Q1 2022 Enzo Biochem Inc Earnings Call

Greetings and welcome to the Enzo Biochem first quarter 2022 financial results and business update conference call. 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. Please note this conference.

Is being recorded I will now turn the conference over to your host David Holmes of life side, Visors and Investor Relations for Enzo Biochem, you may begin.

Thank you very much operator, and good afternoon, everyone.

Joining us today from the company are Hamid Ponying, Chief Executive Officer, and David Bench, Chief Financial Officer.

And so issued a press release detailing its financial results for the first quarter. After net and is now available on the Investor Relations section.

Right.

Before we begin I would like to 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 M.

Jeremy <unk> 1933.

And section 21 E of the Securities Exchange Act of 1934 as amended.

Such statements include declarations regarding via chat fully.

Current expectation 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 the company's control.

The markets for the company's products and services cost of goods and services other expenses government regulation litigation and general business conditions.

What do you see the risk factors in the company's Form 10-K for the fiscal year ended July 31 2021.

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.

<unk> disclaims any obligation to update any forward looking statements as a result.

Mr occurring after the date of this conference call.

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

EBITDA is not and should not be considered an alternative to net income or loss.

Tom or loss from operations or any other measure determining operating performance. The company has provided a reconciliation of the difference to GAAP on its website.

And in its press release issued this afternoon.

I would now like to turn the call over to Hamid or funny, and Chief Executive Officer of Enzo Biochem.

Please go ahead.

Thank you David.

Good afternoon, and thank you for joining us on our first quarter business and financial update call today.

I'm extremely excited and encouraged to join Enzo biochem.

Admired Enzo from afar for its technological and development contributions recognized throughout the industry.

While I have been at the helm for a little over a month I've been welcomed by management and staff and have been impressed by the level of expertise and dedication of our team.

I look forward to building off of that strong foundation, and setting a vision and establishing strategies in the following areas.

First market expansion of the current product portfolio.

Second commercialization of diagnostic platforms.

Third utilizing the clinical services segment.

Benefit of life Sciences, and diagnostics segment of our business.

We expect the implementation of these three strategies will set us on a path toward overall sales and market share growth.

We issued our first quarter 2022 financial and operating results.

Just after close of the market I will begin todays conference call with the summary of the quarter.

Highlighting notable achievement.

And then provide some perspective on the current testing.

In life Sciences market.

Also providing some clarity and insight into the vision of the years ahead.

Afterwards, I'll pass the call over to Mr. David bench, the company's CFO to review the financials in greater detail.

And then we will open the call for question and answer session.

The company's accomplishments during the first quarter have positioned us extremely well to execute into the future.

Specifically the consolidation of our manufacturing facilities from two locations, Michigan and New York two that recently completed and redesign campus at our Farmingdale, New York headquarters.

This was a massive undertaking and I'm very proud to announce that the completion of this milestone happened in October.

Enzo first announced this initiative back in June of this year.

By bringing these operations under one grew off the company would be able to leverage a series of operational logistical technological and head count efficiencies.

It would not have been otherwise achieved under the two location model.

As is to be expected with transition of this magnitude the life Sciences Division incurred some added one time cost related to investments in staffing and temporary delays.

These costs were anticipated.

And part of our budget for the project, but understandably affected the first quarter's financial while the benefits will accrue over time.

Expect to see efficiencies up these initiatives.

Begin to be accretive in the second half of fiscal year 2022.

Processes, such as these can be complicated and lead to disruption within the operations and I credit the team is executing and efficient and smooth transition and relocation.

Haynesville is consolidated campus now combined both logistical and manufacturing benefits.

Which includes expanded GMP manufacturing and future ISO 13, 485 capabilities, which include the ISO 9001.

Additionally, within the campus, we have our CLIA Laboratory service, there's R&D facilities sales and marketing capabilities.

And executive presence all within newly renovated buildings at.

Jason to one another at our Farmingdale, New York location.

Our centrally located campus in the middle of long Island offers convenient commuter access to attract attract our growing need for personnel, while also allowing convenient collaborations among the leading medical centers reach.

