U.S. Markets open in 4 hrs 54 mins

Edited Transcript of ENZ earnings conference call or presentation 15-Oct-19 8:30pm GMT

Q4 2019 Enzo Biochem Inc Earnings Call

NEW YORK Oct 17, 2019 (Thomson StreetEvents) -- Edited Transcript of Enzo Biochem Inc earnings conference call or presentation Tuesday, October 15, 2019 at 8:30:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Barry W. Weiner

Enzo Biochem, Inc. - Co-Founder, President, CFO, Principal Accounting Officer, Treasurer & Director

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good afternoon, and welcome to the Enzo Biochem, Inc. Fourth Quarter and Fiscal Year 2019 Operating Results Conference Call.

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 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, 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, revenues and expenses are dependent on a number of factors outside of the control of the company, including inter alia, the markets of the company's products and services, cost of goods and services, other expenses, government regulation, litigations and general business conditions. See risk factors in the company's Form 10-K for the fiscal year ended July 31, 2018.

Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risk and uncertainties that could materially affect actual results. The company disclaims any obligations to update any forward-looking statements 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 loss, loss from operations or any other measure for determining operating performance. The company has provided a reconciliation of the difference to GAAP on its website, www.enzo.com, and in its press release issued last night.

Our speaker today is Barry Weiner, President. (Operator Instructions) I would now like to turn the floor over to your host. Mr. Weiner, the floor is yours.

--------------------------------------------------------------------------------

Barry W. Weiner, Enzo Biochem, Inc. - Co-Founder, President, CFO, Principal Accounting Officer, Treasurer & Director [2]

--------------------------------------------------------------------------------

Thank you. Good afternoon, and thank you for joining us today. We distributed our fourth quarter and year-end results after the market closed this afternoon, and I hope you had a chance to take a look at them.

Before we get into a discussion of the financial and operational results for the fiscal quarter and the year-end, I thought I would take a few minutes to talk about our position in the marketplace, the progress towards our three-pronged short term value-creation program and share some highlights and accomplishments from the last 12 months.

As was articulated in our press release this afternoon, Enzo's structure and business strategy represent the culmination of a number of years of extensive planning and productive work. We have developed the ability to offer low-cost, high-performance products and services in diagnostics, specifically in the areas of molecular, immunohistochemistry and cytogenetics.

While reimbursement pressures facing diagnostic labs remain a headwind, our unique products position us well to capitalize on these secular trends over the long term. Our pioneering work in genomic analysis, coupled with our extensive patent estate in enabling platforms, have built a foundation for the company to continue to play an important role in the rapidly growing molecular medicines marketplace.

Enzo technology solutions and platforms, and unique operational structure are designed to reduce overall healthcare costs for consumers, government and private insurers. Our proprietary technology platforms reduce our current and prospective customers' needs for multiple specialized instruments and offer a variety of high throughput capabilities together with a demonstrated high level of accuracy and reproducibility. Our test panels are focused on large and growing markets, primarily in the area of women's health, infectious diseases, genetic disorders and personalized medicine.

The company continues to make significant progress towards unlocking shareholder value, guided by 3 core pillars of our strategy: strategic relationships; creating a new paradigm for the laboratory and diagnostic marketplaces; and driving operational profitability and lab segment growth.

One of our key goals, as we stated previously, is to achieve clinical laboratory profitability despite a very challenging reimbursement environment. We feel confident we are progressing towards accomplishing this objective.

Our diagnostic products developed and manufactured at Enzo Life Sciences, and formatted and validated at Enzo Clinical Labs, are perfect examples of the integrated nature of our company's businesses and the value and leverage we generate from these synergies. It would be extremely difficult and costly to replicate as 2 separate units. More importantly, this combination creates efficiency and cost savings, benefits for products for labs around the country.

In an adverse laboratory-wide climate of shrinking margins and declining profitability, our proprietary platforms that offer high sensitivity, compatibility with existing systems, and low cost higher margins are tailor-made for both product sales, that being systems reagents and consumables, and the lab-to-lab services growth opportunities that we are actively pursuing.

