Good morning, and welcome to the Enzo Biochem, Inc. Fiscal Second 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, inter alia, the markets for the company's products and services, cost of goods and services, other expenses, government regulations, litigations and general business conditions..

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 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 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 yesterday afternoon..

Our speakers today are Barry Weiner, President; and David Bench, Chief Financial Officer. [Operator Instructions].

I would now like to turn the floor over to your host. Mr. Weiner, the floor is yours. .

Thank you. Good morning, and thank you for joining us today. We distributed our second quarter results after the market closed yesterday, and I hope you've had a chance to look at them..

Before we get into a discussion of the financial and operational results for the fiscal quarter, I want to address a topic that is on everyone's mind, the recent coronavirus or COVID-19 outbreak.

Many investors, shareholders and partners have asked what we are doing regarding the testing and detection of this new virus that has infected more than 93,000 people globally, and many people, as you're aware, within the United States..

As we announced in our press release this morning, our wholly owned subsidiary, Enzo Clinical Labs, will begin accepting specimens for this novel coronavirus testing next week. Enzo has many years of experience processing specimens for the detection of viral pathogens.

The tests used by Enzo is a molecular test that determines the presence of viral RNA in respiratory specimens collected from patients by health care providers. We are concurrently applying our technical expertise in molecular diagnostics to develop a next-generation COVID-19 testing option..

Enzo's innovations include a virus inactivating specimen collection media to lessen transmission risks for health care providers and clinical laboratory personnel as well. It also includes the development of more relevant positive controls for these tests and also improved sensitivity. The company is consulting with the U.S.

Centers for Disease Control and Prevention on the implementation of these enhanced test features..

I would now like to take a few moments to talk about our position in the marketplace, some of the real progress we are making in our business and some notable developments and initiatives, which are designed to unlock value and advance the company's stated goal of establishing a compelling new paradigm for a modern-day diagnostics company, which includes both advances in sophisticated technologies and innovation as well as addressing the cost realities of today's industry dynamics, which are reshaping the landscape throughout the clinical laboratory universe..

Last month, Enzo announced it received New York state approval for its chlamydia, gonorrhea and trichomonas test using a liquid-based cytology sample collection on its proprietary GenFlex platform. GenFlex is a sample-to-result molecular diagnostic platform that includes sample collection, sample processing, amplification and detection..

Compared favorably to other proprietary platforms dominating the diagnostic testing market, Enzo's GenFlex platform can offer a 30% to 50% cost savings over current closed systems. GenFlex addresses the $450 million annualized global chlamydia, gonorrhea and trich diagnostic market as well as the $1.3 billion women's health market..

Extensions of the GenFlex platform, which Enzo is currently developing, could eventually address the multibillion-dollar molecular diagnostics market. We are very excited about this approval for this platform, which has been under development for a number of years.

This validation allows us to focus on the next phase of commercialization of these products and services, which include offering these tests for sexually transmitted diseases in our own clinical laboratory as well as providing the products for clinical research purposes. We are working towards securing FDA approval and CE mark for this platform.

This significant milestone achievement highlights Enzo's continued ability to deliver high performance, open, flexible, adaptable and cost-effective products, devices and services..

We also continue to make progress with regards to our unique proprietary low-cost platforms in all 3 high-volume impacting segments in the clinical laboratory marketplace, which include immunohistochemistry, immunoassays and cytology..

For example, we are working on an innovative cytology platform to enable the visualization of molecular indicators in a specimen. This will enable pathologists to color separate and recognize the disease within a structure of the slide.

The platform will assist with the early detection of diseases, such as cervical cancer, and provide comprehensive results to the physician..

In the immunoassay segment, we have successfully developed a high sensitivity assay for specialized indications. We have also developed a test for vitamin D, one of our high-volume tests within our product mix.

On another front, as we previously disclosed, we continue to explore various avenues to unlock value in our Enzo Therapeutics, the biopharmaceutical subsidiary of Enzo..

Alternatives under consideration, which we spoke about previously, consider a possible spin-off sale, joint venture or licensing of its intellectual property.

Underscoring the depth of the opportunity in therapeutics, subsequent to the end of the quarter, the company reported the publication of a study detailing the promising activity of our drug candidate SK1-I in an animal model of lupus. Lupus is a challenging autoimmune disease..

On a further note, Enzo continues to expand its portfolio of intellectual property assets, which today is comprised of approximately 463 issued patents worldwide and over 75 pending applications, along with extensive enabling technologies and platforms.

We continually evaluate our robust intellectual property portfolio and are exploring value-generating activity involving these assets..

Before walking through the financials, I would like to point out that the company's laboratory segment recognized top line growth of 4% year-over-year to $12.5 million in the second quarter. The lab segment experienced growing accession counts sequentially and year-over-year, with more than 813,000 tests performed in the last 12-month period..

Days sales outstanding in the laboratory segment improved to 43 days in the second quarter, a 23-day improvement from 66 days in the previous year's period. Furthermore, gross margin's expanded 1,000 basis points to over 18% in the second quarter. The clinical laboratory business had stabilized and is showing positive growth trajectory.

