics to develop a next generation Z O V. I'd 19 testing option.

And those innovations include a virus Inactivating specimen collection media to lessen transmission risks for health care providers.

And clinical laboratory personnel as well.

It also includes the development or more relevant positive controls for these tests and also improved sensitivity.

The company is consulting with the U.S. centers for disease control when prevention and the implementation of these enhanced just features.

I would now like to take a few moments to talk about our position in the marketplace. Some of the real progress, we're making in our business and some notable developments in initiatives, which are designed to unlock value in advance. The company's stated goal of establishing a compelling new paradigm for a modern day diagnostics company.

Which includes both advances and sophisticated technologies and innovation as well is addressing the cost realities of todays industry dynamics, which are reshaping the the must be the landscapes route to clinical laboratory universe.

Last month and someone announced it received New York State approval for its chlamydia gonorrhea and trick ammonia just using a liquid based cytology sample collection on its proprietary Gen flex platform.

Gen Flex is a sample to result, molecular diagnostic platform that includes sample collection sample processing amplification and detection.

Compared favorably to other proprietary platforms dominating the diagnostic testing market Ensco's jet Gen. Flex platform can offer is 30% to 50% cost savings over <unk> closed systems.

Gen Flex addresses the $450 million annualized global Chlamydia gonorrhea and trick diagnostic market as well is the 1.3 billion dollar well women's health market.

Extensions of the Gen Flex platform, which Enzo is currently developing could eventually addressed the multibillion dollar molecular diagnostics market.

We are very excited about this approval for this platform, which has been under development for a number of years.

This validation allows us to focus on the next phase of commercialization of these products and services.

Which include offering these test for sexually transmitted diseases in our own clinical laboratory as well is providing the products for clinical research purposes.

We're working towards securing FTC approval and CE Mark for this platform.

This significant milestone achievement highlights insist continued ability to deliver high performance open flexible adaptable and cost effective products devices and services.

We also continue to make progress with regards to our unique proprietary low cost platforms in all three high volume impacting segments in the clinical laboratory marketplace, which include immunohistochemistry immuno assay and cytology.

For example, we're working on an innovative cytology platform to enable the visualization of molecular indicators in the specimen.

This will enable pathologists to color separate and recognize the disease within a structure of the slide.

The platform will assist with the early detection of diseases, such as cervical cancer and provide comprehensive results to the physician.

In the immuno assay segment, we have successfully developed a high sensitivity assay for specialized indications.

We have also developed to test for vitamin D. Whenever a high volume test within our product mix.

On another front as we previously disclosed we continue to explore various avenues to unlock value when it and so therapeutics the biopharmaceutical subsidiary of Enzo.

Alternatives under consideration, which we spoke about previously consider it possible spinoff sale joint venture or licensing of its intellectual property.

Underscoring the depth of the opportunity and therapeutics subsequent to the ended the quarter. The company reported the publication of the study detailing the promising activity of our drug candidate escape one one in an animal model of lupus lupus is a challenging auto immune disease.

On a further note.

And so continues to expand its portfolio of intellectual property assets, which today is comprised of approximately 463 issued patents worldwide and over 75 pending applications, along with extensive enabling technologies and platforms, we continually evaluate our robust intellectual property.

<unk> portfolio and are exploring value generating activity involving these assets.

Before walking through the financials I would like to point out that the company's laboratory segment recognized topline growth of 4% year over year to 12.5 million in the second quarter.

The lab segment experienced growing accession counts sequentially.

And year over year with more than 813000 test perform in the last 12 month period.

Days sales outstanding in the laboratory segment improved to 43 days in the second quarter, a 23 day improvement from 66 days in the previous years period.

Furthermore, gross margins expanded a thousand basis points to over 18% in the second quarter.

The clinical laboratory business has stabilized in the showing positive growth trajectory.

The product segment remained profitable despite continued investment in our platforms. The divisions order value. That's average order size by dollar amount, which products are sold.

Experienced its third straight quarter of sequential growth.

This trend has continued into the first month of the third quarter.

The product segment has experienced its fourth consecutive quarter of gross margins above 50%, despite fluctuations and product mix and order timing.

Overall operating results for the two segments improved by 1.7 million to the initiation of cost cutting and growth initiatives.

Importantly, we continue to make good progress against our previously announced program to realize more than 10 million an annualized cost savings.

Benefits already being realized and we expect to update you on the progress over the coming quarters.

Finally, before we get into the financials, it's worth noting that our quarterly results were impacted negatively by 1.8 million of Nonroutine legal and advisory expenses associated with the proxy contest at the company in the past quarter.

