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spk00: Greetings and welcome to the Enzo Biochem third quarter 2022 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. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Chris Calabrese, LifeSci Advisors, Investor Relations for Enzo Biochem. Thank you. You may begin.
spk02: Thank you, Melissa, and good morning, everyone. Joining us today from the company are Hamid Arfanian, Chief Executive Officer, and David Bench, Chief Financial Officer. Enzo issued a press release detailing our financial results for the third quarter of the fiscal year this morning and is now available on the investment section of the Enzo website. 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 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, litigation, and general business conditions. Please see 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. 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 GAP on its website, www.enzo.com, and its press release issued this morning. I would like now to turn the call over to Hamid Rafani, Chief Executive Officer of Enzo Biotech. Hamid, please go ahead.
spk05: Thank you, Chris. Good morning, and thank you for joining us on our third quarter business and financial update call today. Yesterday, we issued our third quarter 2022 financial and operating results and we hope you've had some time to review. We will begin the call discussing our corporate strategy, operational focus, vision, while summarizing some key achievements of this quarter. We will also provide perspectives on the current laboratory testing landscape and life sciences market. I will then pass the call over to Mr. David Bench, our CFO, after my opening remarks to review the financials in greater detail, and then we will open the call for a question and answer session. But first, let me quickly run through some top-line financials. Total revenue for the third quarter ending April 30th was $26.2 million lower sequentially and year over year due to anticipated waning of COVID-19 testing volumes and the economic shutdowns in Asia. Enso Life Sciences revenue was $7.6 million in Q3 2020 consistent year-over-year, and an increase of 9% on a year-to-date basis, demonstrating stability in the ELS customer base. Despite shortfalls in COVID revenue, ENSO clinical lab routine revenue increased 10%, and overall non-COVID revenue increased 3%, on a year-over-year basis. We have made great progress with regards to operations, strategy, and positioning of ENSO. I want to highlight a few important recent milestones as we build the future ENSO. Number one, ENSO's corporate structure and our focused return. Number two, building the future management team. Number three, our corporate governance. Number four, adding strategic partnerships and growth revenue initiatives. As for number one, ENZO's structure and focus return, we mentioned on the past earnings calls that we are taking a renewed focused approach to ENZO's portfolio of assets. The maturation of our corporate structure is important to support this approach. Enzo's corporate structure is supported by three separate businesses that make the entire organization stronger. Work independently, but also leverage one another. We often use the analogy of a string or rope when we discuss it internally to help visualize the three aspects of the business. ENSO Life Sciences, our global product division, ENSO Clinical Labs, our services division, and ENSO Diagnostics, our emerging diagnostic platforms for clinical labs and point of care settings. This structure allows ENSO to generate synergies across a multitude of assets and resources. As we implement our integrated end-to-end solutions, we are able to pass on significant cost savings to our clients and inherently understand their pain points and provide tailored solutions. After all, we are eating our own home cooking, whereas others in our industry are simply selling to others. We successfully compete by offering our products and services to a range of end-user segments from academic institutions and industrial clients to clinical laboratories and urgent care facilities, all supported by a deep portfolio of IP and assets. While revenue declined this quarter largely due to COVID-19 testing volume, we remain on plan for both operational and revenue budget perspectives. Our team remains proactive in positioning the company around core competencies to generate recurring revenue opportunities that are profitable and invest in growth segments where there are higher returns on investment. Now turning to point number two, fielding the future management team As promised in previous quarters, ENZO has focused considerable time and resources during the last quarter to bring together an executive team to lead a global workforce poised for success and with the ability to drive our initiative of focused return. We are rounding off the management team by adding commercial leaders to our team. In March, we announced the appointment of David Bench and Kara Cannon to new expanded executive management positions. Kara was named