Q4 2021 Enzo Biochem Inc Earnings Call
Greetings and welcome to the Enzo Biochem fourth quarter and full year 2021 financial results and business update at this time all participants are in a listen only mode. A 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.
Reminder, this conference is being recorded.
Now like to turn the conference over to your host Bob yet at my site advisors. Thank you you may begin.
Thank you Melissa.
Good morning, joining us today from the company are Barry Weiner.
Founder and President and David Bench, Chief Financial Officer News release announcing the results and the update was issued this morning and is available on the Enzo 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, a <unk>.
<unk> backed up $52.0
As amended and section 21 E of as curious and Exchange Act.
Of $53.0 as amended 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 revenue and expenses.
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 expenses government regulations litigation and general business conditions, where you see the risk factors in the company's Form 10-K for the fiscal year end.
At July 31, 2021 investors are cautioned that any forward looking statements are not guarantees of future performance and involve a number of risks and uncertainties that could materially affect 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, a non-GAAP measure EBITDA is not.
And should not be considered an alternative to net income loss income loss from operations or any other measure for determining operating for determining operating performance. The company has provided a reconciliation of the difference.
GAAP on its website www dot Enzo dot com and its press release issued this morning I'd.
I'd like to I'll now turn the call over to Barry Weiner Cofounder and co founder and President of Enzo Biochem Berry. Please go ahead.
Thank you Bob.
Good morning, and thank you for joining us on our full year business and financial update call today.
We issued our fourth quarter and fiscal year 2021 financial and operating results earlier. This morning, I hope you've been able to review them briefly.
At the onset.
I am pleased to report and Jo Mark fiscal 'twenty, 'twenty, one which ended July 31st with many significant accomplishments.
Fiscal 2021 was a validating an extraordinary year for Enzo as our team proved its strength and meeting the challenges of these unprecedented times.
As we reflect on the events of 2020 to present, we are increasingly recognizing that the COVID-19 pandemic will be long lasting.
And remain a health care priority for some time.
As populations increase their vaccination rates employees return to offices.
Leisure increases and masking enforcement loosens the need for some level of testing is likely to be ongoing.
We at Enzo remain committed and are prepared for this fluid environment.
After a bit of slowdown with the varian emergent to summer testing needs have rebounded.
More vaccinations, even with greater vaccine potency should help moderate the course of the disease as well greater and more careful adherence to masking and other precautions.
The recent increase in infection rate demonstrates the new the vigor of this virus and its ability to mutate.
We intend to remain ready to introduce cost efficient flexible solutions to meet any of these new challenges when they arise.
We are also committed to innovation with a go forward strategy capitalizing on our inherent demonstrated ability to remain at the forefront of scientific and medical innovation.
As the market has evolved we have focused on targeting new channels, including schools pharmacies and business as new venues for testing.
We are extending our gen flex platform.
As process hundreds of thousands of specimens this past year for COVID-19 to other diagnostic areas such as women's health upper respiratory infections, gastrointestinal infections and sexually transmitted diseases.
We are in the process of regulatory approvals for a number of additional tests to our gen flex pump platform.
Our pipeline of test is available in the 10-K released today.
The pandemic resulted in vast changes in health care for practitioners and patients alike, and the impact is still very fresh in People's lives.
While physician office visits are returning and hospital inpatient and outpatient services are operational test utilization levels can vary greatly depending on geography and demographics.
During the past year, we capitalized on our Gen flex molecular platform and developed enhancements and improvements to process hundreds of thousands of COVID-19 specimens.
We also now recognize the shift in demand for molecular testing and a more direct and immediate setting spin.
Specifically at point of care facilities.
We are actively involved in the strategic development and future commercial commercialization of testing outside of a central lab, including point of point of care platforms and direct to consumer offerings.
Point of care diagnostics requires simple performance procedures and rapid mostly within a half hour of affordable and accurate results.
Using Enzo proprietary capabilities, we have internally generated proof of concept strategies that opened the path for future development validation and commercialization of these types of systems.
