Q3 2021 Enzo Biochem Inc Earnings Call
Greetings.
Consider Enzo Biochem third quarter, 2021, finance results and business update at this time all participants are in a listen only mode.
And answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press Star Zero and your telephone keypad. Please note. This conference is being recorded I will now turn.
What is it over to your host Jeremy Feffer, you may begin.
Thank you and good afternoon.
Joining us today from the company are Barry Weiner, co founder and President and David Bench, Chief Financial Officer.
A press release announcing the results and the corporate update was issued this afternoon and is available now and.
And the copper website.
I will now read the company's Safe Harbor statement.
Except for historical information the matters discussed in this news release may be considered forward looking statements within the meaning of section 27, and <unk> Securities Act of 19, and 33 as amended and section 21 E of the Securities Exchange Act of 1934 as amended.
And at such statements include 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 a 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.
Other expenses government regulations litigation and general business conditions.
Please see risk factors and 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.
So 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. The company May refer to EBITDA and non-GAAP measure EBITDA is not and should not be considered and alternative to net income or net loss income or loss from operations or any other.
Other measure for determining operating performance and.
And 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.
Now I'd like to turn the floor over to Barry Weiner co founder and President of Enzo Biochem Barry. Please go ahead.
And thank you Jeremy good afternoon, and thank you for joining us on our quarterly business and financial update call today.
We issued our third quarter fiscal 2021 financial and operating results. After the close of the market today and I hope you've been able to review them briefly.
The past quarter and indeed, the year has.
And of challenges and opportunities as COVID-19 dominated the health care industry and a good part of the World News <unk>.
Sure.
This proved to be a double edge sword for Enzo.
The pandemic resulted and vast changes and health care.
Practitioners and patients alike.
Physician offices were shut down with all but emergency testing and treatments undertaken.
Academic institutions, where initially closed and remain partially so in the following months throughout the country and internationally and cash.
<unk> demand for clinical and diagnostic supplies at.
At the same time massive.
As a testing became and international mandate.
With Enzo rising to the challenge by providing actionable accurate and timely diagnosis for individuals industry and educational institutions among others.
For Enzo it wasn't environment, and which we proved our metal we successfully.
Really transitioned into COVID-19, with record revenue growth and operating profitability.
We demonstrated our scientific expertise and flexibility and nimble operating environment.
Our capabilities, we're also reflected and the promptness and effectiveness with which we deployed our products and.
Services to our community as the pandemic intensified.
During this period, we demonstrated the validation of our strategy that was developed and implemented of being a vertically integrated diagnostic company supporting a new industry paradigm.
This contributed to our success.
So both sustaining and growing our testing capabilities during the most severe supply chain crisis and recent history.
And also enabled us to drive enhanced margin improvement and our laboratory operations counter to the rising cost structure of the environment.
Our structure afforded us and dependence.
<unk> volume growth and profitability.
Our third fiscal quarter, which our CFO, David bench will discuss in detail shortly.
Represented another solid period, both operationally and financially quick.
Quickly I would just like to highlight a couple of financial points.
To start.
Our total revenue for the third quarter was $32.8 million and increase of 94% year over year.
We achieved gross margins of almost 50% and adjusted EBITDA of $2.7 million, resulting and a $9.7 million improvement from.
Last year's third quarter.
These results solidify the trend we have posted over the last several quarters and we are extremely proud of our team's continued success.
I'd like to review some highlights for the third quarter.
Our core focus remains on the development and application.
And of high value opportunities, which we anticipate will provide meaningful initiatives as headwinds remain and the reimbursement environment.
The higher margins achieved by our vertically integrated model of our COVID-19 testing are being extended to an increasing range of molecular tests as well.
Well, it's other types of testing beyond molecular a cornerstone of our growth strategy.
Our open system approach and Gen flex our molecular platform allows for the highest levels of flexibility and adaptability in the post COVID-19 environment.
The platform's open system.
Picture enables laboratories to use Enzo is lower cost reagents.
Our other third party reagents with ease and flexibility.
Within a month or clinical lab will have installed approximately 20 Gen flex diagnostic platforms, each capable of generating multimillion dollars of and.
<unk> and molecular testing.
From a business development standpoint, we are actively engaged in detailed discussions regarding business relationships and partnerships that will enable us to pursue fresh opportunities for our proprietary products and services.
