Q2 2021 Enzo Biochem Inc Earnings Call
The second quarter 2021 financial results and business update at this time all participants are in a listen only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
Of note. This conference is being recorded I will now turn the conference over.
To your host Jeremy Feffer Investor Relations. Thank you you may begin.
Thank you Hillary and good afternoon joining.
Joining us today from the company are Barry Weiner, co founder and President and David Bench, Chief Financial Officer of.
The press release announcing the results of the update was issued this afternoon and is now available.
On the Enzo website.
I will now read the company's Safe Harbor statement.
Except for historical information of the matters discussed in this news release may be considered forward looking statements within the meaning of section 27, a of the Securities Act of 1933 as amended and section 21 E of the Securities Exchange Act of 1934.
Such statements include debt declarations regarding the intent belief or current expectations of the company and its management, including those related to cash flow gross margins revenues and expenses, which are dependent on the number of factors outside of the control of the company, including the markets for the company's products and services cost of goods and services other.
Sure as opposed the government regulations litigation and general business conditions. Please see risk factors in the company's form 10-K for the fiscal year ended July 31 2020.
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.
The 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 of 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.
Turning operating performance. The company has provided a reconciliation of the difference to GAAP on its website www dot Enzo dot com and in its press release issued this afternoon.
I'd now like to turn the floor over to Barry Weiner co founder and President of Enzo Biochem Barry. Please go ahead.
Thank you Jeremy.
Good afternoon, and thank you for joining us on our quarterly update call today.
We issued our second quarter fiscal 2021 financial and operating results. After the close of the market today I hope you've had a chance to look at them.
The report indicates our second quarter represented a solid period of financial.
And operational growth and in an environment of multiple challenges and difficulties our ability to help alleviate COVID-19, and also to maintain our growth equilibrium is a direct consequence of our investment in time money and scientific expertise, we have determined Italy made over the past.
<unk> years it.
It is also a reflection of the hard work and dedication of our employees, who have shown uncommon commitment. Despite many personal difficulties to helping others over the course of the past year.
This was the unique quarter for the company as we closed out 2020 with alarmingly.
The high rates of infection in the United States and in late January as well we.
We finally saw emergence in February of a decrease in infection rates with the rollout of vaccines in the United States.
As a backdrop, it's important to keep in mind the overall market during this pandemic.
Nick.
On the services side Doctor visits declined approximately 40% during the first six weeks of the pandemic they still haven't fully recovered.
Though we see the gradual return to return to regular Doctor visits there was still some movement to take place.
On the product.
<unk> side, the academic institutions, where initially closed and remain partially closed throughout the country and internationally.
While we expect COVID-19 testing to continue due to the schools camps workplaces and travel we are fully implementing our post COVID-19 business strategy.
On the product side, we have the shift in emphasis from academia to industry on.
On the services side, we are expanding from primarily doctors to include lab to lab opportunities.
We have also demonstrated that our vertically integrated approach works with.
With 50% blended.
Margins I should note, 70% on our own platforms versus mid teens margins pre pandemic.
These margins compare favorably with those of our competitors, who have margins below 40%, even though they have higher COVID-19 testing percentages.
We are expanding.
Gross use of our proprietary platforms from molecular testing to include women's health and sexually transmitted diseases and offer both products and services for each.
Furthermore, we will expand it to immunohistochemistry, cytology and immuno diagnostics to encompass at least four areas.
Pending these where demand for margin improvement is necessary in the clinical lab marketplace.
I am very proud of what we've accomplished during the past 12 months of the pandemic and remain thoroughly optimistic with our execution strategy for the year ahead.
I would like to reiterate our appreciation and thanks to all.
<unk> employees for their hard work determination and execution during this quarter.
They have provided continued operations, while serving the needs of people who rely on the Enzo for diagnostic testing services our.
Our employees' health and safety has always been of Paramount importance and we sincerely appreciate their country.
All of our motions to keep our business running safely.
And so has implemented measures to safeguard our employees have been affected while allowing us to maintain full operations and expanding them. So that we may continue providing the healthcare community.
We made notable achievements at the end of 2020.
Contract I am confident our strategy, our vision and our ability to execute execute on it in the year ahead.
Our second quarter was another exceptional quarter evidenced by the results we announced earlier today.
We are pleased to be in such a strong position. This early in 2021.
One.
Our results for the quarter demonstrated solid achievements.
Total revenue was $31 5 million of <unk>.
Year over year improvement of the sick of 62% in.
In revenue.
Gross margins increased to 50% improving 2000 basis points year over.
For year.