In addition to our molecular diagnostic opportunities are novel loop RNA technology targeting youth for the study of genes structure potentially allows for better medical interpretation accelerated drug development and improved research capabilities.
Earlier this year and so this loop RNA probe was featured in an independent publication of work derived from our scientific collaborators in conjunction with Enzo scientists.
The publication details improvements and insight to hybridization.
Reflecting higher sensitivity and lower background noise, when compared to leading commercially available products and services.
And so those probes uniquely identify a single genetic sequence within they sell without destroying the cell structure.
This scientific advance allows for better medical interpretation accelerated drug development and improved research capabilities.
It also may reduce the risk of false positives and false negatives for earlier detection on RNA based infections, such as human papilloma virus.
We intend to provide updates on our loop RNA technology in the coming months.
During fiscal 2021, we further validated the strength of our strategy.
Transition to a more vertically integrated diagnostics company supporting a new industry paradigm.
Our scientific approach has enabled us to carve out a growing and important niche as an innovator with an eye on efficiencies effectiveness and affordability.
Looking briefly at the Enzo financial summary.
Our fourth quarter and fiscal year financials, which David bench, our CFO will discuss in detail shortly rep.
It represented a period of solid execution, both operationally and financially.
Quickly I like to point to a few highlights.
Our total revenue for the quarter was $32.0 million, an increase of 27% year over year.
Fiscal year 2021 revenues were $124.0 million. This is up 55% year over year year over year from the $76 million the year prior.
We achieved impressive revenue growth in both the services and products segments, this year, which were growth of 81% and 16% respectively.
We also continue to focus on cost savings initiatives, and we were able to generate approximately 10 million inefficiencies throughout the full year.
These results support the trend we have reported for several quarters and we are extremely proud of the team's continued success.
Looking briefly at the highlights of the fourth quarter and full year.
In July.
Enzo received an expansion of its emergency use authorization for the company's rapid extraction method and its proprietary test system for the detection of Corona virus Sars COVID-19, two including the genetic variance.
The E E enables laboratories to immediately use enzymes faster extraction process to reduce the running time by over one hour or more than 25%, enabling more test runs on a single instrument.
Our success in winning the expanded EUA is another example of the differentiation that separates Enzo for mini me to testing companies and keeps our products and services on the cutting edge of diagnostic technology.
Our core focus remains on the development and application of high value opportunities, which we anticipate will provide meaningful long term benefit to customers is headwinds remain in the reimbursement environment.
The higher margins achieved by the vertically integrated model of our COVID-19 testing are being expanded to a spectrum of molecular and other tests.
This is key to our 4045 strategy.
In June <unk>.
Performed a new collaboration with <unk> health.
A developer of cloud based solutions to provide rapid access to testing locations in New York and New Jersey for COVID-19, PCR tests that are required for international travel.
Using this online service travelers can schedule PCR tests immediately and receive results in advance of travel by using C. L X Health Trust assure global testing platform.
Which includes COVID-19 testing partners and more than 81 countries.
From a business development standpoint, we remain engaged regarding business partnerships and seek fresh opportunities for our proprietary products and services to add value across the broader testing market.
These include possible tuck in acquisitions that we can scale and will complement existing activities as part of our growth blueprint.
Logistically and from a manufacturing point of view, we have consolidated into this campus to include GMP manufacturing clear.
Clear clinical laboratory services, R&D sales and marketing capabilities all within four adjacent buildings on our Farmingdale campus.
This integration includes the complete transfer of our Ann Arbor, Michigan manufacturing facility.
Which was finalized this summer as.
As well.
We expect to see the efficiencies of this initiative begin to be accretive in the second half of 2020.2022.
Now turning to the full year highlights in April Enzo received FDA clearance for our anti collect sample collection kit, which is now manufactured under GMP for distribution under the emergency use authorization.
The MP collect sample collection kits is now available for sample collection for COVID-19 testing protocols in the United States, which we expect to further utilize this winter as 10 as testing is expected to increase from Q4 levels.
