Enzo Biochem Reports Fiscal Third Quarter and Nine Months Operating Results

Company Outlines Three-Pronged Short-Term Value Creation and Growth
Strategy

Intellectual Property Settlements Generate Approximately $30 Million
in Cash in the Third Quarter

NEW YORK–(BUSINESS WIRE)–Enzo Biochem, Inc. (NYSE:ENZ), an integrated life sciences company
focused on commercializing innovative diagnostic and therapeutics
products, today reported results for the fiscal quarter and nine months
ended April 30, 2019. The Company updated the market on the progress of
its short-term growth and profitability initiatives designed to unlock
value.

Financial Results

  • Third quarter net income was $22.3 million, or $0.47 per share
    including $28.9 million in net legal settlements, on revenues of $19.7
    million. This compared to a year ago net loss of $3.0 million, or
    $0.06 per share when there were no similar settlements. On a
    sequential basis, revenue increased nearly 2%, and Non-GAAP net loss
    improved by approximately $1.7 million, or 21%.
  • Fiscal third quarter 2019 results reflect the combined impact of
    continuing reduced insurance reimbursement payments at rates lower
    than a year ago and reduced genetic test volume, while total
    diagnostic testing volume, measured by the number of accessions, was
    up 1% year over year and 3% sequentially to the second fiscal quarter
    due to increases in esoteric testing. Cash and cash equivalents at the
    end of the quarter was $64 million and working capital was $71 million.

Strategic Short-Term Initiatives

The Company reiterated the three core pillars of its value creation
strategy, which are all expected to have a positive impact by the end of
calendar 2019.

Forming Strategic Relationships for Diagnostic
Growth

Enzo is in active discussions with several leading global life sciences
and medical device companies, as well as manufacturers of automated
systems to develop strategic relationships in three key platforms
pioneered by Enzo’s proprietary products and intellectual property:
molecular diagnostics, immunohistochemistry and the Company’s Elisa
platform. The discussions involve developing long-term relationships in
automation and manufacturing, distribution and marketing and product
sales.

Enzo’s goal is to announce at least one of these relationships by the
end of calendar 2019.

Building a New Model for the Diagnostic
Marketplace

As a lower cost and vertically integrated manufacturer and service
provider of molecular testing in the U.S. Enzo is rolling out a new
business model for its labs to labs business whereby Enzo will serve as
the “central capability” for smaller labs, capitalizing on its scale in
high value and lower cost operations, proprietary intellectual property
and products, decades of innovation and commitment to medical solutions.

Response of labs has been positive and Enzo anticipates announcing the
formal roll out of this program by the end of calendar 2019.

Return to Operating Profitability and Growth in
the Lab Segment

Enzo is focused on returning its lab segment to profitability and growth
in three significant ways. Enzo is working aggressively to control
operational costs in its lab segment, which has been negatively impacted
by a declining reimbursement environment, through, amongst others,
consolidating supply chain functions, as well as reorganization and
alignment of customer support teams to create greater efficiencies
without sacrificing service levels. The Company is also developing a
series of compelling growth initiatives that capitalize on our strong
intellectual property and integrated approach to manufacturing, which
can be offered as either product or services. Finally, Enzo will
continue to pursue, through licensing, business development and
litigation, revenue opportunities derived from strong intellectual
property development and innovation throughout the Company. While Enzo
cannot predict the outcome of ongoing patent infringement litigation,
the Company believes that its history of settlements and business
relationships will continue to help fund our business and growth
initiatives.

We expect to see meaningful sequential quarterly cost reduction
improvement throughout fiscal 2020, and assuming no further changes in
reimbursement programs, with a return to operating profitability at the
labs in early calendar 2020.

Elazar Rabbani, Chairman and Chief Executive
Officer, Comments:

“Enzo is poised to leverage and capitalize on our deep-rooted,
proprietary technology, product development and intellectual property
portfolio in very real, short-term strategic initiatives designed to
unlock the value we know exists across our business. The Board and the
management team are aligned in our belief that we can be an agent of
change and transformation in our industry, delivering tangible benefits
for our customers, partners, colleagues and shareholders. We know there
is tremendous value in our Company not reflected in today’s market and
believe that the programs highlighted in today’s announcement underscore
our commitment in our business and its prospects.

We are outlining our three-pronged value creation strategy: developing
strategic relationships, building a new market for the diagnostic
marketplace and further reducing operating costs.

We are focused on growth, in both the short and long-term. We are
gratified by the interest we are receiving from a number of industry
leaders in the life sciences and medical device industries to engage in
discussions with us. These companies recognize our vision for the future
of the diagnostic marketplace and our commitment to provide innovative
platforms and services.

This growth strategy embraces development of our high volume and lower
cost tests used in connection with our proprietary and affordable open
system platforms capable of high throughput to improve financial margins
at clinical laboratories. We believe we are uniquely positioned to drive
change.

At the same time, we have launched an intensive cost cutting and
heightened efficiency program that will achieve greater integration of
our Company’s financial and operating performances. We anticipate
sequential quarterly improvement and a return to operating profitability
in our lab by early calendar 2020.

