Enzo Biochem Reports Strong 2016 Operating Results

- October 14th, 2016

Enzo Biochem today reported strong results for the fourth quarter and fiscal year ended July 31, 2016, paced by revenue growth, margin expansion and litigation successes.

Enzo Biochem Inc. (NYSE:ENZ) today reported strong results for the fourth quarter and fiscal year ended July 31, 2016, paced by revenue growth, margin expansion and litigation successes.
Highlights

  • Fourth quarter fiscal 2016 revenue was $26.6 million and full year
    fiscal 2016 revenue was $102.8 million; increases of 4% and 5%, over
    the respective prior year periods. Enzo Clinical Labs revenue grew 5%
    in the fourth quarter of 2016 and generated double digit year over
    year revenue growth of 12%.
  • Clinical Labs and Life Sciences operating segments continue to be
    profitable and generate positive cash flow from operations.
  • Gross profit margins increased both quarterly and full year in both
    Life Sciences and Clinical Labs. In the fourth quarter of fiscal 2016,
    consolidated gross margin was 45% compared to 44% in the prior year
    period.
  • Net income for the fourth fiscal quarter was $36.1 million or $0.77 on
    a diluted share basis compared to $8.4 million or $0.18 on a diluted
    share basis in the prior year period. Full year net income was $45.3
    million or $0.97 on a diluted basis compared to a loss of $2.3 million
    or $0.05 on a diluted share basis in the prior year.
  • New product approvals, along with a strong product development
    pipeline, underscore Enzo’s growth opportunities as a supplier of
    advanced lower cost molecular diagnostics for reimbursement
    constrained independent clinical labs.
  • Enzo Clinical Labs is growing market share in the women’s health
    market and expanding beyond the current regional New York area. During
    the year, three assays were approved by New York State.
  • At July 31, 2016, cash and cash equivalents were $67.8 million;
    working capital was $70.8 million. Cash flow provided by operations in
    the fourth quarter and year ended July 31, 2016 was $36.1 million and
    $53.1 million, respectively, driven by legal settlements and licenses
    and operating performance of business segments.

