Enzo Biochem Reports Third Quarter Operating Results
Revenues Increase 3.2%; Gross Profit Up 11%; Gross Margin Increases to 45%
NEW YORK--(BUSINESS WIRE)-- Enzo Biochem, Inc. (NYSE:ENZ), a vertically integrated biotechnology company engaged in the research, development, manufacture, licensing and marketing of innovative health care products, platforms and services based on molecular and cellular technologies, today reported financial results for the three and nine months ended April 30, 2010.
Third Quarter Results
-- Total operating revenues increased 3.2%, to $23.8 million, reflecting higher revenues in both Enzo Clinical Labs and Enzo Life Sciences, with the latter's product volume up almost 6%. -- Gross profit advanced 11%, to $10.8 million, compared to $9.7 million in the corresponding year-ago period, and as a percentage of revenues increased to 45%, from 42% a year ago. -- EBITDA, a non-GAAP measure, was a loss of ($3.4) million in the current and year-earlier period. -- Due to higher selling, general and administrative (SG&A) expenses in the quarter at Life Sciences, investment costs at Clinical Labs and a higher effective tax rate, the net loss for the third fiscal period was ($4.6) million, or ($0.12) per basic and diluted share, compared to a net loss in the year-earlier period of ($4.2) million, or ($0.11) per basic and diluted share. -- As of April 30, 2010, working capital amounted to $46.4 million. Cash and cash equivalents, and short term investments in U.S. Treasury Bills, totaled $34.4 million. Stockholders equity equaled $102 million. There was no debt.
Barry Weiner, Enzo Biochem, Inc. President, said, "The third quarter marked another important step forward in our Company's transformation. The ongoing shift at Life Sciences to higher margin products and the integration of Assay Designs, acquired in March 2009, continued to progress, with improved revenues and operating income. During the quarter, Enzo Clinical Labs invested in its business by adding highly skilled professionals to its staff, and is engaged in developing and commercializing new proprietary tests that will enhance its capabilities and future results.
"At Enzo Therapeutics, we are in the final stages of the regulatory approval process for our double blind, placebo controlled clinical study for Optiquel(TM), our oral, proprietary treatment for chronic autoimmune uveitis, which we will be conducting in cooperation with the National Institute of Health's National Eye Institute.
"On the patent front, the U.S. Patent and Trademark Office is poised to award Life Sciences a 17-year patent for nucleic acid signal amplification that is the basis for a number of significant products in clinical diagnostics and life sciences, in addition to broadening its gene-based application into the field of immunodiagnostics. Our court case against Applera Corporation (now Life Technologies Corporation), involving alleged patent infringement of Enzo patents covering pioneering technologies related to compounds used in DNA sequencing systems to read the genetic code, benefited from a decision by the Court of Appeals for the Federal Circuit reversing a lower court's judgment of invalidity of two patents, thus enabling us to pursue our claim for substantial damages.
"The new healthcare legislation, with its emphasis on cost reduction while broadening coverage for many individuals, will present challenges as well as opportunities. Our Company is well positioned to meet these changes, benefiting especially from our long-range strategy to remain in the forefront of technology, products and services that are linked closely to the latest developments of preventive and advanced medical procedures. Moreover, we believe that the investments we have made in the positioning of our Company can now begin to manifest themselves in improved financial results in the near future."
Third Quarter Segment Analysis
Enzo Life Sciences total revenues increased to approximately $13.0 million, from $12.4 million, with product revenues gaining 6%, to $11.1 million, offset by a slight decline in royalty and license fee income of $1.9 million, compared to $2.0 million a year earlier. The improvement in product revenues represented continuing benefits from a shift from contract revenue to higher margin products, as well as results from the purchase in March 2009 of Assay Designs. While cost of product revenue declined, SG&A costs increased 29%, due to inclusion of Assay Designs expenses and a shift in personnel from manufacturing to trading assignments within the division.
Gross profit increased 35%, to $7.6 million. As a percentage of sales, gross profit advanced to 58%, as compared to 45%, a year ago. Segment income before income taxes more than doubled, to $0.5 million, from $0.2 in the corresponding year-ago third quarter period.
Additionally, during the quarter, Enzo Life Sciences signed a supply and distribution agreement with privately-owned Cancer Genetics Inc., an emerging leader in personalized medicine with products and services that enable cancer diagnostics and treatment that are tailored to the specific genetic profile of the individual, covering Enzo's proprietary fluorescent dye labels for increasing signal intensity in labeling nucleic acids.
Enzo Clinical Labs in the quarter posted higher revenues, benefiting from an increase in higher priced esoteric testing volume, despite severe winter weather in the Northeast in February and a general slowdown in physician office visits. Revenues increased to $10.8 million, from $10.6 million, while increased costs, partially attributed to aforementioned new tests offered or being developed resulted in a reduced gross profit of $3.2 million, as compared to $4.1 million a year ago.
Operating expenses with SG&A and legal, being increased 27%, to $4.8 million, primarily attributed to increases in the sales force and management headcount, both partially attributed to efforts to market and further develop the Company's esoteric and gene based tests and capabilities. The provision for uncollectible accounts declined 9% to $0.6 million on increased service revenues, reflective of improved billing and collection results. The segment loss before taxes for the period amounted to ($2.2) million, against an operating loss of ($0.4) million, a year ago.
During the quarter, Enzo Clinical Labs appointed Robert Boorstein, MD, PhD, formerly an Associate Professor of Pathology at the NYU School of Medicine and a highly regarded pathologist, as Medical Director. The division also entered into an exclusive marketing- agreement with MultiGEN Diagnostics Inc., of San Diego, California, for exclusive rights to market MultiGEN's unique diagnostic tests based on multiplex DNA sequencing, in the state of New York. In addition, the Company was granted marketing rights for other non-exclusive territories in United States.