GAAP earnings per share with the policy the <unk> for the quarter versus an earnings per share loss of <unk> 16 in Q2 2020.
And adjusted EBITDA of $4 3 million compared favorably versus an adjusted loss a year ago of $5 4 million an improvement of almost.
$10 million.
These are just representative highlights of the quarter's financial accomplishments, which David will shortly share with you in a bit of greater detail.
However, it also highlights the message I would like to convey regarding Enzo and its direction.
Before elaborating.
Further on the quarter. It is important to highlight the company's core objectives as we have outlined before.
It is critical to stress management's commitment to these objectives as they are fundamental to the continued success and development of Enzo.
First we are transforming into an integrated.
<unk> end to end diagnostic products and solutions company.
Second we are building and investing in the infrastructure for growth.
Third we are implementing efficiency measures to better bring in line of our cost structure with the market needs and.
And fourth we are built.
Our four key platforms and technologies to address enhanced value in the diagnostic sector.
These objectives have helped solidify Enzo physician as a vertically integrated end to end diagnostic company.
Despite the pandemic pandemic headwind.
Winds, we continued to mobilize our operational resources to adapt to the expanding demands of the market by servicing opportunities in areas. We expect to be most impactful such as point of care and direct to consumer offerings.
I'd like to now cover some highlights.
Highlights of the quarter.
I will start with the introduction in November of of small portable microplate reader for use with Enzo immunoassay is providing new opportunities in point of care medicine.
We expect to expand this reader to be available for research use in the back half of 2021.
This device enables enzo to offer a compact plate reader that features an open designed for quick plate loading and the USB connection ideal for our academic CRO and industrial customers.
In January Enzo received an expansion of its emergency use.
The author of authorization from the FDA authorizing the use of pool samples containing up to five individuals Bob specimens with the company's anti probe Sars Covid Cove the two.
To test system utilizing tests on three different platforms, including Enzo is proprietary Jen.
Gen Flicks automated high throughput platform.
Testing capacity remains challenging for many sites with high population density such as we have in the northeast area and the introduction of several more easily transfusion transmissible variants of COVID-19 have increased demand for our testing.
Services.
As we recently announced at the beginning of March of recent analysis demonstrated that test processed on Enzo is proprietary Gen. Flicks molecular platform are successfully able to detect the presence of currently known variance of COVID-19.
While our PCR testing does not distinguish between different variants positive samples can be further analyzed for variant identification.
This is another important differentiator for Enzo as the rapid antigen tests currently available on the market may not have this capability.
Patients.
<unk> providers and physicians are now understanding the nuances around infectious disease testing, which has greatly benefited enzo.
As it built its reputation outside of the medical lab community and extend the testing access on the go to test me now online platform.
Go test.
<unk> online portal is our first direct to consumer offering debt free.
<unk> quick convenient COVID-19 testing to individuals' overseen by licensed physicians.
We plan to extend this online offering to sexually transmitted diseases and other types of testing.
We launched.
On this online platform at the end of October and we continue to rollout the offering as it moves forward over the next few quarters.
We finished the second quarter with strong momentum across the businesses and are on track to launch multiple products in a post COVID-19 environment.
We look forward to updating our investors.
On these initiatives in the near future.
I'd like to turn the call over to David bench, our CFO, who will provide you a more detailed look at the financial performance for the quarter David.
Thanks Barry.
As Barry indicated the second quarter was another striking period of advancement in growth across.
Ross the board.
Total revenue of $31 $5 million per the second quarter increased 62% from the $19 4 million Gen.
Generate in the year ago period.
Reflecting our continuing expansion of operations and revenue following the slowdown associated with the.
The impact of COVID-19 on the diagnostic testing industry.
The consolidated gross margins for the quarter was 53% up significantly from the 30% in the year ago period.
On a sequential basis second quarter revenue increased 10% over the first quarter of 2021 driven largely.
By COVID-19 testing.
On the divisional basis clinical services revenue increased 92% to $24 million from $12 5 million in the second quarter 2020, and increased more than 13% sequentially.
The year over year performance is largely driven by <unk> 60.
So on year over year volume growth in total accession to more than 330000.
As well as by 15% growth in net revenue per session.
Of particular note.
We saw clinical services gross margin increased to 51, 2% from 18.
Three 1% in the second quarter of 2020, an improvement of more than 3300 basis points.
This is largely attributed to the use of our proprietary platforms as well as our ongoing cost savings initiatives.
And the of average product order value increased 18% during the period.