In March the company showed results that indicate its gen flex platform, new FDA guidance, calling for COVID-19 testing developers to assess the impact of viral mutations and testing results.
In September the FDA released additional conditions of authorization for certain Sars Covid two tests that have received emergency use authorizations, requiring test makers to update authorized labeling and evaluate the impact of variance untested performance.
We realize the importance of updating our test and the needs to continuously evaluate the impact of these viral mutations on test performance.
In January Enzo received an expansion of its EUA from the FDA authorizing the use of pooled samples containing up to five individuals swab specimens with the MP probe Sars Covid two test system utilizing these tests on three different platforms, including <unk>.
Proprietary Gen flicks automated high throughput platform.
The company received its initial EUA in July 2020, and its proprietary platform for the detection of Sars Covid two.
In November of 2020, and so we announced the appointment of two new directors to its board.
Doctor IMD Walters and Dr. Mary taxi Aerie, both are highly respected industry leaders with experience in a range of operational areas, including business development clinical R&D as well as regulatory and medical affairs.
In October 2020, we announced a major milestone for the company. When we launched go Test me now this online platform enables consumers to directly order physician authorized lab tests, including COVID-19, molecular and antibody tests.
Later this fall we are planning to expand the go test me platform to offer access to testing for sexually transmitted infections and are planning now for future offerings to include women's health panels, upper respiratory panels and gastrointestinal panels.
We believe that these expanded offerings will be attractive to consumers seeking ease of accessing these tests and reflect an important transition and consumer demand for direct access to testing services.
And then October 2020, the company launched an affordable small portable micro reader for use with the Companys immunoassay and ultimately molecular diagnostics and providing new opportunities in point of care medicine in area that we deem extremely important in the future.
This device enables enzo to offer a complete solution to academic CEO role and industrial customers.
It has been a very focused and a very busy year.
On behalf of the management team I want to reiterate that we are extremely grateful to all of our employees for their unwavering strength and commitment to Enzo. During this time. This has been a challenging year and we recognize the amazing work they have done today.
We are confident in our strategic vision and our ability to execute on it in the year ahead.
We've made many important transitions in 2021 and believe the Enzo team has laid the solid foundation from which we have pivoted to a vertically integrated flexible diagnostics company.
Before passing the call over to David it's important to highlight the company's core objectives, which served us well in fiscal 2021 and remain a focus and discipline of Enzo today.
First we are transforming into an integrated end to end diagnostics product and solutions company, focusing on molecular and genomic analysis.
Second we are building out our four key platforms and technologies to address enhanced value in the diagnostic sector.
Third we are building and investing in our infrastructure for growth.
And fourth we continue to implement efficiency measures to better bring in line our cost structure with the market needs.
It is critical to stress management's commitment to these objectives is today I can confidently say, we have executed across all four of these pillars.
As we prepare for fiscal 2022 several months ago. The management team with the supported the board have outlined the following core objectives to be the guiding principles in fiscal 2022 <unk>.
First strategic alignment partnering with government associations as we have done with the Suffolk County of long Island in terms of being a provider of COVID-19 testing to debt Regionalisation.
Associations of other business in nature.
As well as key industry leaders to accelerate the commercialization of <unk> proprietary platforms.
Second we are focusing on product and service expansion expanding our test menu under Gen flex platform and expanding cost efficient platforms for diagnostic purposes, and leveraging new business channels.
And third expanded efficiency measures building on the operational and the financial achievements of 2021.
As you can see we are attacking the future with determination and vigor.
The Enzo spirit of innovation is alive and well the opportunities are numerous and our optimism about what we have done and what we expect to accomplish we really believe knows no bounds.
There has been a remarkable year on so many fronts.
With these insights I would like to turn the call over to David bench, our CFO, who will give you a little more detailed review of the fourth quarter and fiscal 2021 financials Dave.
Thank you Barry.
We made important progress in fiscal 2021.
Fourth quarter reflected the impact of what turned out to be a temporary slowdown related to corona virus testing.
