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Edited Transcript of ENZ earnings conference call or presentation 8-Jun-20 9:00pm GMT

·18 mins read

Q3 2020 Enzo Biochem Inc Earnings Call NEW YORK Aug 3, 2020 (Thomson StreetEvents) -- Edited Transcript of Enzo Biochem Inc earnings conference call or presentation Monday, June 8, 2020 at 9:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Barry W. Weiner Enzo Biochem, Inc. - Founder & President * David A. Bench Enzo Biochem, Inc. - CFO ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good afternoon, and welcome to the Enzo Biochem, Inc. Fiscal Third Quarter 2020 Operating Results Conference Call. I'll 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, 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 expenses, government regulations, litigations and other business conditions. Please see risk factors in the company's Form 10-K for the fiscal year ended July 31, 2019. 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. 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 income loss, income 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 this afternoon. Our speakers today are Barry Weiner, President; and David Bench, Chief Financial Officer. I would now like to turn the floor over to your host, Mr. Weiner. The floor is yours. -------------------------------------------------------------------------------- Barry W. Weiner, Enzo Biochem, Inc. - Founder & President [2] -------------------------------------------------------------------------------- Thank you. Good afternoon, and thank you for joining us today. We issued our third quarter results after the market closed today, and I hope you've had a chance to look at them. First and foremost, we hope everyone is safe and healthy during this unprecedented time. Since the emergence of COVID-19, the safety of our employees has been of utmost importance. We've taken measures to safeguard our employees while maintaining full operations so we can continue to advance the important work we are doing. First, let me provide you with some context. As you can imagine, our third quarter presented many challenges and at the same time, opportunities as we are a global company with headquarters in New York City, the epicenter of the novel coronavirus in the United States, with our principal production and clinical laboratory activities in nearby Farmingdale, New York. At the onset of our pandemic, we needed to quickly secure our staff, with the majority of our employees required on the front lines, maintaining the critical testing capabilities to serve the needs of our market. We experienced many challenges, consistent with others in the marketplace, including supply issues related to personal protective equipment, swabs, tubes and reagents. With challenge and perseverance, we have overcome the bulk of our supply hurdles. While we imposed safety standards, our dedicated staff was motivated to show up at work as essential workers, even as the authorities were staying -- stay home to the general public. We transitioned many of our employees to a remote working environment, we are capable to do such. And we overcame short-staffed issues when some employees were ill and unable to work for periods of time. Our staff rose to the occasion and did an extraordinary job. Thanks to their unrelenting efforts, we have been able to continue operating, expand our testing development of needed novel approaches to COVID-19 testing without experiencing any interruptions. Our clinical diagnostics lab was especially impacted in March. Virtually the entire health and business structure of this country was shutdown. Patients were ordered to stay home, doctors' offices were closed and elective procedures were canceled. This environment hampered nearly all health care companies whether they be bioscience companies, laboratories and health networks alike. I'm pleased to report that we at Enzo determinately pushed on and are moving forward with, as we see it, 5 key positive elements emerging from this pandemic. First, there was a newfound appreciation for clinical laboratories and the diagnostics industry at large. Second, our vertical integration and open platform business model, invested in over the past 3 years, is opportunistic and justified and allowed us to rapidly address the nationwide testing challenge. Third, we launched amidst a rapidly changing, turbulent environment, an extensive, novel, multifaceted COVID-19 platform for both molecular and antibody testing. Fourth, we are now rapidly scaling capacity to increase volume. And fifth, we are meeting demand. Allow me to go through each of these points in a bit of further depth. There was a newfound appreciation for clinical laboratories and the diagnostic industry at large. This pandemic has shed light on vast misperceptions of the diagnostic industry and the fast restructuring needed to address the challenges of diagnostic testing. Over the past 2 years, reimbursements were being dramatically reduced, and the diagnostic sector was being marginalized to a point that has now come back to hurt this country. Today, the value proposition of diagnostics is better understood, and widely appreciated and seen as fundamental and critically necessary in being able to restore vitality to our people and nation. Second, our vertical integration and open platform business model, invested in over the past 3 years, is opportunistic and justified and allowed us to rapidly address the testing challenge. Crucial supply issues that developed have shed light and justified our company's proprietary vertical integration to effectively navigate this environment and survive. For the most part, we own our supply chain and are using our own systems. We are building on several years of development of the GenFlex platform, which was launched pre-COVID with our women's health panel, and that has been effectively adapted in the