<unk> lead to servicing higher value markets Enzo life Sciences product gross margin was 47, 4% of decline from the 52% in the year ago period, and 49, 4% in the first quarter of 2021 of flat when accounting for intercompany sales.
Through maintaining a focus on improving gross margins division for the coming quarters.
Aided by an improved mix of products being sold into a more stable ordering environment.
On the consolidated expense side research and development expenses decreased 24% to zero point $8 million or two.
Two six percentage of total revenue from.
From $1 1 million or five 5% of the total revenue in the year ago period.
Selling general and administrative expenses of $11 million growth.
Slightly from $10 $7 million in the year ago period.
Although SG&A margin declined.
And by approximately 2000 basis points.
Due to better fixed cost leverage due to the vertical integration and cost efficiency measures.
GAAP net income was $2 3 million of <unk> per share.
Versus the loss of $7 7 million or negative <unk> 16 per share in the year.
Quarter.
Adjusted EBITDA in the quarter was a positive $4 3 million compared to an adjusted EBITDA loss of $5 $4 million from the second quarter of 2020.
This significant improvement was driven mainly by improvement in gross margin and lower SG&A expense.
From headquarter of head count efficiencies, lower intangible amortization and reduced travel.
Our finances remain sturdy with working capital of $40 million, an improvement of $4 million from the past six months cash and cash equivalents total quarter your $5 $3 million as of January.
<unk> 31.
Slightly lower than the $48 6 million at the end of fiscal year 2020 due to investments in inventory.
Accounts receivable and capital expenditure as well as lower accounts payable.
As of January 31, 2021 the company.
You had 48 million shares outstanding.
We believe Enzo is entering 2021 on very strong financial footing, and we will benefit significantly from its position as a leading vertically integrated end to end diagnostics company.
I'll turn the call back over to Barry for closing remarks.
Thank you David while today's call is intended to discuss the company's operations and financial results as indicated in today's press release, there were a few corporate developments I'd like to note as well Dr.
Dr. Carl is a rabbani, the founder and CEO will remain the director of the company, but will step down the CEO and transition.
<unk> two of leadership and scientific flow with the company once the qualified successor is identified.
To fully capitalize on the potential of Enzo business model the company and the board of directors have retained the global search firm Korn ferry to conduct of a search for the appropriate CEO candidate.
In.
In addition, Gary Huff former lab core diagnostic CEO was named strategic consultant to the board. He was retained to help the assistant of the strategic direction of the company.
And Furthermore, the company has retained Cain brothers of health care investment banking firm to help identify evaluate and execute on strategic and commercial.
<unk> opportunities.
We view the steps in our ongoing operational progress and developments with great enthusiasm.
To recap the company's quarter report with significant not only in itself put and reflecting a new business model for diagnostic services the demonstration of the validity.
<unk> of our integrated model may be consequential, not only to Enzo, but the entire industry.
<unk> is committed to employ this model not only for ourselves, but also also with strategic partners.
This quarter demonstrated the implementation of efficiencies in operations.
<unk> during a period of extreme expansion and implementation of our integrated business and the COVID-19 pandemic. When many aspects of this business were challenged by human resource limitations and supply chain shortfalls.
Bringing open system approaches to the molecular testing market to reduce.
Reduce costs, while addressing the prevailing reimbursement pressures has been key to improving our margins.
This demonstrates to the industry the validity of our strategy open systems will allow flexibility and adaptability in the post COVID-19 environment, allowing laboratories to use third party.
The reagents or their own reagents on this open platform with ease and flexibility.
We are excited about the future of Enzo and its opportunities and we will now open the call for questions.
At this time well be conducting a question and answer session.
<unk> like to ask the question. Please press star one on your telephone keypad confirmation tone will indicate your line is on the question queue. You May press star two if he would like to remove your question from the queue.
The participants using speaker equipment, it may be necessary to pick up of your handset before pressing the star keys.
One of them in place, while we poll for questions.
Our first question comes from Paul Knight of Keybanc. Please.
The state your question.
Oh, Yeah, Barry on on the gene Flex system Hum.
Besides the menu that would obviously include Covid and S. T d's, what's the what's after that and what's the timing.
On the.
The FCB portion of getting that test on the platform.
Thank you Paul the.
The platform today as you are aware, it's running COVID-19 too.
We have a women's health panel, which includes candido.
All of the V U M. M. This is Andrew multi prep swab this would be already over the summer. We also have the enhanced women's panel chlamydia gonorrhea trick also on a multi prep swab, which should be available. This summer. These will all be submitted for a 500 10-K.
Submissions as well, we have an HPV high risk panel, which is moving into submission in the fall and HCV viral load panel.
