This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk00: Renzo Biochem's Second Quarter 2021 Financial Results and Business Update. At this time, all participants are in a listen-only mode. The 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, Jeremy Pfeffer, Investor Relations. Thank you. You may begin.
spk02: Thank you, Hillary, and good afternoon. Joining us today from the company are Barry Weiner, co-founder and president, and David Bench, chief financial officer. A press release announcing the results and the update was issued this afternoon and is now 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 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, costs of goods and services, other expenses, government regulations, litigation, and general business conditions. Police see risk factors in the company's Form 10-K for the fiscal year ended July 31, 2020. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties that could materially affect actual 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 or loss, income or 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. I would now like to turn the floor over to Barry Weiner, co-founder and president of Enzo Biochem. Barry, please go ahead.
spk05: Thank you, Jeremy. Good afternoon and thank you for joining us on our quarterly update call today. We issued our second quarter fiscal 2021 financial and operating results after the close of the market today. I hope you've had a chance to look at them. As the report indicates, our second quarter represented a solid period of financial and operational growth in an environment of multiple challenges and difficulties. Our ability to help alleviate COVID-19 And also to maintain our growth equilibrium is a direct consequence of our investment in time, money, and scientific expertise we have determinedly made over the past years. It is also a reflection of the hard work and dedication of our employees who have shown uncommon commitment despite many personal difficulties to helping others over the course of the past year. This was a unique quarter for the company as we closed out 2020 with alarmingly high rates of infection in the United States, and in late January as well. We finally saw emergence in February of a decrease in infection rates with the rollout of vaccines in the United States. As a backdrop, it's important to keep in mind the overall market during this pandemic. On the services side, doctor visits declined approximately 40% during the first six weeks of the pandemic. they still haven't fully recovered. Though we see the gradual return to regular doctor visits, there is still some movement to take place. On the product side, the academic institutions were initially closed and remain partially closed throughout the country and internationally. While we expect COVID-19 testing to continue due to schools, camps, workplaces, and travel, we are fully implementing our post-COVID business strategy. On the product side, we have a shift in emphasis from academia to industry. On the services side, we are expanding from primarily doctors to include lab to lab opportunities. We have also demonstrated that our vertically integrated approach works. With 50% blended gross margins, I should note 70% on our own platforms, versus mid-teens margins pre-pandemic. These margins compare favorably with those of our competitors who have margins below 40%, even though they have higher COVID-19 testing percentages. We are expanding the use of our proprietary platforms for molecular testing to include women's health and sexually transmitted diseases and offer both products and services for each. Furthermore, We will expand it to immunohistochemistry, cytology, and immunodiagnostics to encompass at least four areas where demand for margin improvement is necessary in the clinical lab marketplace. I'm very proud of what we've accomplished during the past 12 months of the pandemic and remain thoroughly optimistic with our execution strategy for the year ahead. I would like to reiterate our appreciation and thanks to all of our employees for their hard work, determination, and execution during this quarter. They have provided continued operations while serving the needs of people who rely on ENSO for diagnostic testing services. Our employees' health and safety has always been of paramount importance, and we sincerely appreciate their contributions to keep our business running safely. ENSO's implemented measures to safeguard our employees have been effective while allowing us to maintain full operations and expanding them so that we may continue providing the healthcare community. We made notable achievements at the end of 2020, and I am confident our strategy, our vision, and our ability to execute on it in the year ahead. Our second quarter was another exceptional quarter, evidenced by the results we announced earlier today. We are pleased to be in such a strong position this early in 2021. Our results for the quarter demonstrated solid achievements. Total revenue was $31.5 million, a year-over-year improvement of 62% in revenue. Gross margins increased to 50%, improving 2,000 basis points year-over-year. GAAP earnings per share was a