On June 8, 2016 Enzo Biochem, Inc. (NYSE:ENZ) reported results for the third fiscal quarter and nine months ended April 30, 2016, with strong across the board advances (Filing, Q3, Enzo Biochem, 2016, JUN 8, 2016, View Source [SID:1234513138]).
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Highlights
Enzo Clinical Labs revenues grew by 16% over the prior year period reflecting increased throughput activity and focus on molecular diagnostics, now accounting for approximately 50% of its revenues.
Enzo Life Sciences revenues grew 22% sequentially over the prior quarter as domestic sales improved and the focus on higher margin reagents and other products yielded favorable results.
Total revenues advanced 10%, gross margins increased and net loss was reduced sharply.
Liquidity continues to improve, with the cash on hand today increasing to over $50 million, as compared to $18.1 million at the close of fiscal 2015.
Operating results for the Company’s third fiscal quarter ended April 30, 2016 continued to benefit from Enzo’s strategic management plan, emphasizing: esoteric diagnostic testing services, development of competitive genetic-based diagnostic cost-effective product platforms for use in-house and for sale nationwide, higher margin life science products, and increasing market share based on high quality diagnostic services, including expanding portfolio of women’s health products.
Approval of the new Candidiasis assay marks the third such approval in roughly a year, demonstrating Enzo’s strength in developing high quality proprietary assays. Enzo’s technology pipeline is robust, with other assays soon to be submitted for regulatory approval.
Subsequent to the end of the third quarter, Enzo announced that its subsidiary, Enzo Life Sciences, Inc., had reached a settlement with Life Technologies Corporation, a subsidiary of Thermo Fisher Scientific Inc. (TMO), resulting in a $35 million payment to Enzo, which is included in current cash balance.
Barry Weiner, President, Commented:
"This has been another quarter of significant progress for Enzo, as we continue to execute on our strategic plan. Again this quarter we demonstrated strong financial results and benefits of our integrated operating structure. The Clinical Labs Division remains on a solid growth trend, with molecular diagnostics increasingly predominant in its activities, as physician-clients recognize its unique capabilities and especially the Lab’s ability to provide services, assays and tests, particularly in the realm of women’s health issues. Enzo’s program to develop new tests for our AmpiProbe, FlowScript and other platforms is successfully moving forward rapidly, underscored by the New York State Department of Health’s conditional approval just three months after submission of our AmpiProbe Candidiasis assay, which follows similar authorization in the past year or so for our HCV and FlowScript assays.
"Meanwhile, Life Sciences is achieving improved results following several challenging quarters, during which it has aggressively moved to reposition itself by narrowing its product mix to concentrate on improved profitability, while also adding staff more experienced with the operations. We have become a specialized assay supplier as part of our integrated strategic plan to deliver highly efficient, cost effective diagnostics and assays for our own use and sale to independent labs.
"The proprietary platforms and accompanying assays, in addition to being highly cost effective in this challenging reimbursement environment, provide more sensitive diagnostics and allow for multiple testing of specimens, saving expenses and reducing patient discomfort. The three recently approved assays are part of a broad line of lower cost diagnostic products under development by Enzo to address the critical needs of clinical laboratories resulting from increasing pressure from steadily declining reimbursement rates. In addition to selling these highly effective and compatible platforms and their assays, we are positioning ourselves as a "go to" reference lab for independent labs nationwide with costs that we anticipate will be lower for them than doing so on their own.
From an operating viewpoint, we are effectively containing expenses, despite the necessity to expand sales, research and production staffs as we broaden our footprint. Legal expenses have been trending down, though one case remains on the trial docket in New York Federal Court. Our efforts to prevail on patent infringements in the Delaware court have thus far proved satisfactory, with seven cases still pending. The results are evident in our strong cash position, which ensures our ability to forcefully build our positioning and marketing of proprietary amplification and detection platforms, and their related assays. Recent patent litigation settlements further highlight the importance of our Company’s intellectual property, giving us a decided advantage in being able to further assay development independently, while adding to our financial strength and ability to capitalize on our goals."