<unk> be the right viral load HIV viral load. These will all be submissions going in over the summer as well as in HSV submission.
Of this is a comprehensive very full on menu that would be fully efficient to be able to supply any operational clinical laboratory with a complex and fully loaded capability to handle most of molecular tests and this is the fastest growing segment within the molecular.
The market, we have been working through this environment, which the first half.
Half of this.
This year with Covid really forced a dramatic.
Challenge for us as we had to shift the personnel and we had to.
Improvise in terms.
Of getting the Covid machine approved which was no small.
The project in of itself as well as getting the Covid Test Valley.
Validated and manufactured on the machine for EUA approval. This delayed the submission of some of the east analytes, but they are now moving forward and we are moving on stream. So we will have hoped.
<unk> by the fall a very complex very.
Strong.
Machine and analyte menu to supply our customer laboratories as well as ourselves.
And then also regarding the obviously.
Diagnostics volume.
<unk> core of Colgate of fall on it from.
Well.
On PCR, but since January of any color on diagnostic environment right now.
It's really too soon to tell whether there will be great overall.
They're all declines are not however, the COVID-19 pandemic shines a light on the importance of clinical labs and testing in general.
This is being validated by the continued postponement of Pam of cuts for at least another year and currently we see continuous demand for.
Our COVID-19 testing volumes, we have not seen fall off in our volumes here again.
We initiated programs that are very effective and surveillance for academic institutions and we are monitoring a number of academic institutions today in our.
Of our region and Aerie.
Of.
We have school programs. Some corporate programs are now as they look to potentially open up either over the summer or in the fall are implementing programs. So we see a shift a little bit and the utility of the testing even though we're certainly doing conventional physician based monitoring we see programs.
Programs that are moving into place to fill up volume and it may be potentially exceed our current volumes as we move forward also as the vaccine becomes more prevalent the.
The issue of Serological testing comes into play and we are waiting to see how.
The testing requirements surrounding antibody levels in individuals who have been vaccinated will move forward into the future. So it's still a bit undefined as to what the future will look like but we anticipate the volume demands to continue for a period as we move forward.
Okay. Thank you.
Our next question comes from Keith.
Of this capital.
State your question.
Barry I have a question on the consolidated gross gross margin I guess, if it was up sort of at 50%.
And I guess, some part portion of that is this.
As Covid testing.
Hi is the is the margin on the Covid testing is it.
I mean is there a way to for us to kind of understand is it is it far above the consolidated gross margin it must be.
And how should we think about that.
Yes, Hi, Keith this is Dave bench.
My question basically.
Publicly stated actually on the on this call that are Covid.
Testing runs on our proprietary platform our proprietary platforms.
Show margins in excess of 70% so hopefully that's helpful.
<unk> for you in terms of understanding of the blend and how we how are we pushing on board.
And can we get just a follow up can we can we consider that.
Some of some portion of that as an ongoing basis.
Assuming COVID-19 testing is here for.
Some some number of years.
Yeah for.
For US things are you thinking about it that way.
Yes for Covid, yes.
The molecular testing on <unk> in general.
Say that Covid is a high reimbursement of tests right now.
On.
Obviously, depending on the reimbursement level of the different tests because of significant.
The proportion of our revenue is through the.
The payoffs and obviously that will depend on.
What were being reimbursed what the actual margins look like.
And then just just one last one in.
Terms of some of the.
Some of the the.
The recent activity with Korn.
Korn Ferry and Gary Huff and Cain brothers, just just regarding Gary I know he's reporting to the board, but practically how is he how is he engaged C. C doing a strategic review and he's going to give some type of recommendation or is he just part of the ongoing.
Board in terms of what kind of an observer role or how should we think about.
His role and what is impact might be in the timeframe, we might expect that.
Mr. Huff was retained to assess.
Assist the company and the board.
In understanding strategic opportunities.
And utility of resources he is.
As an industry expert and his contribution will think will hopefully be multi fold on multiple levels.
Yeah.
Okay. Thank you very much congratulation on a on a.
Great quarter.
Thank you.
Yeah.
We have reached the end of the question and answer session and I will now turn the call over to Barry Weiner for closing remarks.
Thank you for joining US today, we are really very proud of our revenue growth and profitability achieved this quarter. It is the only one step in transforming into an integrated end to end.
<unk> diagnostic products and solutions company and building and investing on the infrastructure, we have put in place over the past years for growth.
We do look forward to discussing further progress of you went in.
And our next report.
We believe it will be a very interesting and dynamic time for our company. Thank you again for joining us.
Okay.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.