<unk> research facilities and hospitals less than an hour outside of New York City.

By investing in our infrastructure growth.

Able to implement greater cost savings and efficiencies that are giving us a competitive edge as we implement the Enzo integrated end to end diagnostic products and solutions model.

The company has continually focused on cost saving initiatives and generated in excess of $10 million, indeed efficiencies throughout 'twenty, 'twenty and 2021 year and the company projects additional savings going forward.

Over the past year and half.

We have generated revenues in excess of $50 million based on our proprietary Gen flex platform at Enzo clinical labs, enabling our company is a formidable provider of testing for our region.

The platform currently runs COVID-19, which includes testing for army crime Darien.

Currently spreading throughout United States.

During the global pandemic.

To the credit of the team the company was able to launch the Covid PCR assay and bring on board a complete complete.

<unk> molecular platform navigating through a complex FDA EUA process and subsequently generate nearly 1 million test result.

Furthermore, in order to gain efficiencies and cost savings.

The team worked on means of streamlining the workflow of the Gent blacks platform at our highly profitable level, thereby setting a model for other labs to benefit from this commercial system.

This was all accomplished in the headwinds.

<unk> environment, where supply is very limited or non existent.

And personnel were not readily available.

We've been in the process of commercialization of this platform and are working through sales cycles to place them into laboratories in multiple geographies.

Most recently, we have introduced an enhancement to our proprietary Gen Flex platform currently operational in our clinical laboratory, including providing a more streamlined workflow.

Which improved our platforms overall cost structure.

This feature shortens the turnaround time from sample collection to result.

Innovation is continuing at Enzo as we continue to enhance and improve and drive our technologies and platforms to gain a competitive edge in the industry.

An example of this is expansion of our product offering through advanced development of our novel molecular point of care technology that could address the national need for rapid turnaround time cost effective solutions.

With high sensitivity and specificity.

Furthermore.

Enzo has expanded its comprehensive intellectual property portfolio by a new patent application with regards to our point of care platform, which covers the ability to streamline sample processing and accelerate.

The rate by which results can be obtained by the physician.

We are confident this will result in more affordable and easier to use platform, while providing testing closer to the patient.

Now turning to the lab services side of the business.

As management has discussed extensively and I would like to reiterate we expect that the COVID-19 pandemic and.

And the need for testing will continue into foreseeable future and remain a health care priority for some time.

We continue to anticipate ebbs and flows of demand.

With regard to testing as multiple variables such as a drastic effect on testing volume such as.

Vaccination rates.

Waning efficacy of antibodies new variants, such as Ami crime variant approved therapeutics and evolving government guidelines.

Our society is becoming increasingly frustrated with a desire to get back to the office travel freely and in general return to some social normalcy.

Fortunately Enzo has remained committed and prepared for this fluid environment.

We are ready and operational and arm.

With cost effective flexible solutions to meet new testing and diagnostic challenges.

I would like to reiterate the confidence I have in the strategy outlined in the past.

As end user demand has evolved you have focused on providing services to our existing customers, while targeting new challenge channels.

Including schools pharmacies, which are new venues are poor testing for Enzo.

I am proud to report that the first quarter. Our team was able to add over 70, new customers key to building off of our base and expanding our customer reach.

Enzo clinical laboratories continues to thrive and we are very proud of the team's achievements.

During fiscal year 2022 we will have a special focus on ways of leveraging the clinical service segment of our company to provide clinical verification samples and services capabilities tailored for the diagnostics segment.

I will provide additional details on future quarterly calls.

In addition expansion into the direct to consumer market that Enzo launched in fiscal year 2021 is very exciting.

Go Test me now is an important platform as it provides access to patients to control their own health care.

This has been embraced largely in clinical diagnostics marketplace.

Enzo is poised to serve that market and so far we have received inbound interest from customers outside of our typical customer base.

The recent launch of sexually transmitted infection or STI testing using the platform expands that offering and we anticipate additional growth in that space.