Nine Month Results
Total operating revenues year to date increased 11%, to $72.1 million, reflecting increased product revenues of $2.6 million, primarily resulting from the previous year's acquisition of Assay Designs, and the shift away from low margin, third-party distribution business and a 15% or $4.2 million increase in revenues at Enzo Clinical Labs. Gross profit rose 35%, to $34.7 million, and as a percentage of revenues improved to 48%, from 40% a year ago.
Although SG&A increased 24%, to $36.8 million, legal expenses were reduced by two-thirds and the provision for uncollectible receivables, reflecting the results of the Clinical Labs' billing system implemented in the prior year, declined 48%, to $2.1 million.
Included in nine month results was a litigation settlement and related legal expenses totaling $3.7 million, resulting in a net loss of ($16.7) million, or ($0.44) per basic and diluted share, compared with a year-ago net loss of ($18.3) million, or ($0.49) per basic and diluted share. EBITDA loss, as adjusted for the settlement of litigation with a former officer and related legal costs, improved $6.6 million from an EBITDA loss of ($16.2) million from the year ago period.
The Company will conduct a conference call on June 10, 2010 at 8:30 AM EDT. The call can be accessed by dialing 1-888-459-5609. International callers can dial 1-973-321-1024. Please reference PIN number 79715576. Interested parties may also listen over the Internet at http://www.wsw.com/webcast/cc/enz6/. To listen to the live call on the Internet, please go to the web site at least fifteen minutes early to register, download and install any necessary audio software. For those who cannot listen to the live broadcast, a replay will be available approximately two hours after the end of the live call, through midnight (ET) on June 24, 2010. The replay of the conference call can be accessed by dialing 1-800-642-1687, and when prompted, use PIN number 79715576. International callers can dial 1-706-645-9291, using the same PIN number.
NON-GAAP 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 non-GAAP 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. A further adjustment to the EBITDA was shown in this press release to reflect the litigation settlement to a former officer and the related legal costs. 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.
About Enzo Biochem
Enzo Biochem, Inc., is a growth-oriented integrated life sciences and biotechnology company focused on harnessing biological process to develop research tools, diagnostics and therapeutics, and serves as a provider of test services, including exotic tests, to the medical community. Since our founding in 1976, our strategic focus has been on the development of enabling technologies in the life sciences field. Enzo Life Sciences develops, produces and markets proprietary labeling and detection products for gene sequencing, genetic analysis and immunological research, among others. Its catalog of over 40,000 products serve the molecular biology, drug discovery and pathology research markets worldwide. Enzo Clinical Labs provides laboratory services for a growing roster of physicians in the New York Metropolitan area, as well as parts of New Jersey and Pennsylvania. Its tests include, in addition to routine tests, capabilities for detecting molecular infection disease, molecular oncology, autoimmune disorders and genetics. Enzo Clinical Labs also provides clinical diagnostic services that allow Enzo to capitalize on its extensive advanced molecular and cytogenetic capabilities and the broader trends in predictive and personalized diagnostics. Enzo Therapeutics is a biopharmaceutical venture that has developed multiple novel approaches in the areas of gastrointestinal, infectious, ophthalmic and metabolic diseases. It has focused its efforts on developing treatment regimens for diseases and conditions for which current treatment options are ineffective, costly, and/or cause unwanted side effects. In the course of the company's research and development activities, Enzo has developed a substantial portfolio of intellectual property assets, with 249 issued patents worldwide and over 200 pending patent applications.
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. 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, 2010 April 30, 2010 (unaudited) (unaudited) 2010 2009 2010 2009 Product revenues $ 11,089 $ 10,479 $ 32,599 $ 29,952 Royalty and license fee 1,894 1,963 7,044 6,783 income Clinical laboratory services 10,805 10,619 32,494 28,306 Total revenues $ 23,788 $ 23,061 $ 72,137 $ 65,041 Gross profit $ 10,806 $ 9,706 $ 34,743 $ 25,718 Gross profit % 45% 42% 48% 40% Loss before income tax ($4,399) ($4,226) ($16,504) ($18,025) provision Provision for income taxes (177) (16) (216) (260) (A) Net loss ($4,576) ($4,242) ($16,720) ($18,285) Basic and diluted loss per ($0.12) ($0.11) ($0.44) ($0.49) share Weighted average shares outstanding - basic and 38,095 37,484 37,950 37,423 diluted Reconciliation of GAAP Net Loss to EBITDA, as adjusted: Net loss ($4,576) ($4,242) ($16,720) ($18,285) Depreciation and amortization 1,037 829 3,224 2,351 Interest expense (income) 1 (17) (13) (569) Provision for income taxes 177 16 216 260 EBITDA (B) ($3,361) ($3,414) ($13,293) ($16,243) Adjustment for litigation settlement to former officer 3,698 and related legal costs EBITDA, as adjusted (C) ($3,361) ($3,414) ($9,595) ($16,243)
Notes: A- All periods reflect effective tax rates below the statutory rate due to inability to recognize future tax benefits. B- EBITDA is a non-GAAP measure, as described in the attached press release C- EBITDA, adjusted for litigation settlement to former officer and related legal costs
Selected balance sheet data: April 30, 2010 July 31, 2009 Cash and cash equivalents and short term $ 34,402 $ 50,235 investments Working capital $ 46,432 $ 60,518 Stockholders' equity $ 102,040 $ 116,781 Total assets $ 116,488 $ 133,128
Source: Enzo Biochem, Inc.
Released June 9, 2010