positive $0.05 for the quarter versus an earnings per share loss of $0.16 in Q2 2020. An adjusted EBITDA of 4.3 million compared favorably versus an adjusted loss a year ago of 5.4 million, an improvement of almost $10 million. These are just representative highlights of the quarter's financial accomplishments, which David will shortly share with you in a bit of greater detail. However, it also highlights the message I would like to convey regarding ENSO and its direction. Before elaborating further on the quarter, it is important to highlight the company's core objectives as we have outlined before. It is critical to stress management's commitment to these objectives as they are fundamental to the continued success and development of Enzo. First, we are transforming into an integrated end-to-end diagnostic products and solutions company. We are building and investing in the infrastructure for growth. Third, we are implementing efficiency measures to better bring in line our cost structure with the market needs. And fourth, we are building out our four key platforms and technologies to address enhanced value in the diagnostics sector. These objectives have helped solidify ENSO's position As a vertically integrated end to end diagnostic company. Despite the pandemic pandemic headwinds, we continued to mobilize our operational resources to adapt to the expanding demands of the market by servicing opportunities in areas we expect to be most impactful, such as point of care and direct to consumer offerings. I'd like to now cover some highlights of the quarter. I will start with the introduction in November of a small portable microplate reader for use with ENSO immunoassays, providing new opportunities in point-of-care medicine. We expect to expand this reader to be available for research use in the back half of 2021. This device enables ENSO to offer a compact plate reader that features an open design for quick plate loading and USB connection, ideal for our academic CRO, and industrial customers. In January, ENSO received an expansion of its emergency use authorization from the FDA, authorizing the use of pooled samples containing up to five individual swab specimens with the company's AmpiProbe SARS-CoV-2 test system, utilizing tests on three different platforms, including ENSO's proprietary GenFlex automated high-throughput platform. Testing capacity remains challenging for many states with high population density, such as we have in the Northeast area, and the introduction of several more easily transmissible variants of COVID-19 have increased demand for our testing services. As we recently announced at the beginning of March, A recent analysis demonstrated that test process on ENZO's proprietary GenFlex molecular platform are successfully able to detect the presence of currently known variants of COVID-19. While our PCR testing does not distinguish between different variants, positive samples can be further analyzed for variant identification. This is another important differentiator for ENZO. as the rapid antigen test currently available on the market may not have this capability. Patients, providers, and physicians are now understanding the nuances around infectious disease testing, which has greatly benefited ENZO as it builds its reputation outside of the medical lab community and expands testing access on the GoToTestMeNow online platform. Go Test Me Now online portal is our first direct to consumer offering that brings quick, convenient COVID testing to individuals overseen by licensed physicians. We plan to extend this online offering to sexually transmitted diseases and other types of testing. We launched this online platform at the end of October and we continue to roll out the offering as it moves forward over the next few quarters. We finished the second quarter with strong momentum across the businesses and are on track to launch multiple products in a post-COVID environment. We look forward to updating our investors on these initiatives in the near future. I would like to turn the call over to David Bench, our CFO, who will provide you a more detailed look at the financial performance for the quarter. David.
spk01: Thanks, Barry. As Barry indicated, the second quarter was another striking period of advancement and growth across the board. Total revenue of $31.5 million for the second quarter increased 62% from the $19.4 million generated in the year-ago period, reflecting a continuing expansion of operations and revenue following the slowdown associated with the impact of COVID-19 on the diagnostic testing industry. The consolidated gross margins for the quarter was 50.3%, up significantly from the 30% in the year-ago period. On a sequential basis, second quarter revenue increased 10% over the first quarter of 2021, driven largely by COVID-19 testing. On a divisional basis, clinical services revenue increased 92% to $24 million from $12.5 million in the second quarter of 2020, and increased more than 13% sequentially. The year-over-year performance is largely driven by 63% year-over-year volume growth in total accessions to more than 330,000, as well as by 15% growth in net revenue per accession. On a particular