On the leadership front during the second quarter, Rebecca Fisher, the CFO of Bellevue Hospital was appointed as a new independent director.

David bench was appointed as the Chief financial Officer of Enzo.

Subsequent to the quarter Fabian blank computer Clemens the fourth we're also added as independent directors, we welcome them to the board and look forward to their contributions.

At this time, let me turn the call over to David who will walk you through the financials for the quarter.

Thanks, Barry I like to introduce myself to those who you are not yet have a chance to meet and my short time here it ends up.

I look forward to working with you and addressing your questions. It's an exciting time to be at Enzo and we aren't that caused us some very significant progress and development.

I look forward to developing a close report with institutional investors retail shareholders and analysts.

There's a quick review the financials for the quarter.

Total revenue amounted to 19.4 million.

Eric to $19.3 million in the year ago period, an increase of 1.3% despite sharply lower industry wide, Panama reimbursement rates.

Clinical service revenue for the second quarter was $4.5 million compared to $12 million in the previous year period.

An increase of 4%.

Volume increases in core and other non genetic testing contributed to the revenue increase in total diagnostic testing volume measured by the number of accessions increased 7% and to be right.

It's important to note that our clinical service revenue increased despite the continued negative impact on the Pamela reimbursement cuts.

Gross profit margin I clinical services was 18% and most recent quarter.

And 8% in the previous 19 2019 period.

This margin expansion was attributable to our cost efficiency program, including reductions in outside reference testing expense and has come efficiencies, partially offset by increased reagent costs from higher access from volume.

Life Sciences revenue for the second quarter was $6.9 million compared to $7.3 million in previous years second quarter.

The decrease was 6% is primarily due to the lower product sales volume in the U.S. based and timing of orders.

Gross profit margin on products was 52% in 2020.

For it and 50% in the 2019 period due to the mix of products sold in the quarter.

Consolidated gross profit was $5.8 million versus $4.6 million and that previous years quarter.

Gross margins for the quarter were 30% an increase of 600 basis points compared to 24% any ergo period.

Research and development expenses were approximately $1 billion into 2020 period, and zero point $8 million into 2019 period, an increase of zero point $2 million or 28%.

The increase is entirely attributable to the clinical services Division for lab developed test based on our proprietary John Flex platform.

Selling general administrative expenses declined to $10.7 million during the 2020 period from $11.5 million doing during the 2019 period.

As a percentage revenue amounted to 55% versus 60% a year ago.

Clinical service expense decreased point $3 million, primarily due to the initial results of the aforementioned cost savings initiatives. The life science products expense decreased zero point $5 million, primarily due to reductions in sales and marketing.

And sale of salaries and related costs.

Legal and related expenses were approximately $2 million during mid 2020 period compared to $1.1 million into 2019 period, an increase of zero point $9 million.

During the 2020 period, the company incurred $1.8 million for contested proxy costs related to our February 2020 annual shareholders meeting.

Our GAAP net loss was $7.7 million or 16 cents per share an improvement in 9% compared with a year ago court quarter net loss.

$8.4 million or 18 cents per share the non-GAAP net loss was $5.8 million compared to $88.4 million a year ago, an improvement up $2.6 million on a per share basis. The non-GAAP loss equaled 12 cents per share compared with 18 cents per share.

A year ago.

Adjusted EBITDA loss in the quarter in your goal period, where approximately $5.3 million and $7.9 million, reflecting a 2.6 million dollar improvement on an adjusted basis.

At quarter end cash and cash equivalents.

<unk> $52 million and working capital amounted to $48 million as of March 2nd 2020, The company had 47.6 million shares outstanding.

I'd like to turn the call back over to Barry for close. Thank you David at this point I would like to turn the floor over for questions.

Thank you the floor is now open for questions. If you have a question or comment. Please press the star key followed by one on your Touchtone phone.

At any point. Your question is answered you may or move yourself from the key by pressing the pound key.

Questions will be taken in the order they are received.

We do ask that while you pose your question that you pick up your handset to provide optimum sound quality one moment. Please.

Thank you I will now we're trying to call to Barry Weiner for any additional or closing comments.

Thank you very much for joining us. This morning, it's a very interesting time in the clinical lab testing market [laughter]. We are a very fortunate in that we believe we will be able to make a contribution to the a welfare.

Of our population with our testing programs going forward at this point in time, and we look forward to reporting to you on the next quarter in June. Thank you very much.

A replay of this broadcast will be available until Friday March 20th at 12 Midnight you may access. This replay by dialing 18558 Fivenine to 056 depend number is 4496317 the three play is.

Also available over the Internet at Www Dot Enzo Dot com.

This concludes todays teleconference. You may disconnect your lines at this time and have a wonderful day.

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