Greetings. Welcome to the Enzo Biochem First Quarter 2022 Financial Results and Business Update Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded.

I will now turn the conference over to your host, David Holmes of LifeSci Advisors and Investor Relations for Enzo Biochem. You may begin.

Thank you very much, operator, and good afternoon, everyone. Joining us today from the Company are Hamid Erfanian, Chief Executive Officer; and David Bench, Chief Financial Officer.

Enzo issued a press release detailing its financial results for the first quarter this afternoon, and is now available on the Investor Relations 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 expectation 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 Company’s control, 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 the 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 obligation to update any forward-looking statements as a result of developments occurring after the date of this conference call. During the 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 of determining operating performance. The Company has provided a reconciliation of the difference to GAAP on its website and on its -- in its press release issued this afternoon.

I would now like to turn the call over to Hamid Erfanian, Chief Executive Officer of Enzo Biochem. Hamid, please go ahead..

First, market expansion of the current product portfolio; second, commercialization of diagnostics platforms; third, utilizing the clinical services segment, the benefit of Life Sciences and Diagnostics segment of our business. We expect the implementation of these three strategies will set us on a path toward overall sales and market share growth.

We issued our first quarter 2022 financial and operating results just after close of the market.

I will begin today’s conference call with a summary of the quarter, highlighting notable achievements and then provide some perspective on the current testing in Life Sciences market, also providing some clarity and insight into the vision of the years ahead. Afterwards, I’ll pass the call over to Mr.

David Bench, the Company’s CFO, to review the financials in greater detail, and then we will open the call for a question-and-answer session.

The Company’s accomplishments during the first quarter have positioned us extremely well to execute into the future, specifically, the consolidation of our manufacturing facilities from two locations, Michigan and New York, to the recently completed and redesigned campus at our Farmingdale, New York headquarters.

This was a massive undertaking, and I’m very proud to announce that the completion of this milestone happened in October. Enzo first announced this initiative back in June of this year.

By bringing these operations under one roof, the Company would be able to leverage a series of operational, logistical, technological and headcount efficiencies, which would not have been otherwise achieved under the two-location model.

As is to be expected with transition of this magnitude, the Life Sciences division incurred some added onetime costs related to investments in staffing and temporary delays. These costs were anticipated and part of our budget for the project, but understandably affected the first quarter’s financials.

While the benefits will accrue over time, we expect to see efficiencies of these initiatives begin to be accretive in the second half of fiscal year 2022. Processes such as these can be complicated and lead to disruption within the operations, and I credit the team with executing an efficient and smooth transition and relocation.

Enzo’s consolidated campus now combines both, logistical and manufacturing benefits, which includes expanded GMP manufacturing and future ISO 13485 capabilities which include ISO 9001.

Additionally, within the campus, we have our CLIA laboratory services, R&D facilities, sales and marketing capabilities, and executive presence all within newly renovated buildings adjacent to one another at our Farmingdale, New York location.

Our centrally located campus in the middle of Long Island offers convenient commuter access to attract our growing need for personnel while also allowing convenient collaborations among the leading medical centers, research facilities and hospitals less than an hour outside of New York City.

By investing in our infrastructure growth, we are able to implement greater cost savings and efficiencies that are giving us a competitive edge as we implement the Enzo integrated end-to-end diagnostic products and solutions model.

The Company has continually focused on cost saving initiatives and generated in excess of $10 million in these efficiencies throughout 2020 and 2021 year, and the Company projects additional savings going forward.

Over the past year and a half, we have generated revenues in excess of $50 million based on our proprietary GENFLEX platform at Enzo Clinical Lab, enabling our Company as a formidable provider of testing for our region. The platform currently runs COVID-19, which includes testing for Omicron variant currently spreading throughout United States.

During the global pandemic, to the credit of the team, the Company was able to launch the COVID PCR assay and bring on board a complete -- complex molecular platform navigating through a complex FDA EUA process and subsequently generate nearly 1 million test results.

Furthermore, in order to gain efficiencies and cost savings, the team worked on means of streamlining the workflow of the GENFLEX platform at a highly profitable level, thereby setting a model for other labs to benefit from this commercial system.

This was all accomplished in the headwinds of an environment where supplies were limited or nonexistent and personnel were not readily available. We’ve been in the process of commercialization of this platform and are working through sales cycles to place them into laboratories in multiple geographies.

Most recently, we have introduced enhancement to our proprietary GENFLEX platform currently operational in our clinical laboratory, including providing a more streamlined workflow, which improves the platform’s overall cost structure. This feature shortens the turnaround time from sample collection to result.

Innovation is continuing at Enzo as we continue to enhance, improve and drive our technologies and platforms to gain a competitive edge in the industry.

An example of this is expansion of our product offering through advanced development of a novel molecular point-of-care technology that could address the national need for rapid turnaround time, cost-effective solutions with high sensitivity and specificity.