The Company continues to operate on solid financial footing – with, at
April 30, 2019, over $64 million in cash and cash equivalents and
working capital of almost $71 million, allowing us to comfortably fund
the realistic goals we have set out for Enzo.”

Third Quarter Operating Results

  • Total revenues were $19.7 million, compared to $25.2 million in the
    prior year, a decrease of $5.5 million or 22%, while improving nearly
    2% sequentially from the second fiscal quarter of 2019. Clinical
    services revenues were $11.7 million, compared to $17.7 million in the
    prior year, a decrease of $6.0 million, largely due to the
    aforementioned reduced insurance reimbursement payments, insurance
    company claims rejections and changes to medical and procedural
    requirements for genetic testing by payors. Enzo’s AMPIPROBE® woman’s
    health panel has increased in volume each quarter since its launch
    last fiscal year. Product revenue was $7.9 million compared to $7.4
    million in the prior year. Product gross profit was $4.5 million and
    gross margins were 57%, a 15% increase over the prior year period.
  • Clinical services revenues for the three and nine months ended April
    30, 2019, reflect adoption of new revenue recognition 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 $0.8 million and $0.4 million in the three
    months ended April 30, 2019 and 2018, respectively, and $2.0 million
    in both nine month periods.
  • Consolidated gross margins were 27% compared with 42% in the prior
    year, and up from 24% from the second fiscal quarter of 2019. Clinical
    services gross margins were 7% compared to 38% a year ago and 1% lower
    sequentially to last quarter. Gross margins in the current year period
    were negatively impacted by lower reimbursement revenue from Clinical
    Services. Products gross margin was 57% compared to 53% in the prior
    year period and 50% in the preceding quarter.
  • Operating expenses totaled $11.9 million, compared to $13.5 million a
    year ago, a decrease of $1.6 million or 12%. Total legal expenses were
    $0.3 million compared to $1.7 million in the prior year. Selling and
    general administrative expenses (SG&A) as well as research and
    development (R&D) expenses were essentially flat year over year.
  • During the quarter, the Company recorded legal settlements and
    licensing payments, net of $28.9 million related to a patent
    infringement and contract case in New York and an unrelated patent
    infringement case in Delaware.
  • GAAP net income was $22.3 million or $0.47 per share compared to a
    GAAP net loss of $3.0 million or $0.06 per share in the prior year.
    The non-GAAP net loss was $6.7 million or $0.14 per share compared to
    a non-GAAP net loss of $3.0 million or $0.06 per share a year ago.
    EBITDA in the quarter was $22.8 million and adjusted EBITDA was a loss
    of $6.1 million.

Nine-month Operating Results

Total revenues were $60.2 million compared to $78.3 million in the prior
year, a decline of $18.1 million or 23% lower than the prior year. Gross
profit totaled $16.9 million, compared to $32.7 million a year ago, with
gross margins of 28% and 42%, respectively. SG&A of $33.3 million
increased a modest $0.3 million over the prior year. Legal expenses were
$2.7 million, down from $3.8 million a year ago. The GAAP net income and
Non-GAAP net loss totaled $7.9 million, or $0.17 per share and $21
million or $0.45 per share, respectively. EBITDA for the nine months
ended April 30, 2019 was $9.5 million and Adjusted EBITDA was a loss of
$19.4 million.

Conference Call

The Company will conduct a conference call Tuesday, June 11, 2019 at
8:30 AM ET. The call can be accessed by dialing (888) 459-5609.
International callers can dial (973) 321-1024. Please reference PIN
number 1870919.

Interested parties may also listen over the Internet at: https://tinyurl.com/yyx76wwr

To listen to the live call, individuals should go to the website at
least 15 minutes early to register, download and install any necessary
audio software. Any pop up blocker installed on your PC should be
disabled while accessing the webcast. A rebroadcast of the call will be
available starting approximately two hours after the conference call
ends, through June 25, 2019. The replay of the conference call can be
accessed by dialing (855)-859-2056. International callers can dial (404)
537-3406), and when prompted, used the same PIN number 2037608.

Adjusted Financial Measures

To comply with Regulation G promulgated pursuant to the Sarbanes-Oxley
Act, Enzo Biochem attached to this news release and will post to the
Company’s investor relations web site (www.enzo.com)
any reconciliation of differences between GAAP and Adjusted financial
information that may be required in connection with issuing the
Company’s quarterly financial results.

The Company uses EBITDA as a measure of performance to demonstrate
earnings exclusive of interest, taxes, depreciation and amortization.
Adjustments to EBITDA are for items of a non-recurring nature and are
reconciled on the table provided. The Company manages its business based
on its operating cash flows. The Company, in its daily management of its
business affairs and analysis of its monthly, quarterly and annual
performance, makes its decisions based on cash flows, not on the
amortization of assets obtained through historical activities. The
Company, in managing its current and future affairs, cannot affect the
amortization of the intangible assets to any material degree, and
therefore uses EBITDA as its primary management guide. Since an outside
investor may base its evaluation of the Company’s performance based on
the Company’s net loss not its cash flows, there is a limitation to the
EBITDA measurement. EBITDA is not, and should not be considered, an
alternative to net loss, loss from operations, or any other measure for
determining operating performance of liquidity, as determined under
accounting principles generally accepted in the United States (GAAP).
The most directly comparable GAAP reference in the Company’s case is the
removal of interest, taxes, depreciation and amortization.