The product segment remained profitable despite continued investment in our platforms. The division's order value, that's average order size by dollar amount at which its products are sold, experienced its third straight quarter of sequential growth. This trend has continued into the first month of the third quarter..

The product segment has experienced its fourth consecutive quarter of gross margins above 50% despite fluctuations in product mix and order timing. Overall, operating results for the 2 segments improved by $1.7 million through the initiation of cost-cutting and growth initiatives.

Importantly, we continue to make good progress against our previously announced program to realize more than $10 million in annualized cost savings. Benefits are already being realized, and we expect to update you on the progress over the coming quarters..

Finally, before we get into the financials, it's worth noting that our quarterly results were impacted negatively by $1.8 million of nonroutine, legal and advisory expenses associated with the proxy contest at the company in the past quarter..

On the leadership front, during the second quarter, Rebecca Fischer, the CFO of Bellevue Hospital, was appointed as a new Independent Director; David Bench was appointed as the Chief Financial Officer of Enzo; and subsequent to the quarter, Fabian Blank and Peter Clemens IV were also added as Independent Directors.

We welcome them to the Board and look forward to their contributions..

At this time, let me turn the call over to David, who will walk you through the financials for the quarter. .

Thanks, Barry. And I'd like to introduce myself to those of you who I've not yet had the chance to meet in my short time here at Enzo. I look forward to working with you and addressing your questions. It's an exciting time to be at Enzo, and we are at the cusp of some very significant progress and development.

I look forward to developing a close rapport with institutional investors, retail shareholders and analysts..

Here's a quick review of the financials for the quarter. Total revenue amounted to $19.4 million compared to $19.3 million in the year ago period, an increase of 0.3%, despite sharply lower industry-wide PAMA reimbursement rates.

Clinical service revenue for the second quarter was $12.5 million compared to $12 million in the previous year period, an increase of 4%..

Volume increases in core and other nongenetic testing contributed to the revenue increase in total diagnostic testing volume measured by the number of accessions increased 7% in the period. It is important to note that our clinical service revenue increased despite the continued negative impact from the PAMA reimbursement cuts..

Gross profit margin on clinical services was 18% in the most recent quarter and 8% in the previous '19 -- 2019 period. This margin expansion was attributable to our cost efficiency program, including reductions in outside reference testing expense and head count efficiencies, partially offset by increased reagent cost from higher accession volume.

Life Sciences revenue for the second quarter was $6.9 million compared to $7.3 million in the previous year's second quarter. The decrease of 6% is primarily due to the lower product sales volume in the U.S. based on timing of orders..

The gross profit margin on products was 52% in 2020 period and 50% in the 2019 period due to the mix of products sold in the quarter. Consolidated gross profit was $5.8 million versus $4.6 million in the previous year's quarter. Gross margins for the quarter were 30%, an increase of 600 basis points compared to 24% in the year ago period..

Research and development expenses were approximately $1 million in the 2020 period and $0.8 million in the 2019 period, an increase of $0.2 million or 28%. The increase is entirely attributable to the clinical services division for lab developed tests based on our proprietary GenFlex platform..

Selling, general and administrative expenses declined to $10.7 million during the 2020 period from $11.5 million during the 2019 period, and as a percentage of revenue amounted to 55% versus 60% a year ago. The clinical service expense decreased $0.3 million, primarily due to the initial results of the aforementioned cost savings initiatives..

The life science products expense decreased to $0.5 million, primarily due to reductions in sales and marketing and salaries and related costs. Legal and related expenses were approximately $2 million during the 2020 period compared to $1.1 million in the 2019 period, an increase of $0.9 million..

Turning to 2020 period. The company incurred $1.8 million for contested proxy costs related to our February 2020 Annual Shareholders Meeting. Our GAAP net loss was $7.7 million or $0.16 per share and improved 29% compared with the year-ago quarter net loss of $8.4 million or $0.18 per share.

The non-GAAP net loss was $5.8 million compared to $8.4 million a year ago, an improvement of $2.6 million..

On a per share basis, the non-GAAP loss equaled $0.12 per share compared with $0.18 per share a year ago. Adjusted EBITDA loss in the quarter and year ago period were approximately $5.3 million and $7.9 million, reflecting a $2.6 million improvement on an adjusted basis..

At quarter end, cash and cash equivalents totaled $52 million and working capital amounted to $48 million. As of March 2, 2020, the company had 47.6 million shares outstanding..

I'd like to turn the call back over to Barry for closing. .

Thank you, David. At this point, I would like to turn the floor over for questions. .

[Operator Instructions] I will now return the call to Barry Weiner for any additional or closing comments. .

Thank you very much for joining us this morning. It's a very interesting time in the clinical lab testing market. We are very fortunate and that we believe we will be able to make a contribution to the welfare of our population with our testing programs going forward at this point in time.

And we look forward to reporting to you on the next quarter in June. Thank you very much. .

A replay of this broadcast will be available until Friday, March 20, at 12 midnight. You may access this replay by dialing 1 (855) 859-2056. The PIN number is 4496317. This replay is also available over the Internet at www.enzo.com..

This concludes today's teleconference. You may disconnect your lines at this time, and have a wonderful day..