Furthermore, Enzo has expanded its comprehensive intellectual property portfolio via a new patent application with regards to our point-of-care platform, which covers the ability to streamline sample processing and accelerate the rate by which results can be obtained by the physician.

We are confident this will result in more affordable and easier-to-use platform while providing testing closer to the patient. Now turning to the lab services side of the business.

As management has discussed extensively, and I would like to reiterate, we expect that the COVID-19 pandemic and the need for testing will continue into foreseeable future and remain a healthcare priority for some time.

We continue to anticipate ebbs and flows of demand with regard to testing as multiple variables, such as a drastic effect on testing volumes such as vaccination rates, waning efficacy of antibodies, new variants such as Omicron variant, approved therapeutics and evolving government guidelines.

Our society is becoming increasingly frustrated with a desire to get back to the office, travel freely and in general, return to some social normalcy. Fortunately, Enzo has remained committed and prepared for this fluid environment.

We are ready and operational and armed with cost-effective, flexible solutions to meet new testing and diagnostic challenges. I would like to reiterate the confidence I have in the strategy outlined in the past.

As end user demand has evolved, we are focused on providing services to our existing customers while targeting new channels, including schools, pharmacies, which are new venues of testing for Enzo.

I am proud to report that the first quarter our team was able to add over 70 new customers, key to building off of our base and expanding our customer reach. Enzo Clinical Laboratories continues to thrive, and we are very proud of the team’s achievements.

During fiscal year 2022, we will have special focus on ways of leveraging the clinical service segment of our Company to provide clinical verification samples and services capabilities tailored for the Diagnostics segment. I will provide additional details on future quarterly calls.

In addition, expansion into the direct consumer market that Enzo launched in fiscal year 2021 is very exciting. GoTestMeNow is an important platform as it provides access to patients to control their own health care. This has been embraced largely in clinical diagnostics marketplace. Enzo is poised to serve that market.

And so far, we have received inbound interest from customers outside of our typical customer base. The recent launch of sexually transmitted infection or STI testing, using the platform, expands that offering and we anticipate additional growth in that space.

As physician office appointments are still below typical levels in tri-state area, it is critical that Enzo provide diverse testing services to serve and anticipate changes in patients’ behavior. With these insights, I would like to now turn the call over to our CFO, Mr. David Bench, for a detailed review of our first quarter financials.

David?.

Thanks, Hamid. As Hamid mentioned, we are pleased with our first quarter performance, despite some seasonality in COVID-related testing and onetime costs incurred due to the consolidation of the Ann Arbor facility.

As mentioned earlier, with the recent emergence of the new variant, the Omicron strain of COVID-19, there has been a significant uptick in testing demand, despite high vaccination rates and an increased focus on boosters for adults within the United States.

Building sessions grew to more than 100,000 per month in the last two months of the quarter with this trend continuing into November, compared to approximately 70,000 per month during the summer months, reflecting the increased COVID-19 volume from back-to-school activities and the emerging variant activities.

We also added 70 new customers at Enzo Clinical Labs this quarter, an increase of nearly 50% from 47 new customers in the previous year’s first quarter with accounts ranging from urgent care facilities to government entities such as Suffolk County.

The transfer of our Ann Arbor facility was a paramount achievement this quarter not only from a logistical point of view, but also from an operational standpoint. We believe this will prove highly beneficial and generate significant future cost savings. Here is a review of the financials for the first quarter.

Total revenue reached $26.5 million for the first quarter, an increase of 7% sequentially compared to $24.8 million in the fourth quarter last year, but a decrease of $2.1 million compared to the first quarter of fiscal year 2021.

On a divisional basis, clinical services revenue for the first quarter was $19.7 million, an increase of 17% sequentially compared to $16.8 million in the fourth quarter last year, but a decrease of $1.5 million compared to the first quarter of 2021.

The sequential improvement was driven by increased billed accession count and growth in net revenue per accession due to factors related to the COVID-19 pandemic.

Product revenue for the first quarter was $6.8 million, a decrease of 9% from $7.4 million in the year ago period due to the temporary delay from transitioning from Ann Arbor, Michigan facility to the upgraded Farmingdale, New York campus, as well as ongoing COVID-19-related shutdowns in Europe.

The blended gross margin for the quarter remained unchanged from the year ago period at 42% on a consolidated basis. Clinical service gross margin climbed to 43% from 39% in the first quarter of 2021, primarily due to testing mix and ongoing cost savings initiatives.

Enzo Life Science gross margin was 40% compared to 49% in the previous year’s quarter and 47% in the sequential fourth quarter. The current quarter’s gross margin dropped out of our typical 45% to 52% gross margin range due to headcount duplication and other costs related to the Ann Arbor transition.

Enzo is working towards significantly improved gross margins in the coming quarters and anticipates a return to the typical gross margin range with a rebound of Life Science revenue. Research and development expenses were unchanged at $0.7 million or 3% of total revenue in the year ago and current period.