We refer you to the tables attached to this press release which includes
reconciliation tables of GAAP to Adjusted net income (loss) and EBITDA
to Adjusted EBITDA.

About Enzo Biochem

Enzo Biochem is a pioneer in molecular diagnostics, leading the
convergence of clinical laboratories, life sciences and intellectual
property through the development of unique diagnostic platform
technologies that provide numerous advantages over previous standards. A
global company, Enzo Biochem utilizes cross-functional teams to develop
and deploy products, systems and services that meet the ever-changing
and rapidly growing needs of health care today and into the future.
Underpinning Enzo Biochem’s products and technologies is a broad and
deep intellectual property portfolio, with patent coverage across a
number of key enabling technologies.

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,
inter alia, the markets for the Company’s products and services, costs
of goods and services, other expenses, government regulations,
litigation, 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 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 press release.

           
ENZO BIOCHEM, INC.
(in thousands, except per share data)
 
Three months ended Nine months ended

Selected operations data:

April 30, April 30,
(unaudited) (unaudited)
 

2019

2018

2019

2018

 
Total revenues $ 19,662   $ 25,230   $ 60,249   $ 78,258  
 
Gross profit $ 5,302   $ 10,673   $ 16,902   $ 32,663  
 
Gross profit %   27 %   42 %   28 %   42 %
 
Income (loss) before income taxes 22,265 (3,016 ) 7,876 (5,654 )
 
Benefit for income taxes 1,097
       
Net income (loss) $ 22,265  

 

$ (3,016 ) $ 7,876     (4,557 )
 
Basic net income (loss) per share $ 0.47     ($0.06 ) $ 0.17     ($0.10 )
Diluted net income (loss) per share $ 0.47     ($0.06 ) $ 0.17     ($0.10 )
 
Weighted average shares outstanding – basic   47,452     47,073     47,259     46,895  
Weighted average shares outstanding – diluted   47,555     47,073     47,364     46,895  
 
 

Selected balance sheet data:

4/30/2019
(unaudited)

 

7/31/2018
(unaudited)

 
Cash and cash equivalents (including restricted cash $750) $ 64,802 $ 60,041
 
Working capital $ 70,451 $ 63,014
 
Stockholders’ equity $ 90,999 $ 81,121
 
Total assets       $ 111,000     $ 101,660          
 

The following table presents a reconciliation of reported net income
(loss) and basic and diluted net income (loss) per share to non-GAAP net
income (loss) and basic and diluted net income (loss) per share for the
three and nine months ended April 30, 2019 and 2018:

           
ENZO BIOCHEM, INC.
Non-GAAP Reconciliation Table
(Unaudited, in thousands, except per share data)
 
Three months ended Nine months ended
April 30, April 30,

2019

2018

2019

2018

 
Reported GAAP net income (loss) $ 22,265 $ (3,016 ) $ 7,876 $ (4,557 )
Adjusted for:
Legal settlements, net (28,925 ) (28,925 )
Benefit for income taxes (1,097 )
       
Non-GAAP net loss $ (6,660 ) $ (3,016 ) $ (21,049 ) $ (5,654 )
 
 
Weighted Shares Outstanding
Basic 47,452 47,073 47,259 46,895
Diluted 47,555 47,073 47,364 46,895
 
Basic and diluted earnings per share
Basic and diluted net income (loss) per share GAAP $ 0.47 ($0.06 ) $ 0.17 ($0.10 )
 
Basic and diluted net income (loss) per share non-GAAP         ($0.14 )     ($0.06 )     ($0.45 )     ($0.12 )
 

The following table presents a reconciliation of reported net income
(loss) for the three and nine months ended April 30, 2019 and 2018,
respectively to EBITDA and Adjusted EBITDA:

           
ENZO BIOCHEM, INC.
EBITDA & Adjusted EBITDA Reconciliation Table
(Unaudited, in thousands)
 
Three months ended Nine months ended
April 30, April 30,

2019

2018

2019

2018

 
GAAP net income (loss) $ 22,265 $ (3,016 ) $ 7,876 $ (4,557 )
Plus (minus):
Depreciation and amortization 838 815 2,372 2,350
Interest income (258 ) (227 ) (759 ) (569 )
Benefit for income taxes               (1,097 )
EBITDA $ 22,845 $ (2,428 ) $ 9,489 $ (3,873 )
 
Adjusted for:
Legal settlements, net   (28,925 )       (28,925 )    
Adjusted EBITDA $ (6,080 ) $ (2,428 ) $ (19,436 ) $ (3,873 )
                                     

Contacts

For: Enzo Biochem, Inc.
Steve Anreder, 212-532-3232
[email protected]
or
Michael
Wachs, CEOcast, Inc., 212-732-4300
[email protected]

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