As Barry noted with the emergence of new variants.
I'm thinking of vaccination rates, we are once again seeing.
Seeing an uptick in testing demands.
In September we reached over 100000, accessions and our clinical lab.
And this trend is continuing into October.
As a point of reference we reached approximately 235000 accessions in the fourth quarter versus approximately 183000 in the year prior period.
The closing of transfer of our Ann Arbor facility will prove highly beneficial providing greater integration of our activities and are now key centralized manufacturing research marketing and administrative campus.
Long Island.
We are very excited to not only be reporting a.
Strong full year performance, while we continue to see indications that our strong results and execution will continue in the year ahead.
Here's a review of the financials for the fourth quarter.
Total revenue was $32.0 million for the fourth quarter increased 27% from the $24.0 million generated in the year ago period, but off 24% sequentially, reflecting an initial impact from increasing vaccination rates prior to the spike in Delta Varian cases globally.
On a divisional basis clinical service revenue for the fourth quarter was $24.0 million.
<unk> to $21.0 million in the year ago period, representing an increase of 30%.
The year over year.
Improvement was driven by increased accession counts and a 6% growth in net revenue per accession.
Due to factors related to the COVID-19 pandemic.
Product revenue for the fourth quarter was $9.0 million compared to $13.0 million in the year ago period, an increase of 38%.
Due to the impact of COVID-19.
As well as growth in our overall product business.
The gross margins for the fourth quarter were 40% consistent with a 40% gross margin from the year ago period.
Clinical services gross margin was relatively flat at 36% versus 38% from the year ago period, but lower than the 49% in the third quarter 2021, primarily due to fewer COVID-19 tests.
This was due mainly to increase vaccination rates and seasonally warm weather, providing good conditions for people meeting in outdoor environment.
Enzo life Science gross margin was 47%.
Compared to 46% in the previous quarter and 48% in the sequential third quarter.
We continue working to improve gross margin in the coming quarters due to our anticipated mix of products being sold in the marketplace.
Research and development expenses decreased 26% to point $9 million or 3% of revenue.
From $1.2 million or 6% of total revenue in the year ago period.
Increase was mostly attributable to lower personnel expense related to platform and pipeline test development.
Selling general and administrative expenses of $19.0 million increased 18% over the previous year period. The increase was due to investments in sales incentives marketing and client support to promote company growth.
However, as a percentage of revenue SG&A for fourth quarter equaled, 48% compared to 51% a year ago.
EBITDA amounted to $12.0 million compared to a year ago EBITDA of negative $2.7 million, an improvement of $12.0 million.
GAAP net income was $6.0 million or seven cents per share.
The net loss of $6.0 million or negative seven cents per share in the year ago period.
Cash cash equivalents and short term investments totaled $48.0 million at the end of the fiscal year.
And working capital amounted to $49.0 million.
Cash cash equivalents and short term investments are slightly lower compared to year end 2020, due primarily to investments in inventory and capital expenditures.
We continue to see tangible results from our ongoing efficiency measures.
And we have thus far recognized approximately $10 million or 100% of our things target, we're exploring cost saving measures within the company's operations.
And have targeted a goal of an additional $5 million in savings in 2022.
We remain committed to investing in key growth areas.
Notably.
Our proprietary lab developed tests.
And our four proprietary platforms molecular immunology cytology and immunohistochemistry.
We expect this investment to yield significant gross margin improvement and then normalize COVID-19 endemic environment now.
Now for our fiscal year results.
<unk> revenue totaled $124.0 million compared with $76 billion, an increase of 55% year over year.
Research and development expenses were $6.0 million for the year ended July 31.2021.
Or 3% of total revenue.
Compared to $8.0 million or 6% of total revenue for the same period in 2020.
The reduction is due to a shift in personnel and production.
Selling general and administrative expenses for fiscal 2021 were $53.0 million or 38% of total revenue.
Compared to $43 million or 56% of toll revenue for fiscal 2020.
The increase is primarily due to costs related to our COVID-19 testing business.