Chief Operating Officer from her previous role as Chief Commercial Officer, and David Bench, our current Chief Financial Officer, was named to additional roles of Senior Vice President, Treasurer, and Corporate Secretary. These two executives are instrumental in leading ENZO, along with me, into the future. In yesterday's earnings release, we announced the addition of several new key employees, including a head of clinical laboratory sales, a regional sales leader for ENZO Life Sciences Division, and a head of quality assurance and regulatory affairs. Our new head of laboratory sales brings two decades of experience in the clinical laboratory market that will be extremely valuable as the lab expands its operations. The senior regional sales leader brings over 25 years of experience in life sciences, business, development, and strategic partnerships, and elite efforts in our geographical expansion, and market penetration. Our new head of quality assurance and regulatory affairs comes to ENZO with 25 plus years of regulatory expertise, product development and commercialization, and compliance experience that will be instrumental towards FDA submissions of our proprietary Genslex molecular platform, as well as our path forward in completion of ISO 9000 certification of our manufacturing facilities. We continue to deliver on our commitment to strengthen the leadership team and expect more announcements in that regard in Q4 2022. Regarding point number three, corporate governance, we have made significant progress in this quarter. We recently came to terms with one of ENZO's largest shareholders, Harvard Discovery Fund, which enables the board and management to focus on operational issues. As we prioritize transparency, it is important to highlight the ENZO management team has been refreshed and four of five current ENSO board members have been appointed in the past 24 months. Each of them brings a wealth of experience to the company to guide it in this critical time of growth. More notably, in April 2022, the company announced the approval of all four proposals presented at the 2022 Annual Meeting of Shareholders These modifications improved the company's corporate governance and allowed a newly formed leadership team to further prioritize shareholder-friendly initiatives. It is important to note that this approval required the vote of 80% of the outstanding shares of Enzo Biochem, certainly not an easy feat to achieve, but together we were able to accomplish that goal. Regarding point number four, strategic partnerships and growth initiatives, we continue to make careful investments intended to further accelerate growth of our core life sciences and clinical lab business, as well as invest in our third pillar, diagnostic platforms. We remain committed to investing in technology that enables our business, including launching a refreshed quality management system, rolling out multi-factor authentication and investing in a global website, which will be completed in early calendar year 2023. This new website is specifically designed to optimize our transactional capabilities and rival other e-commerce sites in life sciences area. While strengthening Enzo's brand awareness, facilitating customer integration and an easy-to-use portal to review product details and providing a frictionless reordering platform, we will continue to invest in technology initiatives where there is ability to save costs, enhance our products, and service or accelerate revenues. Enso Life Sciences achieved growth in the United States despite channel issues in Europe and economic shutdowns in various segments of Asia. We added two new distributors in Asia, a target area that we believe is poised for growth. Additionally, our GMP facilities in Farmingdale enables the company to continue to expand from basic research to more industrial clients. In fact, our average product order remained above $1,000 per order for seventh straight quarter, despite not having any bulk orders in this quarter. Our enhanced product offering, expanded personnel, refreshed sales, and the upcoming website launch will most certainly contribute to our growth in ELS division in the very near term. We had a productive quarter in our clinical laboratory, which we believe will provide us with significant momentum as we move into the fourth fiscal quarter of 2022 and prepare for fiscal year 2023. We delivered on our commitment to expand the product menu, adding over 43 net new tests in the quarter and 92 net new tests on a year-to-year date basis. This growth in high-margin markets will drive greater revenue per test in both the near and future term and over the long term. We are also targeting new customer groups, adding new patient service centers, and using our COVID-19 success as a model for higher margin testing. ENSO diagnostics platforms, including our molecular platforms and point-of-care initiatives, are positioned for success. At the beginning of pandemic, ENSO pivoted the GenFlex molecular platform which was being developed for women's health to process COVID-19 test samples. The success of processing