One important note related to our strategic activities. As we noted in our release, Enzo has retained Lazard to assist in strategic relationships and new venture creation across the company's 4 core platforms: molecular, immunohistochemistry, cytology and immunology. We expect to update the market by the end of the calendar year on these discussions.

I would like to now highlight some of the key accomplishments of the company over the last year. In September, Enzo Clinical Labs received New York State Department of Health approval for its AmpiProbe HBV, hepatitis B virus viral load monitoring assay, and this was based on performance versus an FDA-approved competitive product. Enzo's growing portfolio in the viral load monitoring market includes previous New York State Department of Health approval for a viral load monitoring assay for hepatitis C virus or HCV. In the viral load monitoring assay under development for human immunodeficiency virus.

The company's expanding menu will allow Enzo to provide one of the most comprehensive panels for sexually transmitted disease testing, a rapidly growing health care segment, where reported common STIs in the U.S. have increased for the fifth consecutive year.

Approval of the HBV assay follows the July announcement of New York State Department of Health approval for our gonorrhea and chlamydia tests for extra genital specimens. And the announcement that Enzo was creating a direct-to-consumer testing business for STIs. Furthermore, the company is developing an additional test for human papillomavirus, testing it in multiple sample types.

Also, the company was issued 74 patents worldwide during this fiscal year of 2019. Notably, the company was issued U.S. Patent No. 10323272, which is entitled Nucleic Acid Probes for In Situ Hybridization on June 18, 2019, which is directed to a new probe technology that allows for significantly more cost-effective, simple and scalable processes across the multibillion-dollar diagnostic testing, growth development, and academic research marketplaces.

The probes can be used to detect clinically relevant genomic targets with high sensitivity in cell samples and biopsy tissue. Compared to competitive probes, Enzo's novel approach will be lower cost, decreased complexity, save time and avoid disruptions of sample integrity.

Also in fiscal year 2019, Enzo Life Sciences and Laboratory divisions invested approximately $10 million in strategic growth initiatives, such as developing good manufacturing laboratory practices and facilities, expanding strategic sales force and marketing practices, and ramping up R&D and laboratory-developed test initiatives. This investment is already resulting in cost reductions for the laboratory and diagnostic operations. Currently, approximately $4 million of the company's revenues associated with these strategic growth initiatives.

Over the past 5 years, Enzo has systematically introduced its technology onto its clinical production floor through lab-developed tests that are validated by the New York State Department of Health. Over this period, Enzo has run over 100,000 of these Enzo LDTs, resulting in savings of over $5 million by substituting third-party vendor tests with Enzo's own internally developed tests. We expect annual savings from these tests to increase in the next fiscal year to $3 million, and then to $5 million in the following year.

At the lab, it is noteworthy to point out that testing activity in volume is up sequentially this quarter as overall lab revenues grew 11% in the fourth quarter versus the third quarter of fiscal 2019. Our expanding panel of STI testing, enhanced by the recent diagnostic approval, is one of the most extensive available, including the highly comprehensive women's health diagnostic panel we are offering.

I'd like to spend a few minutes reviewing the financial results of the quarter and the year. Looking at the fourth quarter operating results. Total revenues amounted to $21 million compared to $22.8 million in the year-ago period, a decline of 8%, reflecting new, sharply lower industry-wide hammer reimbursement rates; also reflecting sequential total testing volume, which increased by about 4%.

Sequentially, clinical laboratory services revenue increased 11% from the prior quarter's $11.8 million, while product revenues for the quarter were up 3% over the prior year period as a result of these successful implementation of new Marketing and Sales initiatives.

Lab revenues declined to $13.1 million from $15.1 million in the year-ago period. This is due to the reduced insurance reimbursement payments and changes to medical and procedural requirements for genetic testing by payers. Overall, gross profit improved sequentially by 21% to $6.3 million, with Clinical Lab gross profit more than doubling to $1.8 million from $0.8 million, and product gross margin increasing 2% to $4.6 million.