note, we saw clinical services gross margin increase to 51.2% from 18.1% in the second quarter of 2020, an improvement of more than 3,300 basis points. This is largely attributed to the use of our proprietary platforms as well as our ongoing cost savings initiatives. ENZO's average product order value increased 18% during the period, due mainly to servicing higher value markets. ENZO Life Sciences' product growth margin was 47.4%, a decline from the 52% in the year-ago period and 49.4% in the first quarter of 2021, but flat when accounting for intercompany sales. We continue to focus on improving gross margin division for the coming quarters, aided by an improved mix of products being sold into a more stable ordering environment. On the Consave expense side, research and development expenses decreased 24% to $0.8 million, or 2.6 percent of total revenue from $1.1 million or 5.5 percent of total revenue in the ergo period. Selling general and administrative expenses of $11 million rose slightly from $10.7 million in the ergo period, although SG&A margins declined by approximately 2,000 basis points due to better fixed cost leverage due to vertical integration and cost efficiency measures. GAAP net income was $2.3 million, or 5 cents per share, versus a loss of $7.7 million, or negative 16 cents per share, in the year-ago quarter. Adjusted EBITDA in the quarter was a positive $4.3 million, compared to an adjusted EBITDA loss of $5.4 million in the second quarter of 2020. This significant improvement was driven mainly by improvement in gross margin, and lower SP&A expense from headcount efficiency, lower intangible amortization, and reduced travel. Our finances remain sturdy, with working capital of $40 million and improvement of $4 million in the past six months. Cash and cash equivalents total $45.3 million as of January 31st, slightly lower than the $48.6 million at the end of fiscal year 2020, due to investments in inventory, higher accounts receivable, and capital expenditure, as well as lower accounts payable. As of January 31st, 2021, the company had 48 million shares outstanding. We believe ENTA is entering 2021 on very strong financial footing and will benefit significantly from its position as a leading vertically integrated end-to-end diagnostics company. I'll turn the call back over to Barry for closing remarks.
spk05: Thank you, David. While today's call is intended to discuss the company's operations and financial results, as indicated in today's press release, there were a few corporate developments I'd like to note as well. Dr. Elazar Rabbani, the founder and CEO, will remain a director of the company, but will step down as CEO and transition to a leadership and scientific role with the company once a qualified successor is identified. To fully capitalize on the potential of ENSO's business model, the company and the board of directors have retained the global search firm, Quorum Ferry, to conduct a search for the appropriate CEO candidate. In addition, Gary Huff, former LabCorp diagnostic CEO, was named strategic consultant to the board. He was retained to help assist in the strategic direction of the company. And furthermore, the company has retained Kane Brothers, a healthcare investment banking firm, to help identify, evaluate, and execute on strategic and commercial opportunities. We view these steps in our ongoing operational progress and developments with great enthusiasm. To recap, the company's quarterly report was significant, not only in itself, but in reflecting a new business model for diagnostic services. The demonstration of the validity of our integrated model may be consequential, not only to Enso, but the entire industry. ENSO is committed to employ this model, not only for ourselves, but also with strategic partners. This quarter demonstrated the implementation of efficiencies and operations during a period of extreme expansion and implementation of our integrated business in the COVID-19 pandemic, when many aspects of this business were challenged by human resource limitations and supply chain shortfalls. Bringing open system approaches to the molecular testing market to reduce costs while addressing the prevailing reimbursement pressures has been key to improving our margins. This demonstrates to the industry the validity of our strategy. Open systems will allow flexibility and adaptability in the post-COVID environment, allowing laboratories to use third-party reagents or their own reagents on this open platform with ease and flexibility. We are excited about the future of ENSO and its opportunities and will now open the call for questions.
spk00: At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. Confirmation tone will indicate your line is in the question queue. You may press star 2 if you would 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 key. One moment, please, while we poll for questions. Our first question comes from Paul Knight of Seabank. Please state your question.
spk03: Hiya, Barry. On the GeneFlex system, how, besides the menu that would obviously include COVID and STDs, what's after that, and what's the timing on the STD portion of getting that test on the platform?