over 1 million COVID-19 tests on the platform and meeting the FDA's stringent policy standards has led management to revert back to developing other molecular tests on the platform. We are leveraging a higher margin testing model demonstrated during COVID-19 to other market segments, such as the women's health, sexually transmitted diseases, and other molecular testing needs, based on the applications and versatility of the GenFlex platform. As you may recall, in January, we received New York State approval for the use of ENZO's chlamydia, gonorrhea, and trichomonas test on GenFlex, building out our portfolio of laboratory-developed tests using the GenFlex platform. Furthermore, we are extremely excited to report this quarter that ENZO received another New York State Department of Health approval for its HPV molecular diagnostics test on the GenFlex platform. We received approval for these PCR-based tests that are designed to detect 14 high-risk HPV variants. HPV testing is part of ENSO's focus on women's health, sexually transmitted infections, and oncology and leverages its long history in HPV detection. ENSO is on pace. to have the entire menu of tests submitted to New York State approval this fiscal year and begin submissions to the FDA for 510 approval in 2023. Continuing on the diagnostic platform side, we are preparing the launch of an in-situ hybridization-ish loop RNA probes in the late summer, which will give us access to 50 million gene expression and spatial biology market. mPBU RNA-ish probes uniquely combine the precision of targeted sequence-specific RNA probes with the superior sensitivity of ENSO's patented loop RNA technology. mPBU RNA-ish probes enable scientists to visualize the expression and spatially localized nucleic acid targets in tissue and cells while preserving the morphology of the sample. The novel technology of mPBU RNA-ish probes will be great addition to ENSO's life sciences drug development and discovery and ENSO's clinical anatomic pathology portfolios. We believe this product will leverage ENSO's core competency and be able to further lift our life sciences division growth in fiscal year 2023. We continue to achieve milestones with regards to development of a CLIA-waived point-of-care device for clinical testing. I will provide additional details on this platform on future calls. Last but not least, as you may have read in our press release, we have engaged an investment banking firm to explore strategic alternatives. David will further elaborate to that end. We are very excited for the opportunities that lie ahead finishing 2022 strong and prepare for a year of revenue growth in fiscal year 2023, particularly regarding life sciences and diagnostic platforms. During the next few quarters, I expect to provide our investors with updates regarding our progress towards delivery of our initiatives during our quarterly calls, as well as providing more information about our strategy and opportunities on a go-forward basis. With these insights, I would like to turn the call over to our CFO, Mr. David Bench, for a detailed review of our third quarter financials. David?
spk03: Thanks, Hamid. I'll now provide a review of the financials for the fiscal third quarter ending April 30th, 2022. Total revenue reached $26.2 million for the third quarter, a decrease of 20% from $32.8 million in the third quarter last year. The decline on a sequential as well as year-over-year basis was due to the previously anticipated waning of COVID-19 volumes on the lab side and the economic shutdowns in Asia on the product side. On a divisional basis, and the clinical lab service revenue for the third quarter was $18.6 million, a decrease of 26% from $25 million in the third quarter fiscal year 2021. This decline was driven by service accession count declining into the spring season. While the declining COVID-19 revenue is certainly a factor, our routine testing revenue increased 10% and our overall Non-COVID revenue increased 3% on the year-over-year basis, thereby demonstrating core testing recovery. Enzo added 43 new tests in the third quarter, reaching a total of 126 new tests added year-to-date on a gross basis. We are targeting specialty testing and have hired a sales leader that focuses on catering to these specialists. On the Enzo Life Sciences side of the business, revenue for the third quarter was $7.6 million, a slight decrease year-over-year, and revenue increased 9% on a year-to-date basis, demonstrating stability in the ELS customer base. The economic shutdown in Asia affected sales, as did the supply chain issues in Europe. Thus, assuming a return to a normal market environment, we remain confident that overall annual growth should reach 10% for the year ending fiscal year 2022. We have added new talent that comes with pre-existing relationships and connections globally. The blended gross margin for the quarter declined to 39% from the year-ago period gross margin of 49% on a consolidated basis. This was negatively impacted by both endoclinical lab as well as endolife science in the quarter. In the clinical lab, margin