These include possible tuck in acquisitions.
And that will complement existing activities as part of our growth blueprint.
In addition from and approval standpoint, we were pleased to receive FDA EUA or clearance for anti collect sample collection kit, which is now available for COVID-19 testing protocols throughout the United States.
And another key proprietary innovation that we anticipate will be a strong commercialization opportunities and fiscal year 2022 is our loop RNA probe technology.
And so it's a loop RNA probe approach was featured in an independent publication of work derived from Enzo scientific collaborators and control.
And with Enzo scientists.
A detailed improvements regarding insight to hybridization, reflecting higher sensitivity and lower background noise when compared to current leading commercially available technologies.
And those probes uniquely identify a single genetic sequence.
Conjunct cell, but without destroying the cell structure.
This allows from dental medical interpretation accelerated drug development and improved research capabilities.
Our innovative technology may reduce the risk of false positives and false negatives for early stage.
Within this section of HBV are human papilloma virus.
And potentially other RNA based infections it's.
It's a technological advancement that may have broad implications and the future testing and and drug development drug development.
And our logistical front, we are integrating Enzo campus.
HD to include GMP manufacturing are clear clinical laboratory, R&D as well as sales and marketing capabilities all within 4 adjacent buildings at our Farmingdale campus.
This integration includes the forthcoming closure of our Ann Arbor, Michigan manufacturing facility. This summer.
In February we announced the issuance of a U S patent for polyclonal antibodies against the osteoporosis drug target <unk>.
And more recently in fact, just last week and so received approval from Unitedhealthcare, the largest insurance provider and the United States as.
So ignited diagnostic provider.
This means that Unitedhealthcare members will be guided to labs, such as ours for non emergent lab services, which should expand the amount of products and services, we already deliver to United healthcare customers and members.
Focusing on our post Covid strategy.
Enzo successfully navigated the most challenging times of COVID-19, as we indicated last quarter, we have already begun implementing our strategy for a post COVID-19 environment.
With the successful rollout of the vaccine program and the United States, having just hit 42% of the total population.
<unk> fully vaccinated last week.
The company has begun implementing operational protocols and a modified sales strategy to address the realities of a post COVID-19 pandemic environment.
We were well positioned prior to the COVID-19 pandemic, having successfully navigated.
And our team through these difficult times and we are confident we will navigate successfully out of the COVID-19 environment.
Our ability to change and the Covid environment is indicative of our team's ability to adapt with the times just as our teams did at the start of the pandemic our teams now.
Must remain nimble to the reopening and meeting our customers vendors and partners need.
Evolve.
While they still haven't fully recovered we see the gradual return to regular doctors' visits on the product side.
Academic institutions remain partially closed throughout the country.
However, and speaking with these customers we anticipate the majority of these academic institutions planned to reopen by the end of the summer and then reach full capacity by the end of the year.
We expect COVID-19 testing to continue due to travel return to the workplace and the reopening of entertainment.
Payment and venues, albeit tapered to lower levels.
We are adjusting and implementing our post COVID-19 business strategy as follows on the product side, we had shift we have shifted our sales focus from academia to industry.
And on the services side, we are expanding from primarily doctor.
Doctors to include lab to lab and commercial opportunities.
Providing a little more color I would like to take a minute to add on our strategy and the postponement and environment and the opportunity that now exists.
And so the go forward commercial strategy is clear.
Cleared we are leveraging our higher margin testing model demonstrated during COVID-19 to other markets such as women's health sexually transmitted diseases and other testing needs based on the applications and versatility and say gentex molecular platform.
The platform has already been scaled commercially and our internal lab as we have been processing thousands of specimens per day and our proprietary installations.
We are also and the early stage of commercialization into laboratories academic institutions and other commercial entities throughout the country.
We are currently validating test menus and panel extensions to drive utility and the high volume molecular space.
These areas include Chlamydia gonorrhea, Trichomonal human papilloma virus, and Enzo full women's health panel.
Management will follow this molecular.
Hi, agnostic test rollout with cost effective flexible solutions involving other technologies and platforms, including cytology immunology immuno histochemistry and other key clinical areas.
In conclusion on behalf of the management team I want to reiterate.
<unk> that we are extremely grateful to all of our employees for their perseverance and dedication to the health care providers and patients we serve.