Counterbalanced by cost efficiency measures.
Legal expenses, including proxy related costs amounted to $4.7 million down from $13.0 million the previous year.
EBITDA amounted to a positive $15.0 million compared to a year ago negative EBITDA of $28.0 million an improvement of $36.7 million.
I wanted to highlight the current ratio improvement to 2.7 acts from two point Forex during the first nine months of fiscal year 2021.
This is indicative of a very clean and improving balance sheet.
Additionally, we saw an improvement of $12.0 million in shareholders' equity year over year.
Finally, the entire $7 million alone received by Enzo under the PPP program has been forgiven.
As of July 31, 2021, the company had $53.0 million shares outstanding.
I'll turn the call back over to Barry for closing remarks.
Thank you David well 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.
As David highlighted in his report we strongly believe Enzo is financially and strategically well positioned to capitalize on a segmented market with our differentiated offerings and strong execution.
Just six weeks into fiscal 2022, we anticipate benefiting from among others increased molecular diagnostic demand.
Opportunities to expand our product and services menu via partnerships and strategic acquisitions.
Enhancements to our operations and scale and most importantly, a tighter control on costs.
And so successfully navigated what may be one of the most challenging times, considering the COVID-19 activity and as we have indicated previously we have already begun implementing our strategy for this new diagnostics environment.
Our ability to adapt in the COVID-19 environment is indicative of our team's ability to change with the time.
As our team demonstrated at the start of the pandemic. We have remained nimble to reopening time lines for our customers vendors and partners as their needs evolve.
As we have announced in the previous quarters, the company's strategic initiatives and succession planning are ongoing the.
The investment banking firm retained earlier this year remains highly engaged with the company and the executive search within the context of the company's strategic objectives is ongoing.
<unk> will be provided when appropriate.
The company management and board are working in unison to translate into those capabilities and resources to benefit all shareholders and enhance and maximize shareholder value.
Our fiscal year 2022 focus remains committed to our core objectives based on strategic alignment product and service expansion, while implementing expanded efficiency measures.
We are very excited about the future of Enzo and the many opportunities that have now been presented to us.
I would like now to open the call for questions.
At this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in question Kim you.
You May press star two if you'd like to remove your question from the queue for.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
Our first question comes from the line of Paul Knight with Noble equity funds. Please proceed with your question.
Hey, good morning.
Good morning.
I was wondering in the product segment is most of the growth in the quarter was coming from.
Two of the EUA approvals that you have and sample extraction.
And processing.
Yeah.
David would you like to address that.
Absolutely no. So this quarter actually doesn't have.
A huge amount from that area rather there were some additional distribution that we're able to push forward on the product side. So it was actually a very good quarter from that perspective, and as you noticed the growth as you know, especially in the current environment, it's pretty pretty impressive on that side.
So we do have a you know obviously sales on that piece, but they didn't represented a huge amount yet.
The okay, so marketing.
Yes go ahead Paul.
Go ahead. Please now I was just going to say so then that.
Most of the product sales was I don't know a core business and a fairly sustainable outside of Covid.
Yes, and not only that but some of our new initiatives have started to be what I call. The razor razorblade model and.
Such as on the micro plate reader have started to be sold in the quarter and obviously, that's an immuno assay and antibody side, but you can see that gives you a little bit of color, there and and that's Ruth regards to Elisa kits as well as medical play right.
What you have to appreciate Paul is during the height of this period a good percentage of our own production was necessary for internal use for us to be able to sustain the vol.
Volume commitments in light of the supply chain constraints in the marketplace. So the issue of our vertical integration.
Which really took a re set of many of our own internal personnel.
Assignments was focused on production to be able to.
Be able to survive and to thrive in a period when obtaining the necessary components reagents and kits.
It was under a very challenging environment.
Yes.
And the the partnership you have with I believe it's CLA laboratories is that was that a new partnership or not much not.
Not much revenue from that in the current quarter, but maybe it's something to look forward to in future Gordon.
Yeah.