current pandemic for COVID-19 testing. We manufacture our own reagents, swabs, utilize our own technological capabilities and have been applying them to address COVID-19 from multiple angles. We are selling these kits and systems to other labs and customers as well as running the tests using our unique products and platforms in our own clinical laboratory. Third, we have launched an extensive, novel, multifaceted COVID-19 platform for both molecular and antibody testing. We are offering our own proprietary, internally developed molecular diagnostic tests to detect the COVID-19 virus as well as a serological diagnostic test for the novel coronavirus antibodies. We are also working on repurposing a drug candidate, now in early testing for the treatment of COVID-19. We are now rapidly scaling capacity to increase volume. Enzo Life Sciences is offering a full range of COVID-19 products, including sample collection, molecular and antibody as well as instrumentation on a global basis. Our internal manufacturing capability provides security of supply and stronger margins than tests currently available from other commercial suppliers. Enzo Clinical Labs is ramping testing volume to address the need to perform thousands of tests a week, increasing from our initial weekly capacity of approximately 10,000 COVID-19 molecular tests as well as 10,000 ELISA serological antibody tests. Finally, we are meeting the demand. We have been working with many entities ranging from academic and research institutions to commercial laboratories and government entities. This includes a recent RFP bid win with the state of Missouri as well as a contract with the state of New York to provide COVID-19 testing to nursing homes. We fully expect to secure additional strategic relationships that may provide substantial additional revenue as we build capacity to meet demand. On this last point, we should be clear with regards to our investment and strategy that testing demand will remain with us for some time. A recent state-by-state analysis from the Harvard Global Health Institute found that more than half of the U.S. states would need far more testing if they are considering safely lifting coronavirus restrictions. The analysis was based on each state's daily testing totals during an average week in mid-April, using data from the COVID tracking project. The research found that 31 states and the District of Columbia were not doing enough testing. In states just within our historic marketing territory, it is estimated New York would have to perform over 100,000 more tests every day; New Jersey, 68,000; and Massachusetts, about 23,000 per day. There remains much to be done even once a successful vaccine is found. I'm extremely proud of what we've accomplished over the last few months. The feats have been really quite remarkable. I want to thank our employees for their continued dedication, and really thank our long-term shareholders who have voiced their support for us throughout this pandemic. At this time, let me turn the call over to David, who will walk you through the financials for the quarter. -------------------------------------------------------------------------------- David A. Bench, Enzo Biochem, Inc. - CFO [3] -------------------------------------------------------------------------------- Thanks, Barry. Here is a review of the financials for the third quarter. Total revenue amounted to $16.9 million compared to $19.7 million in the year ago period, reflecting a significant impact from the COVID-19 pandemic-related volume declines, slightly offset by collection improvements in services as well as grant income. Clinical service revenue for the third quarter was $10.5 million compared to $11.8 million in the year ago period, a decrease of 11%. Product revenue for the third quarter was $6.4 million compared to $7.9 million in the year ago period, a decrease of 19%. Average product order value increased sharply as compared to the second quarter of this year, reflective of servicing higher value markets such as genomics, ELISA kits and antibodies. The services segment was negatively impacted by the COVID-19 pandemic during the third quarter as we experienced a 28% reduction in accession volume. However, the trend in accession volume has been improving over recent weeks and is showing signs of ramping back up to pre-COVID-19 levels. Gross margin for the quarter was 26% compared to 27% in the year ago period. Gross margin in clinical services was 13% compared to 7% in the year ago period and 18% in the second quarter. Enzo's service margin had been improving before the COVID-19 pandemic hit, but declined sequentially in the third quarter due to reduced volume while maintaining our fixed costs. Despite volume decline, services margin improved year-over-year, primarily due to efficiencies and supplemental grant income. Gross margin in products was 48% compared to 57% in the year ago period due to product mix and the COVID-19 pandemic impact. Research and development expenses increased 49% to $1.2 million from $0.8 million in the year ago period. This increase is mostly attributable to investments in our proprietary GenFlex platform. Selling, general and administrative expenses were substantially unchanged at $11 million from the year ago period. GAAP net loss was $9.9 million or $0.21 per share. Adjusted EBITDA loss in the quarter and year ago periods were approximately $7.4 million and $6.1 million, respectively. Adjustments for the third quarter 2020 include proxy-related expenses and reduction in staffing expenses. At quarter end, cash and cash equivalents totaled $55 million. The company added $10.6 million of capital in the third quarter to strengthen its balance sheet through various grants, loans and advanced payments. As of April 30, 2020, the company had 47.9 million shares outstanding. Our cost efficiency measures continue to yield results. We are making progress