spk05: Thank you, Paul. The platform today, as you are aware, is running COVID-2. We have a women's health panel, which includes Candida, BV, UMM, this is a multi-prep swab. This will be ready over the summer. We also have an enhanced women's panel, chlamydia gonorrhea trich, also on a multi-prep swab, which should be available this summer. These will all be submitted for 510 submissions as well. We have an HPV high risk panel, which is moving into submission in the fall. an HCV viral load panel, HBV viral load, HIV viral load. These will all be submissions going in over the summer, as well as an HSV submission. This is a comprehensive, very full menu that would be fully efficient to be able to supply any operational clinical laboratory with a complex and fully loaded capability to handle most molecular tests. And this is the fastest growing segment within the molecular market. We have been working through this environment, which the first half of this year with COVID really forced a dramatic challenge for us as we had to shift personnel and we had to improvise in terms of getting the COVID machine approved, which was no small project in of itself, as well as getting the COVID test validated and manufactured on the machine for EUA approval. This delayed the submission of some of these analytes, but they are now moving forward, and we are moving on stream. So we will have, hopefully, by the fall, a very complex, very strong machine and analyte menu to supply our customer laboratories, as well as ourselves.
spk03: And then also regarding, obviously, diagnostics volume for COVID have fallen from at least, well, at least on PCR, but since January. Any color on diagnostic environment right now?
spk05: It's really too soon to tell whether there will be great overall declines or not. However, the COVID-19 pandemic shines a light on the importance of clinical labs and testing in general. This is being validated by the continued postponement of PAMA cuts for at least another year. And currently we see continuous demand for our COVID testing volumes. We have not seen fall off in our volumes here. Again, we initiated programs that are very effective in surveillance for academic institutions, and we are monitoring a number of academic institutions today in our region and area. We have school programs. Some corporate programs are now, as they look to potentially open up either over the summer or in the fall, are implementing programs. So we see a shift a little bit in the utility of the testing, even though we're certainly doing conventional physician-based monitoring. We see programs that are moving into place to fill up volumes and maybe potentially exceed our current volumes as we move forward. Also, as the vaccine becomes more prevalent, the issue of serological testing comes into play, and we are waiting to see how the testing requirements surrounding antibody levels in individuals who have been vaccinated will move forward into the future. So it's still a bit undefined as to what the future will look like, but we anticipate the volume demands to continue for a period as we move forward. Okay, thank you.
spk00: Our next question comes from Keith Mayher of Armistice Capital. Please state your question.
spk04: Barry, I have a question on the consolidated gross margin. I guess if it was up It's up at 50%. I guess some portion of that is COVID testing. How high is the margin on the COVID testing? I mean, is there a way for us to kind of understand, is it far above the consolidated gross margin? It must be. And how should we think about that?
spk01: Yes. Hi. This is Dave Bench. I'll take that question. Basically, We've publicly stated actually on this call that our COVID testing runs on our proprietary platform. Our proprietary platforms show margins in excess of 70%. So hopefully that's helpful for you in terms of understanding the blend and how we push that forward.
spk04: And can we consider that as, you know, some portion of that as an ongoing basis? you know, assuming COVID testing is here for some number of years? Is that, are you, when you before testing, are you thinking about it that way?
spk01: Yeah, for COVID, yes. For molecular testing on GenFlex in general, I would say that COVID is a high reimbursement test right now. Obviously, depending on the reimbursement level of the different tests, because a significant portion of our revenue is through the payors, and obviously that will depend on what we're being reimbursed, what the actual margins look like.
spk04: Just one last one. In terms of some of the recent activity with Korn Ferry and Gary Hough and the Kane brothers, just regarding Gary Hough. I know he's reporting to the board, but practically how is he engaged? Is he doing a strategic review and he's gonna give some type of recommendation or is he just part of the ongoing board in terms of like an observer role or how should we think about his role and what his impact might be in the timeframe we might expect that?
spk05: Mr. Huff was retained to assist the company and the board in understanding strategic opportunities and utility of resources. He's an industry expert, and his contribution will hopefully be multifold on multiple levels.
spk04: Thank you very much. Congratulations on a great quarter. Thank you.
spk00: We have reached the end of the question and answer session, and I will now turn the call over to Barry Weiner for closing remarks.
spk05: Thank you for joining us today. We are really very proud of our revenue growth and profitability achieved this quarter. It is only one step in transforming into an integrated end-to-end diagnostic products and solutions company and building and investing on the infrastructure we have put in place over the past years for growth. We do look forward to discussing further progress with you in our next report. We believe it will be a very interesting and dynamic time for our company. Thank you again for joining us.
spk00: This concludes today's conference and you may disconnect your lines at this time.
Disclaimer