As physician office appointments are still below typical levels in Tri state area. It is critical that Enzo provide diverse testing service says.

To serve and anticipate changes in patient behavior.

With these insights I would like to now turn the call over to our CFO, Mr. David bench.

For a detailed review of our first quarter financials.

David.

Thanks, Amit.

As Hamid mentioned, we are pleased with our first quarter performance, despite some seasonality and COVID-19 related testing and onetime costs incurred due to the consolidation of Ann Arbor facility.

As mentioned earlier with the recent emergence of the new experience. The omicron stream of COVID-19, there has been a significant uptick in testing demand despite high vaccination rates and an increased focus on boosters for adults within the United States.

Bill's accessions grew to more than 100000 per month in the last two months of the quarter with this trend continuing into November compared to approximately 70000 per month during the summer months.

Reflecting the increased COVID-19 volume from back to school activities and the emerging Varian activities.

We also added 70, new customers at Enzo clinical labs this quarter, an increase of nearly 50% from 47, new customers in the previous year's first quarter.

With accounts ranging from urgent care facilities to government entities, such as Suffolk County.

The transfer of our Ann Arbor facility was of Paramount achievement this quarter.

Not only from a logistical point of view, but also a permanent operational standpoint.

We believe this will prove highly beneficial and generate significant future cost savings.

Here's a review of our financials for the first quarter.

Total revenue reached $26 $5 million for the first quarter, an increase of 7% sequentially compared to $24 $8 million in the fourth quarter last year.

But a decrease of $2 $1 million compared to the first quarter of fiscal year 2021.

On a divisional basis clinical services revenue for the first quarter with $19 $7 million, an increase of 17% sequentially compared to $16 $8 million in the fourth quarter last year, but a decrease of $1.5 million compared to the first quarter of 2021.

The sequential improvement was driven by increased build accession counts and growth in net revenue per accession due to factors related to the COVID-19 pandemic.

Product revenue for the first quarter with $6.8 million, a decrease of 9% from $7.4 million in the year ago period.

Due to the temporary delay from transitioning from Ann Arbor, Michigan facility to the upgraded Farmingdale, New York campus as well as ongoing COVID-19 related shutdowns in Europe.

Yeah.

The blended gross margin for the quarter remained unchanged from the year ago period, a 42% on a consolidated basis.

Clinical service gross margin climbed to 43% from 39% in the first quarter of 2021, primarily due to testing mix and ongoing cost savings initiatives.

As a life science gross margin was 40% compared to 49% in the previous year's quarter and 47% in the sequential fourth quarter.

The current quarter's gross margin dropped out of our typical 45% to 52% gross margin range due to head count duplication and other costs related to the Ann Arbor transition Enzo is working towards significantly improved gross margins in the coming quarters.

And anticipates a return to the typical gross margin range with a rebound of life science revenue.

Research and development expenses were unchanged at point $7 million or 3% of total revenue in the year ago and current periods.

Selling general and administrative expenses of $11 million or 42% of total revenue increased from $10 million or 35% of total revenue in the year ago period.

SG&A expenses were slightly lower and Enzo clinical lab on a year over year basis, but significantly higher than Enzo life Sciences due to investment in sales head count to support growth coupled with one time cost related to the Ann Arbor closing.

Adjusted EBITDA loss in the quarter was zero point $9 million compared to a positive adjusted EBITDA of $1.2 million in the previous year's first quarter.

GAAP net loss was $2 $3 million or negative <unk> <unk> per share versus net income of zero point $3 million or one time per share in the year ago quarter.

While we were profitable within the Enzo clinical Labs Division this quarter, we did not achieve profitability as a company in aggregate.

This was due primarily to the Ann Arbor transit transition at Enzo Life Sciences Division as well as corporate and other onetime expenses.

And those working capital grew to $42.8 million versus $36 $7 million in the previous year's quarter, an improvement of $6 $1 million.