3Q16 Results
With both Enzo Clinical Labs and Enzo Life Sciences posting positive revenue gains, total revenues increased to $26.4 million, from $24.0 million a year ago, a 10% increase. Cost of goods was approximately even year over year based on a percentage of revenues. Gross margin improved $1 million, or 9%, to $11.4 million, while gross profit as a percentage of revenue essentially remained even at 43.3% and 43.7%, respectively. Selling, general and administrative expenses (SG&A) increased slightly, to $10.9 million, from $10.2 million, reflecting increased selling expenses and higher Lab related costs due to new business, but as a percentage of revenues, SG&A improved to 41%, from 42% a year ago. Legal expenses declined 17%, to $1.6 million, although year ago results also reflected approximately $0.2 million in net legal settlements. There were no legal settlements in the fiscal 2016 third quarter.
Net loss amounted to ($2.1) million, compared to a year ago net loss of ($2.9) million, a $0.8 million improvement. Basic and fully diluted per share loss equaled ($0.05), versus ($0.06) last year. On a non-GAAP basis, the net loss per fully diluted share was ($0.04) compared to ($0.07) per fully diluted share in the prior year period. The EBITDA loss (earnings before interest, taxes, depreciation and amortization), a non GAAP measure, improved by approximately $0.9 million, to $1.1 million.
As of April 30, 2016, current assets totaled $55.2 million, compared with current liabilities of $21.7 million, a current ratio of 2.54-to-1. Cash and cash equivalents amounted to $32.4 million. Subsequent to receiving proceeds from the recent Delaware patent infringement case settlement with Life Technologies, cash and cash equivalents were over $50 million.
Segment 3Q16 Results
Enzo Clinical Labs posted its third straight quarter of double digit revenue growth, with total revenues of $18.2 million, up 16% from last year’s $15.7 million. Despite higher variable sales costs and expenses related to the expanding volume, gross margin increased 18%, to $7.0 million, from $5.9 million a year ago. Gross profit as a percentage of revenue was 38.6%, up from 37.9%. Variable expenses related to higher sales commissions and customer support resulted in SG&A increasing to $6.0 million, from $4.9 million. Nonetheless, operating income was up 6%, to $0.3 million.
With an improved order flow, Enzo Life Sciences revenues increased to $8.0 million, from $7.9 million, a year ago. Efforts to reposition the segment to achieve the Company’s growth strategies are showing positive results as revenues of higher margin products grew, while reducing those of lower margins. Life Sciences is also increasingly focused on the development and eventual production of new assays in conjunction with Clinical Labs. Thus, while revenues slowed in recent periods, in part, too, because of reduced funding in private and government oriented research, the third fiscal 2016 quarter marked a notable improvement. As a result, gross margins remained steady, at approximately $4.4 million, vs. the year ago $4.6 million, while gross profit on product sales as a percentage of revenues was essentially flat. Operating income amounted to $0.9 million, compared with $1.0 million last year.
Fiscal Nine Months Results
For the year to date, total revenues were ahead 6%, to $76.2 million, with Clinical Labs up 14% and Life Sciences off 6%. Cost of goods sold amounted to $42.7 million, $2.3 million greater than a year ago, and represented 56% of total revenues, in line with a year ago. Gross margin advanced $2 million, to $33.5 million, with gross profit as a percentage of revenues equal to 44% for both periods. R&D expenditures increased 7%, to $2.6 million, SG&A, largely reflecting increased Clinical Lab volume, was up 8%, to $32.4 million, and legal expenses declined 22%, to $5.6 million. With net legal settlements through April 2016 of $18.5 million, operating income amounted to $9.6 million, compared with a year ago loss of ($9.8) million, when legal settlements totaled $0.2 million, a $19.4 million improvement. Fully diluted per share earnings amounted to $0.20, compared with a year ago net loss per fully diluted share of ($0.24). EBITDA totaled $12.4 million, an improvement of $20.3 million from the year ago EBITDA loss of ($7.9 million).