We made important achievements and the first 9 months of fiscal year 2021, and we are confident our strategic vision and our ability to execute on it.
In the year ahead.
Enzo and another strong quarter as we reported and the recent 3 month period ended April 30, and this is evidenced by the results we announced today.
We are delighted to be and such a solid position at this point in 2021.
Our results for the quarter.
Quarter demonstrated solid achievements.
Total revenue was $32.8 million, a year and a year over year improvement of 94% and revenue.
Consolidated gross margins increased to 49% improving 2.300 basis points year over year.
GAAP earnings per share was a positive <unk> for the quarter versus an EPS loss of 21 and Q3.2020.
And adjusted EBITDA of $2.7 million compared favorably versus an adjusted loss and the corresponding period, a year ago of $7.1 million.
Improvement of nearly $10 million.
These are just highlights of the quarter's financial accomplishments, which David will expand on and greater detail.
Before elaborating further on the quarter, it's important to highlight the company's core objectives as we've outlined before.
And it is critical to stress management's commitment to these objectives as they are fundamental to the continued success of Enzo.
First we are transforming into an integrated end to end diagnostic products and solutions company.
Second we are building and investing in our infrastructure.
For growth.
Third we are implementing efficiency measures to better bring and align our cost structure with the market needs and.
And fourth we are building out 4 key platform technologies to address enhanced value in the diagnostic sector.
I believe it's important.
To reiterate these objectives once again as they have accelerated Enzo its position as a leading vertically integrated end to end diagnostic company.
Enzo continues to build its reputation and outside of the medical lab community now as it expands testing excess and its go test me now online.
Online platform.
Our go Test me now online portal is our first direct to consumer offering that brings quick convenient testing to individuals' overseen by licensed physicians.
We expect this platform to extend this offering to other types of testing within the next few weeks.
We finished the third quarter with greater clarity across the business and are targeting full year profitability for our fiscal year ending in July and July.
Looking forward I believe our robust progress for the first 3 quarters of fiscal 2021 reflects the strong foundation that we have built during the most.
Challenging environment.
We are excited for what is the next phase of growth at Enzo as we transition into a post COVID-19 environment with a new appreciation for cost effective testing globally.
For more detailed review of our third quarter 2021 financials.
Thanks Barry.
As Barry indicated the third quarter was another impressive period of advancement and development across all segments of the business.
Total revenue reached $32.8 million for.
And third quarter, and the increase of 94% from the $16.9 million generated and the year ago period.
This reflects a robust expansion of revenue and improvement from operations.
On a sequential basis.
Third quarter revenue increased 1.3.
And $3 million or 4% over the second quarter of 2021.
Our consolidated gross margin for the quarter was 49% up significantly from the 26% and the year ago period.
And the divisional basis clinical services revenue increased.
And nearly 140% to $25 million.
And from $10.5 million and the third quarter and 2020.
The year over year performance was largely largely driven by volume growth and total sessions, which reached more than 340000.
And the most recent quarter or an annualized rate of 136 million accessions versus.
First is pre COVID-19 annualized levels of approximately 800000.
It is important to note that we saw clinical services gross margin increased to 49, 1% from <unk>.
And 9% and the third quarter 2020, and improvement of more than 3600 basis points.
This is largely attributed to integration and use of our proprietary platforms as well as our ongoing cost savings initiatives.
And so life Science Prada.
<unk> gross margin was 48, 4% and increase and the year ago period from 47, 9%.
And the larger increase sequentially based on 47, 44% gross margin and the second quarter of 2021.
It is worth noting that the life science segment.
We significantly higher gross margins at 53% prior to accounting for intercompany sales.
Improving gross margin and division remains a high priority for the coming quarters.
Supported by improved product menu offerings and selling into a more stable ordering environment.
Selling general and administrative expenses of $12.1 million rose significantly from $11.1 million and the year ago period.
Leveraging our operating efficiencies SG&A increased only 9% year over year during a period, where revenue jumped nearly 100% and accession volume increases.
Creased approximately 140%.
GAAP net income was 2.0 million or <unk> per share versus a loss of $9.9 million.
Or a negative <unk> 21 per share and the year ago period.
Adjusted EBITDA and the quarter was a positive $2.7 million.
Compared to an adjusted.
EBITDA loss of $7 million and the third quarter of 2020.