Cash and cash equivalents restricted cash and marketable securities totaled $36 $9 million at the end of the first quarter, a decrease from $44 $3 million at the end of the fiscal year due primarily to investments and inventory higher accounts receivable and lower accounts payable and capital expenditures in excess of one.

Dollars.

Days sales outstanding at Enzo clinical lab remain below 35 days.

We continue to see tangible results from our ongoing actions to boost operating efficiency and are proud to have recognized in excess of $10 million, which exceeded our savings target through fiscal year 2021.

Enzo continues to explore cost savings opportunities and as mentioned in last quarters call. We have targeted our initial goal of an additional $5 million in savings for fiscal year 2022.

We remain committed to investing in key growth areas, most notably our proprietary lab developed test in our four proprietary platforms, including molecular immunology cytology and immunohistochemistry.

Lastly, I believe it is important to highlight the improvement in our current ratio to $2 Nymex from two point onex during the first quarter of 2021.

This is indicative of a very clean and improving balance sheet. Additionally, we showed an improvement of $7 $7 million in shareholders' equity on a year over year basis.

As of October 31, 2021, the company had approximately $48 5 million shares outstanding.

I'll turn the call back over to Hamid for closing remarks.

Thank you David.

On behalf of the management team I would like to take a moment to thank the entire Enzo team for their unwavering focus that allowed this quarter's achievements to reach to a fruition.

I want to acknowledge and thank the management team, including the outgoing CEO Dr could wrap Bonnie who have helped guide me through the Onboarding process.

In my short tenure as CEO.

I have quickly observed a unifying culture unique to Enzo I.

Truly believed that Enzo is one of the best kept secrets in diagnostics market.

And it is time to let the secret out.

We are confident in our strategic vision and our ability to execute.

In the year ahead.

You have made many important transitions in 2021 and believe the Enzo team had laid.

Solid foundation from which we shall expand our unique offering to a much larger community.

Operator, please open the floor to 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 the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.

One moment, please while we poll for questions.

Our first question is from Paul Nori with noble equity funds. Please proceed with your question.

Hey, good afternoon.

Good afternoon Paul.

For the Covid testing.

As the vast majority of it in New York State and New York City.

So we have testing we serve three markets, New Jersey, New York, and Connecticut, B go as far as you know again.

Massachusetts, but you know that's a balance for us in that radius does that answer your question.

Yes, and I know for a while there was an initiative for.

Enzo to taken tests from other labs, I think that was before COVID-19.

Is that still alive initiative or is it not a priority at the moment.

Yeah, it's not currently a priority of the company, but we are always looking at opportunities with regards to reference testing lab to lab and partnerships.

Okay.

And last question are you planning on submitting any tests for FDA approval in the coming year.

So you're at so again, Paul Thanks for the question. So when you are.

When you look at you know again.

Gamut of diagnostics products that Enzo has its in its arsenal.

That would be absolutely that strategy too.

Put.

Many of dose test through the FDA approval process, whether it's five 10-K or de Novo. So the answer to that question in my mind is an unequivocal, yes, so that would be our strategy and that's our goal for expansion of the diagnostics business.

Yes, that'd be have in our hand and again another notable item is that some of that diagnostics.

Again, our products is currently standing up in our laboratory. So this is what makes Enzo unique having the ability to basically test out products in a diagnostic setting make sure that again, if it's if it is working and it's serving the customer base.

As well as it does at.

Enzo clinical that add lab is also would be an asset in our customer's lap, but again overall the answer to your question is are we going to.

Due to provide testing and submit FTA filing absolutely and unequivocally yes.

Alright, great. Thank you.

Okay.

We have reached the end of the question and answer session and I will now turn the call over to CEO humming in refining and for closing remarks.

Okay.

So once again, thank you very much for joining with the joining us today.

Wildly extremely are proud of the team achieved meant growth and profitability achieved this year, we remain committed in generating value for our shareholders.

And look forward to discussing further progress with you on.

On our Q2 report call in mid March. Thank you very much and have a good evening.

This concludes <unk> conference and you may disconnect. Your lines at this time. Thank you for your participation.

Thank you.

Okay.

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