as a result of the efficiency measures we have implemented, having thus far recognized more than $8 million towards our $10 million annualized savings target. Our strategic goal remains investing in key focus areas, including our proprietary lab-developed tests. This investment should have a significant positive impact on gross margins, and in our estimation, gross margin should improve by 500 to 1,000 basis points in a post-COVID environment. With operating expenses expected to be relatively flat, Enzo should have a clear path towards profitability from operations when revenue from core solutions and our COVID-19 program scale up based on industry estimates. I'd like to turn the call over -- back over to Barry for closing. -------------------------------------------------------------------------------- Barry W. Weiner, Enzo Biochem, Inc. - Founder & President [4] -------------------------------------------------------------------------------- Thank you, David. As one of the few companies to incorporate a biotech entity, a diagnostics division and a CLIA-certified clinical laboratory, we believe Enzo is well positioned as a vertically integrated company to address the COVID-19 pandemic from multiple angles. We have addressed challenges of the supply chain by manufacturing all of our critical reagents in-house. Our diagnostic equipment and kits are validated in our own lab prior and are currently available for sale to other labs and end users. We have 2 submissions with the FDA to address COVID-19 detection and immunity with an extensive program road map, making us uniquely positioned to gain momentum within the broader molecular diagnostics market, both in the current COVID-19 setting as well as in a post-COVID environment. On that, I would like to now turn the call over to questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) We'll take our first question from [Anthony Kim]. -------------------------------------------------------------------------------- Unidentified Analyst [2] -------------------------------------------------------------------------------- I have a question about the grant revenue. Could you tell us how large that was in relation to the total cash package that you put together for this quarter? -------------------------------------------------------------------------------- David A. Bench, Enzo Biochem, Inc. - CFO [3] -------------------------------------------------------------------------------- Yes. So I'm not sure if you're referring to the PPP loan or if you're referring to other grants that we have received. -------------------------------------------------------------------------------- Unidentified Analyst [4] -------------------------------------------------------------------------------- Well, I understand that the loan will turn into a grant if you reach certain benchmarks, correct? But if you can break it down into both, that would be fantastic. You just mentioned grant revenue, loans and grants. I'm just wondering what the proportion is. -------------------------------------------------------------------------------- David A. Bench, Enzo Biochem, Inc. - CFO [5] -------------------------------------------------------------------------------- Absolutely. So approximately $7 million we received from the PPP -- from the SBA as PPP loan, which, as you mentioned, should turn into a forgiveness under certain conditions. And in addition to that, from HHS, we received $750,000 in the first tranche of -- based on Medicare billings, and that we do expect a second tranche to come in as well. We have not received that yet. -------------------------------------------------------------------------------- Unidentified Analyst [6] -------------------------------------------------------------------------------- Okay. Fantastic. I'm wondering, you said that you saw sales fall off and that now you have signs of them ramping back up. When did you see the bottoming? I mean, temporarily, when did you see it? Was it in the past 2 weeks? Or was it a month ago? -------------------------------------------------------------------------------- David A. Bench, Enzo Biochem, Inc. - CFO [7] -------------------------------------------------------------------------------- Yes. So we saw -- if you're talking to the clinical laboratory accession volume, we saw that bottoming out in the beginning of April and then recovering over the following weeks in April, all the way through May. -------------------------------------------------------------------------------- Unidentified Analyst [8] -------------------------------------------------------------------------------- Fantastic. So when you say that you see signs of it ramping back up to pre-COVID levels, you mean that that is quite literally imminent, I mean, within days or weeks. Would that be accurate? -------------------------------------------------------------------------------- David A. Bench, Enzo Biochem, Inc. - CFO [9] -------------------------------------------------------------------------------- Yes. We're not providing guidance going forward, but we have enough data points to show that it is trending in the correct direction. -------------------------------------------------------------------------------- Unidentified Analyst [10] -------------------------------------------------------------------------------- Okay. Are you able to disclose how much -- what the volume of testing that you've done for the COVID-19 in either category? And how much you're getting in total revenue for those? -------------------------------------------------------------------------------- Barry W. Weiner, Enzo Biochem, Inc. - Founder & President [11] -------------------------------------------------------------------------------- We have not broken that out specifically, but since the inception of our COVID testing, we have run thousands of tests. -------------------------------------------------------------------------------- Unidentified