Year to date, and so has generated positive adjusted EBITDA in excess of $8.1 million.
And those balance sheet remained strong financially with cash cash equivalents.
Adjusted free cash and marketable securities as of April 32021 of $45.8 million.
Owing to capital expenditures higher inventories and increased accounts receivable due to increased volume.
It was slightly lower than the fiscal 2020 year and cash account of approximately.
<unk> was $48.6 million, however, working capital quarter and was a sturdy and $42.1 million.
And which compared favorably to 36.0 million 9 months earlier at the fiscal 2020 year and I want to highlight that the current ratio improvement to 2 forex from 2.
<unk> 1 <unk> during the first 9 months of fiscal year 2020 is indicative of a very clean and improving balance sheet.
Additionally, we showed improvement of $6.6.
$6 million and shareholder equity year to date.
Finally, as we've indicated previously many times.
2 point and the only significant debt on our books is the $4 million mortgage principal and 1 of our buildings and Farmingdale and a $7 million PPP loan, which we are actively working on with SBA and expect a decision on the forgiveness buy ends up months.
And of this month actually.
And as of April.
And 2021, the company had $48.5 million shares outstanding.
We believe Enzo financial profile will continue to improve and we will benefit significantly and a post pandemic world from our vertically integrated end to end solutions approach I'll turn the call back over to Barry for closing.
<unk> remarks.
Thank you David.
While today's call is intended to discuss the company's operations and financial results I'd like to note a few corporate developments as well.
David made clear we believe we are well in line with wrapping up a solid year.
Heading into fiscal 2022.
Closing, we anticipate benefiting from among others, new molecular diagnostic developments are now demonstrated well integrated and expanded capabilities or opportunities to expand our portfolio via partnerships and perhaps acquisitions and enhancements to our operations and tighter control.
Goal on our costs.
As announced in the previous quarter, the company's strategic initiatives and succession planning are proceeding the company management and board are working in unison to translate into those capabilities to benefit all shareholders and enhance shareholder value.
Our internal focus.
<unk> remains on and achieve further efficiencies and enhanced integration, while leveraging commercial opportunities. We are determined to drive topline growth, while targeting profitability from operations and the future.
We are very excited about the future events and so and its opportunities.
We would now like to.
To open the call for questions.
Yeah.
And at this time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star 1 on your telephone and keeping it the competition tone will indicate your line is and the question queue you.
You May press Star 2 if you would like to remove your question from the queue.
And for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys, 1 moment, please and while we pull for questions.
Our first question is from Andrew Desilva with B Riley Securities and company. Please proceed with your question.
Hey, good afternoon, and thanks for taking my questions.
And just a couple of quick ones from me.
So you've been working with various academic institutions, I believe and and had been providing COVID-19.
COVID-19 testing.
I was curious if you see those channels are evolving and a post pandemic world, where you can actually start selling diagnostics outside of Covid.
And I heard you referenced women's health and sexually transmitted diseases and.
And if that is possible be curious and what the process for that would look like.
Yes, Thank you Andrew.
Absolutely we are.
And very much focused on those long term relationships that we've created.
<unk> added during Covid, which include the.
Academic institution and to help them and their health center in terms of the testing going forward with stds and other areas. So yes. We are we are working on those and we do feel like we have a stronghold and those areas.
Okay and would you expect that you'd be going through that the clear path or an FDA approved pathway or some hybrid of the 2.
Our processes to proceed through the FDA pathway on our key platform technologies.
We have LDC or lab developed.
Mr approval and many of them.
And the Gen flex platform as well as our other platforms and development are all proceeding on a pathway.
And to which we will.
Attempt to obtain FDA approval.
Okay, Okay that makes sense and last question from me.
And.
And I know earlier.
During the pandemic and it was.
Difficult for diagnostic companies to source adequate amount of employees.
Various.
Specialties.
Has that.
And that market start to improve at all and.
And if not or if so could you just give a little bit of color.
Okay.
Yes, the market is absolutely improving 1 of the key challenges that.
Confronted laboratories, such as ours.
Was the maintenance of staffing during a period of time.
When the.
And that was basically telling people to stay home or paying people to stay home. We are in operation that can only operate with people on the ground and 1 of the key challenges of management and 1 of the key issues that had to be dealt with with a maintenance of staffing and the implement.