Yes, so David it's Dave band.
With regards to the <unk> partnership we'd looked at that is.
A very big marketing opportunity for us and you can go to.
These are major branded airline sites and Youre looking for a COVID-19 test to travel internationally and what they do is they send you to one of their partners, we being one of them and obviously they do it based on geography, how close you are to that area. So for example, rps season in Manhattan.
That's something which could be close to some of these hotels and other travel areas. So from a marketing represented more obviously from a marketing point of view then really from a revenue generating point of view at this point, but obviously, there's a huge opportunity going forward, depending on what the testing it looks like an inch.
National and even domestic travel.
Okay.
And would you say that this quarter included a full quarter benefit from the.
Rationalizing the manufacturing footprint.
No I think that we are right now we actually close the facility as of September 30th in terms of the Ann Arbor facility we are.
Building and a lot of the Capex, obviously is coming up in terms of expanding our capabilities within our farmingdale.
For building now.
Obviously, one of them being the clear clinical lab and.
The other ones.
Related to manufacturing and back office support those those areas are absolutely starting to.
<unk> ramp up and take the Ann Arbor, you know manufacturing onsite.
Hope that helps.
Yeah, and then last question.
Once the integration is complete what do you see as the run rate for gross margin just on the product side of that business.
Yeah, we look at 50% as being the sustainable gross margin area around 50% give or take one or two percentage in either direction, but with larger orders, we're seeing a higher gross margin our capability and our average product order size has actually been increasing.
Otherwise.
A few quarters, so that should benefit us as we move out of the Covid environment.
Alright. Thank you both for answering my question.
No problem.
Thank you, ladies and gentlemen, as a reminder, if you'd like to ask a question. Please press star one on your telephone keypad will pause a moment to allow further questions.
Yeah.
Yeah.
Yeah.
Yeah.
Thank you. Our next question comes from the line of James Wilson Private Investor. Please proceed with your question.
Yeah.
Hi, good morning team.
Yeah.
Right.
Okay.
It takes two years.
Question is.
T O.
Hello.
Yes.
Yeah.
And how you see that.
The.
Could you repeat the question again, James I had trouble hearing you on through this through the connection.
You're coming you're breaking you're breaking up on me a bit.
Can you move.
Yeah.
Could you.
Alright.
Would you comment on how large each new novo jagged system versus June such that they could come out with closed versus new cost and market acceptance in general I am sorry.
Alright.
Again technologically not to get into the details.
A different system than the high throughput system.
System that the Gen. Flix represents the issue here is about cost cost efficiency.
Hologic utilizes a different scientific approach than the Gen flicks approach.
Our system has been designed to be economically.
More efficient in terms of cost structure.
And it's one that you know.
We've focused on.
Very extensively the other key issue here is the concept of an open platform versus closed platform approach.
The Enzo Gen Flex has been built around an open platform technology or architecture.
That is to allow parties to be able to.
Acquire reagents from various sources, not just and so even though we do believe one will migrate to Enzo because of the continuity and the economics of our provision.
But the open architecture platform will allow them to.
Implement their own testing.
Directions and solutions, if they so wish to do so it's much more flexible.
On an economic level I believe.
We'll provide higher marginal return to the parties that will be running. These tests also you have to look at the flexibility of the approaches in how these systems will be acquired the.
The footprint of the different platforms and so forth. So it's a very different approach very different technology I believe the markets that we will be appealing to wil.
It will be the more middle market of the lab clinical lab World and physician office based labs that will give.
A more efficient and cost benefit value and running tests.
Alright.
Right.
Yeah.
Sure.
Okay.
Thank you.
Ladies and gentlemen. This time. This concludes our question and answer session I will now turn the floor back to Mr. Weiner for any final comments.
Thank you very much for joining us today, while we are extremely proud of the team achievement our growth.
And profitability achieved this year, we remain committed to generating value for our shareholders and we look forward to discussing further progress of the company in the Q1 report, which will take place in mid December.
Have a good day, thank you for joining us.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.