Analyst [12] -------------------------------------------------------------------------------- And you said that it will be an ongoing program. We don't know how long that ongoing will go, but do you expect that to become a significant portion of your, say, next quarter's revenues? Are you able to comment on that? And maybe for the rest of the year. -------------------------------------------------------------------------------- David A. Bench, Enzo Biochem, Inc. - CFO [13] -------------------------------------------------------------------------------- Yes. So we expect it to be material. We can't give you guidance in terms of how it's going to affect the year. I don't think anybody has that guidance at this point, but we do expect it to be material based on current volume. -------------------------------------------------------------------------------- Barry W. Weiner, Enzo Biochem, Inc. - Founder & President [14] -------------------------------------------------------------------------------- We are seeing (multiple speakers) I'm sorry, if I just add a little bit to that. I mentioned in my comments that we have entered into contracts with the state of Missouri, with the state of New York. There are a number of others which are in negotiation as we speak. We believe that the need and the demand for COVID-19 testing will be strong and continuous, and we believe that this will continue even through the introduction of a vaccine and the timing post that. I think this is something we are going to have to live with. And I believe we, as a laboratory, because of our unique structure and capability, we'll be able to deliver significant volumes of testing that will enhance and really promote or add value to our core business, which is ongoing right now and growing. -------------------------------------------------------------------------------- Operator [15] -------------------------------------------------------------------------------- (Operator Instructions) We're taking a question from [Jay Ferrar]. -------------------------------------------------------------------------------- Unidentified Analyst [16] -------------------------------------------------------------------------------- I got into the call a moment or so late. So please excuse me if I ask a question that's already been asked, but I have a couple of quick questions. First of all, in some of the past information you put out, we talked about strategic opportunities that are going to benefit shareholders. If you haven't already discussed it, how is that progress going? That's part one. I have another question after that. -------------------------------------------------------------------------------- Barry W. Weiner, Enzo Biochem, Inc. - Founder & President [17] -------------------------------------------------------------------------------- In terms of -- we are in dialogue with a number of different parties concerning many of the different aspects of our business, whether it's on the diagnostics front. We have historically commented we have been exploring opportunities on the therapeutic front as well. The COVID issue certainly forced all companies to take a look inward in terms of their survival, their strategic plans moving forward. So I think during the last few months, that has been the general nature of the industry. We did comment in a whitepaper and a release about our development activity in the therapeutic area for our SK1 product, a product that is being, in some respects, repurposed and looked at as an immune modulator for COVID infection in patients. That is just another enhancement of our therapeutic portfolio. And so we are actively exploring. But quite bluntly, the last few months have been and required a dedicated exertion of effort to maintain our business, number one, to maintain our staffing and make them healthy and safe and to be able to enhance and build new products, and we've done an unbelievable job in the last few months, bringing up both the molecular, the antibody test, looking at different sample collection techniques, submitting protocols to the FDA and so forth. So I think that area of activity did take somewhat of a pause as we all focused on this pandemic and how we can contribute and create value from it as well as perhaps just survive for many companies out there. So we are actively exploring. That has not disappeared. But I believe the last few months have caused a bit of a pause in everyone's activity on the strategic front. -------------------------------------------------------------------------------- Operator [18] -------------------------------------------------------------------------------- This marks the end of today's question-and-answer session. I'd like to turn back the conference over to Mr. Weiner. Please go ahead, sir. -------------------------------------------------------------------------------- Barry W. Weiner, Enzo Biochem, Inc. - Founder & President [19] -------------------------------------------------------------------------------- Thank you very much for joining us. As I commented, this has been a remarkable period for Enzo as well as many other companies in the diagnostics marketplace. I believe we have contributed significantly with the introduction of novel and unique tests to this market. I think for Enzo, this will be a very important demarcation for our business in terms of our capability and abilities to be formally recognized and make a significant contribution to the overall well-being of our population as well as enhancing the scope of our business and driving value for all of our shareholders. Thank you very much. -------------------------------------------------------------------------------- Operator [20] -------------------------------------------------------------------------------- This concludes today's call. Thank you for participating. You may now disconnect.