As noted previously, clinical services revenues for the fourth quarter and the full year ended July 31, 2019, reflect adoption of new revenue recognition accounting rules on a full retrospective basis. Under the new rules, Enzo reports uncollectible balances associated with patient responsibility as a reduction in net revenues. Historically, these amounts were separately classified in operating expenses as a provision for uncollectible accounts receivable and amounted to $3.1 million and $3.7 million, respectively, in the fiscal years ended July 31, 2019, and 2018 and $1 million and $1.7 million for the respective fourth quarter periods.

Consolidated gross margins for the quarter of 30.3% compared with 35.2% a year ago and were up 300 basis points sequentially. Clinical services gross margins were 13.8% compared to 25.4% a year ago and sequentially improved from the third quarter. The improvement reflected both higher testing volume and enhanced deficiency. Product gross margins for the quarter increased to 58% from 54% and sequentially was up 200 basis points.

Operating expenses declined 12% or $1.6 million to $12 million year-over-year and sequentially remained flat, adjusted for net legal settlements. Legal fee expenses declined by $1 million compared to the fourth quarter last year of $0.3 million and sequentially were flat in both periods.

GAAP net loss was $5.4 million or $0.11 per share, an improvement of 7% compared to a year ago quarter net loss of $5.8 million or $0.12 per share. The non-GAAP net loss was $5.4 million compared to $5.8 million a year ago and $6.7 million in the preceding quarter. On a per-share basis, the non-GAAP loss equaled $0.11 per share compared with $0.12 a year ago, and $0.14 in the third quarter '19 -- in third quarter '19, on an adjusted basis. EBITDA loss in the quarter and year ago approximated $5 million and $5.3 million, respectively, and decreased sequentially from $6.1 million on an adjusted basis.

Looking at full year operating results. Total revenues were $81.2 million compared to $101 million a year ago, a decline of 20%. And as noted earlier, reflected newly instituted reduced reimbursement payments, insurance company claim rejections, and changes to medical and procedural requirements for genetic testing by payers.

Gross profit was $23.2 million compared to $40.7 million in the prior year with gross margins at 28.6% and 40.3% respectively. Legal fees declined by 41% to $3 million, and tailed off sharply towards year-end, while SG&A declined to $44.2 million from $44.5 million.

GAAP net income amounted to $2.5 million or $0.05 per share on a diluted basis compared to a net loss of $10.3 million or a loss of $0.22 per share a year earlier. Non-GAAP net loss amounted to $26.4 million, excluding legal settlements compared to a non-GAAP fiscal 2018 loss of approximately $11.4 million.

EBITDA was $4.5 million compared to a year ago EBITDA loss of $9.1 million. At year-end, cash and cash equivalents and restricted cash totaled close to $70 million, and working capital amounted to $65.4 million.

I would like to turn this over for questions at this point in time.

--------------------------------------------------------------------------------

Operator [3]

--------------------------------------------------------------------------------

Before we take questions, I would like to inform you that the company and its directors and certain of its executive officers will be the participants for the solicitation of proxies from the company's shareholders in connection with the 2019 Annual Meeting.

The company will file a proxy statement and accompanying proxy card with the SEC in connection with the solicitation of proxies for the 2019 Annual Meeting. Shareholders of the company are strongly encouraged to read the proxy statement, the accompanying proxy card and all other documentation filed with the SEC carefully and in their entirety when they become available as they will contain important information.

These documents can be found on the SEC website at www.sec.gov or the company's website at www.enzo.com/corporate/investor-information. We will not be commenting on the 2019 Annual Meeting. (Operator Instructions)

Sir, there appear to be no further questions at this time.

--------------------------------------------------------------------------------

Barry W. Weiner, Enzo Biochem, Inc. - Co-Founder, President, CFO, Principal Accounting Officer, Treasurer & Director [4]

--------------------------------------------------------------------------------

Thank you very much for your attendance on the call. We look forward to reporting to you in the middle of December on our first quarter. Have a good day.

--------------------------------------------------------------------------------

Operator [5]

--------------------------------------------------------------------------------

A replay of this broadcast will be available until Tuesday, October 29, at 12 midnight. You may access this replay by dialing 1 (855) 859-2056. The PIN number is 4196818. The replay is also available over the Internet at www.enzo.com.

This concludes today's teleconference. You may disconnect your lines at this time, and have a wonderful day.