decreased from 49% to 40% on a year-over-year basis due to the reduction of higher margin COVID testing. ENSO maintains clinical services margin of at least 40%, which is considered healthy for a laboratory and demonstrates the initial success of our cost savings initiatives. ENSO life science gross margin declined to 36% when compared to the year-ago period. While there were several factors, including increased manufacturing headcount and higher cost of materials, We expect margins to return to historical levels in the coming quarters. Research and development expenses increased modestly to $1.1 million, or 4% of total revenue, consistent with the year-ago period. Selling general administrative expenses decreased to $11.4 million from $12.1 million in the year-ago period. The lower SG&A expense was primarily due to lower commission compensation earn on services revenue Legal and other expenses decrease as well, primarily due to litigation and other legal matters. Gap net loss totaled $4.9 million, or negative 10 cents per share, compared with net income of $2.0 million, or four cents per share, in the year-ago quarter. Adjusted EBITDA loss in the quarter totaled $1.8 million, versus adjusted EBITDA of $2.7 million in the third quarter of 2021. Cash and cash equivalents, restricted cash, and marketable securities totaled $32.1 million as of April 30, 2022, compared to $44.3 million at the end of fiscal year 2021 due to strategic initiatives, board and corporate matters, investments in inventory, higher AR, lower accounts payable, and greater investments in capital assets. We expect corporate expenses to decline due to reduced legal expenses and the restructuring of the corporate management team. Day sales outstanding in endoclinical labs continued to trend at approximately 30 days. Life sciences day sales outstanding increased by seven days over the past year due to larger order sizes and longer required lead times. As of April 30, 2022, the company had 48.7 million shares outstanding. The company continues to explore cost savings opportunities, and we have maintained our previously announced goal of an additional $10 million of savings, with $5 million of which targeted for calendar year 2022. As you may have noted in the press release, we are pleased to engage with one of the premier healthcare banking firms to assist with strategic initiatives. To this end, we recently engaged Jefferies LLC, to provide advisory services, including the evaluation of strategic alternatives for the company, its endoclinical lab, and end-of-life sciences division, as well as its various assets. Jefferies is an American multinational independent investment bank and financial services company that is headquartered in New York City. I will now turn the call back over to Hamid for closing remarks.
spk05: Thank you, David. Over the past months, we took key steps designed to increase our efficiency, enlarge our revenue base, and position ourselves for new levels of growth. We are well positioned as we work to execute on key elements of our focused return strategy. We remain confident in our strategic vision and our ability to execute on it in the year ahead to a growing and well-positioned company, thereby building both short-term and long-term shareholder value through our focused return approach. On behalf of the management team, I would like to take a moment to thank the entire ENSO team for their dedication and determination as we move into a new era at ENSO Biochem. At this time, operator, please open the floor for questions.
spk00: Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 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. In the interest of time, we ask that you each keep to one question and one follow-up.
spk01: Thank you. Our first question comes from the line of PJ Sullett with Potomac Capital.
spk00: Please proceed with your question.
spk04: Hi, good morning. Could you just clarify regarding the Jefferies process what the difference is versus the prior process? And I guess related to that, since you aren't starting from scratch on this process, is it too optimistic to think that this can be a faster process than if you were starting from day one?
spk05: So at this stage, we're not going to make any public comments in regards to that, but we are picking up where we left off. Let's just leave it at that.
spk01: Thank you for the question. Thank you.
spk00: Ladies and gentlemen, once again, it is star one to ask a question at this time. We'll pause a moment to allow for any other questions. Thank you. Ladies and gentlemen, this concludes our question and answer session. I'll turn the floor back to Mr. Rafanian for any final comments.
spk05: Thank you very much for joining us today. We are extremely proud of the team's achievements and growth this last quarter. We remain committed to generating value for our shareholder and look forward to discussing further progress with you on our fiscal fourth quarter earnings call this fall.
spk00: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
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