Selling, general and administrative expenses of $11 million or 42% of total revenue, increased from $10 million or 35% of total revenue in the year ago period.

SG&A expenses were slightly lower in Enzo Clinical Lab on a year-over-year basis, but significantly higher in Enzo Life Sciences due to investment in sales headcount to support growth coupled with onetime costs related to the Ann Arbor closing.

Adjusted EBITDA loss in the quarter was $0.9 million compared to a positive adjusted EBITDA of $1.2 million in the previous year’s first quarter. GAAP net loss was $2.3 million or negative $0.05 per share versus net income of $0.3 million or $0.01 per share in the year ago quarter.

While we were profitable within the Enzo Clinical Lab division this quarter, we did not achieve profitability as a company in aggregate. This is due primarily to the Ann Arbor transition at the Enzo Life Sciences division as well as corporate and other onetime expenses.

Enzo’s working capital grew to $42.8 million versus $36.7 million in the previous year’s quarter, an improvement of $6.1 million.

Cash and cash equivalents, restricted cash and marketable securities totaled $36.9 million at the end of the first quarter, a decrease from $44.3 million at the end of the fiscal year due primarily to investments in inventory, higher accounts receivable, lower accounts payable and capital expenditures in excess of $1 million.

Day sales outstanding at Enzo Clinical Lab remained below 35 days. We continue to see tangible results from our ongoing actions to boost operating efficiency and are proud to have recognized in excess of $10 million, [ph] which exceeded our savings target through fiscal year 2021. Enzo continues to explore cost savings opportunities.

And as mentioned in the last quarter’s call, we have targeted an initial goal of an additional $5 million in savings for fiscal year 2022. We remain committed to investing in key growth areas, most notably, our proprietary lab-developed tests and our four proprietary platforms, including molecular, immunology, cytology and immunohistochemistry.

Lastly, I believe it is important to highlight the improvement in our current ratio to 2.9x from 2.1x during the first quarter of 2021. This is indicative of a very clean and improving balance sheet. Additionally, we showed an improvement of $7.7 million in shareholders’ equity on a year-over-year basis.

As of October 31, 2021, the Company had approximately 48.5 million shares outstanding. I’ll turn the call back over to Hamid for closing remarks..

Thank you, David. On behalf of the management team, I would like to take the moment to thank the entire Enzo team for their unwavering focus that allowed this quarter’s achievement to reach to a fruition. I want to acknowledge and thank the management team, including the outgoing CEO, Dr. Rabbani, who has helped guide me through the onboarding process.

In my short tenure as CEO, I have quickly observed a unifying culture unique to Enzo. I truly believe that Enzo is one of the best kept secrets in diagnostics market, and it is time to let the secret out. We are confident in our strategic vision and our ability to execute in the year ahead.

We have made many important transitions in 2021, and believe the Enzo team had laid the solid foundation from which we shall expand our unique offering to a much larger community. Operator, please open the floor to questions..

[Operator Instructions] Our first question is from Paul Nouri with Noble Equity Fund. Please proceed with your question..

Hey. Good afternoon..

Good afternoon, Paul..

For the COVID testing, is the vast majority of it in New York state and New York city?.

New Jersey; New York; and Connecticut. We go as far as, again, Massachusetts. But that’s a balance for us in that radius.

Does that answer your question?.

Yes. And I know for a while there was an initiative for Enzo to take in tests from other labs. I think that was before COVID.

Is that still a live initiative, or is it not a priority at the moment?.

Yes. It’s not currently a priority of the Company, but we are always looking at opportunities with regards to reference testing, lab to lab and partnerships..

Okay.

And last question, are you planning on submitting any tests for FDA approval in the coming year?.

So, again, Paul, thanks for the question. So, when you look at, again, the gamut of diagnostics products that Enzo has in its arsenal, that would be absolutely the strategy to put many of those tests through the FDA approval process, whether it’s 510(k) or de novo. So, the answer to that question in my mind isn’t unequivocal yes.

So that would be our strategy, and that’s our goal for expansion of the diagnostics business that we have in our hand. And again, another notable item is that some of that diagnostics, again, products is currently standing up in our laboratory. So, this is what makes Enzo unique.

Having the ability to basically test out products in a diagnostic setting, make sure that, again, if it is working and it’s serving the customer base as well as it does at Enzo Clinical Labs, it also would be an asset in our customers’ lab.

But again, overall, the answer to your question is, are we going to provide testing and submit FDA filing? Absolutely and unequivocally yes..

We have reached the end of the question-and-answer session, and I will now turn the call over to CEO, Hamid Erfanian for closing remarks..

So, once again, thank you very much for joining us today. While we extremely are proud of the team achievement, growth and profitability achieved this year, we remain committed in generating value for our shareholders and look forward to discussing further progress with you on our Q2 report call in mid-March.

Thank you very much, and have a good evening.

Operator?.

This concludes today’s conference, and you may disconnect your lines at this time. Thank you for your participation..

Thank you..