The combination of programs, where we're able to move people off site, where possible, but yet maintain people in the operational roles and the operations of the laboratory during the most stringent and difficult times of the Covid environment and.
And I must say.
And maintained.
Internally grateful to the staff of this company, who rose to the occasion and in the most dire times put themselves in the face of danger and the frontline of the.
And the diagnostic sector here and provided the testing the.
April collection and the solutions.
And showed up for work when most of the country was basically made.
Maintaining a home presence today.
We have still openings that were filling.
It is an ongoing process, but.
The same day, that's been a credit to our staff a credit to the management of this company that was able to motivate and to drive people not only to improve developmental processes and the most rapid time and in the <unk>.
<unk> of incredibly critical short supply chain capabilities.
Certainly to build develop the platforms, we developed to produce the reagents that allowed us to operate within a supply chain that was freezing everyone across the country and deliver a surface to our community and providing testing and security to those that needed it and I cannot say more about.
Debt.
But it was a very very challenging period, and Fortunately I believe the organization has emerged stronger more effective operating on a leaner basis, and incredibly focused and its goals and objectives.
Great. Thanks.
Thank you from the color and congrats on the progress you've made over the last 12 months I'll hop back in queue.
Yes.
Thank you.
And.
And again as a quick reminder for anyone.
Our next question and your average.
Brent Rakers with Janney Montgomery Scott. Please proceed with your question.
Thank you gentlemen for giving me the opportunity to ask a couple of questions.
Could you update us on the finding of the new CEO and he previously announced.
Yes.
As was stated in our prepared comments and in the.
A press release that was put forward today.
We are in the process of exploring opportunities.
Opportunities both on the strategic front as well as and succession planning these are binary events.
There is not much more to say, but when there is news to report it will be reported.
That would be about the most I can comment on that at this point.
Okay.
There's a company.
<unk>, which is now a division of Danaher group.
That has a whole array of PCR test.
Hi.
Okay.
You're testing platforms compete with SAP and how do your mouse traps compare to Safford, which I believe is now owned by Danner.
There are similarities in the and goals of these 2 types of this particular.
Platform the company, you're referring to is Cepheid and <unk>.
And do have technologies that are competitive.
Our goal has always been to develop technologies and platforms that would be extremely cost efficient and drive margin improvement for clinical labs as you may be aware pre COVID-19.
<unk> the reimbursement marketing market for clinical testing was under pressure extreme pressure clinical.
Clinical labs, we're losing margin many of the platforms that are out there some similar to cepheid require cash.
Firstly components costly.
Supplies.
Of it and we and quickly where we're seeing margin erosion for labs and many different areas. Our systems have been designed to improve margins by reducing the cost structure due to the technological developments that we have been implementing over the last few years. So there are some.
Some similarities but there are many that are not similar.
Our goal here is to produce more cost effective.
Testing systems that will allow companies to have higher margin and longer sustainability and the marketplace.
Alright, thank you for that color.
Just 1 or 2.
2 more if I may when do you expect to make an announcement on doctor Rabbi Nannies replacement.
As I mentioned earlier.
The company has embarked on a program for <unk>.
Strategic review and strategic.
T J optionality.
Encompassed with that is succession planning and as I commented just before.
And that will be addressed at a point in time when it is effective.
Okay now he and forgive me if this has been mentioned and prior.
Upload documents, but.
But with respect to the strategic.
Review that that's ongoing is it being done only by <unk>.
Internal people at the company or is there an outside consultant or investment bank, that's aiding the company and your strategic review process.
It was publicly announced last quarter that Cain brothers was retained to assist and the strategic review of corporate options.
Okay and he is still involved with that with you.
That is correct.
Thank you for taking all my questions.
And as a quick reminder, if anyone has any questions. They may press star 1.
And so I'm sure you respond and the question and answer queue.
Okay.
And it looks like there are no more questions, which Andrew a question and answer session and I will now turn the call back over.
And Barry Weiner for closing remarks.
Thank you very much for joining us today, while we are very proud of our revenue growth and our profitability achieved this quarter and year to date, we remain committed to our transformation into an integrated end to end diagnostic products and solutions company.
We look forward to discussing further.
Chris with you on our Q4 report, which will take place and mid October.
And you for joining us.
This concludes today's conference and you may disconnect your lines at this time.
Thank you for your participation.
[music].