Comments by Barry Weiner, Enzo President:
“Fiscal 2016 was a highly successful year for Enzo Biochem. We
solidified our growth opportunities on every front, setting a strong
foundation for the future. Life Sciences’ product development emphasis
on high profit margin products is paying off with several key approvals
awarded in 2016. Enzo Labs came off a strong year with solid forward
momentum from its expanding line of innovative molecular diagnostics,
especially in the women’s health category, and a growing client roster.
The unique combination of our Life Sciences development and marketing
team with our Clinical Labs’ hands-on testing capabilities, and our deep
patent estate, has resulted in a formidable development program, to
prepare our broad pipeline of products for regulatory approval.
“This past year, New York State’s Health Department conditionally
approved three new, highly efficient assays. We also have reported to
the scientific community new analysis pointing to the effectiveness of
our AmpiProbe ® platform technology. Included among the approved tests
was our Candidiasis™ assay based on AmpiProbe® and, last month, that of
the stand-alone PLAQPRO™ Lp-PLA2 activity assay for
identifying arterial inflammation, a possible potential indicator of
coronary risk. Notably, both received approval for laboratory use just
months after submission, and both are testaments to our growing
expertise and recognition as a leading diagnostics supplier-producer in
the women’s health field.
“On the operating side, we have also made significant progress. Costs
are well under control, profit margins are enjoying an upward trend, and
operating income at both Clinical Labs and Life Sciences remains
positive. By bringing to resolution several court cases, legal expenses
have trended lower, though this might change as possible trials could
take place in calendar 2017. Meanwhile, with total patent infringement
settlements and licenses in the past twenty-four months of over $100
million, our financial condition is robust and highly liquid. This is
enabling us to pursue our growth strategies in the diagnostics market
where, with Enzo’s highly efficient, economic and effective products, we
are increasingly making our mark.”
Fourth Quarter Results
Total revenues increased to $26.6 million, a $0.9 million or 4%
improvement over a year ago. Gross profit was up 7%, to $12.1 million,
equal to gross margin of 45%, compared to 44% a year ago. Research and
development expenses held steady, as a percentage of revenues declined
100 basis points to 3%, while selling, general and administrative
(“SG&A”) costs likewise improved 100 basis points, to 42%, all of which
underscores the Company’s effective management controls. The provision
for uncollectible expenses remained flat at 3% of revenues, as a result
of the Company’s effective credit procedures. Legal fees for the quarter
declined by more than half, to $0.7 million, from $1.6 million a year
ago.
Including $38.8 million legal settlements and licensing agreements, and
a $0.4 million foreign currency loss, net income amounted to $36.1
million, or $0.77 per fully diluted share. In the year ago quarter, with
net legal settlements at $11.3 million, net income totaled $8.4 million,
or $0.18 per fully diluted share. Adjusted for the 2016 legal
settlements and licensing agreements, the non-GAAP quarterly net loss
amounted to $1.9 million or $0.04 on a fully diluted share basis,
compared to a year ago non-GAAP net loss of $2.6 million, a 27%
improvement. Non-GAAP adjusted EBITDA (earnings before interest, taxes,
depreciation and amortization) was a negative $0.7 million, compared to
a year ago negative $1.5 million, a 53% improvement.
Fiscal 2016 Results
With Clinical Labs revenues increasing by double digits, consolidated
revenues rose to $102.8 million, up 5% from fiscal 2015’s $97.6 million.
Gross profit for the year increased 6%, to $45.6 million, equaling gross
margin of 44% in both years. R&D expenses were up modestly by 5% year
over year, but flat at 3% as a percentage of revenues; SG&A increased
6%, but again held firm at 42% of revenues for both years; and legal
expenses declined $2.4 million, or 27%, to $6.4 million.
Net income amounted to $45.3 million, or $0.97 per fully diluted share,
including $57.3 million in net legal settlements and license agreement
for the year. This compared to a year ago net loss of $2.3 million, or
($0.05) per share fully diluted, with net legal settlements and license
agreements at $11.5 million in the prior year period. On a non-GAAP
basis, adjusted for legal settlements and license agreements,
extraordinary proxy and other expenses and related tax effects, the net
loss was $9.2 million, or ($0.20) per share fully diluted, vs. a year
earlier loss on a similar adjusted basis of $13.5 million, or ($0.30)
per fully diluted share, a $4.3 million improvement. Non-GAAP adjusted
EBITDA was a negative $5.0 million and $9.4 million, respectively, for
the past two years, a $4.4 million improvement. Excluding direct legal
litigation costs, adjusted EBITDA would be positive in the full year
2016 results.
As of July 31, 2016, cash and cash equivalents amounted to $67.8 million
and total assets of were approximately $112.0 million.
Segment Results
Enzo Clinical Labs continued its
strong growth, the result of the increased role of molecular diagnostics
in its services mix, particularly those targeted to women’s health, as
well as adding new clients and effective management of the Labs’ cost
base. Fourth quarter revenues grew 5%, to $18.1 million. Gross profit
improved 7%, to $12.1 million, and the gross margin percentage increased
to 40%, from 39%. Operating income amounted to $0.8 million, compared to
$0.5 million, up 60%.
Full year Lab revenues grew 12%, to $70.9 million. Gross profit
consequently increased 18%, to $28.1 million, with the gross margin up
200 bps, to 40%, from 38%. The provision for uncollected receivables
improved to 3.3%, from 3.8%, the result of improved collection
procedures. Operating income more than doubled, to $1.2 million, from
$0.5 million.
Enzo Life Sciences benefited
from both higher margin product revenue and tight cost controls,
although continuing to be challenged by a highly competitive environment
and continued lower research funding, especially in academia. Product
revenues were $8.1 million for the fourth quarters of both fiscal 2016
and 2015, with cost of revenues declining 6% in 2016, to $3.7 million.
Gross profit on product revenues increased 5%, to $4.4 million, from
$4.2 million, and gross margin advanced to 55%, from 52%. Excluding
legal settlements, net, operating income improved to $1.0 million,
compared to $0.6 million a year ago, up 66%.
Full year product revenues in 2016 amounted to $30.3 million, compared
to $31.7 million in 2015. Products gross margin percentage increased by
200 basis points to 53% from 52%. Operating income amounted to $3.1
million, excluding $58.8 million from patent litigation settlements,
compared to $4.4 million, excluding $11.5 million in settlements a year
ago. Royalty and fee income declined to $1.5 million from $2.5 million a
year earlier.
Product Development
In line with Enzo’s objective to develop, manufacture and sell high-
throughput, high value reliable and affordable molecular diagnostic
products and services that use our proprietary technologies to allow
customers to meet their clinical needs, and to offer independent labs a
counterweight to reduced reimbursement, Enzo has underway an aggressive
product development program. This past year, the Company obtained
conditional approval for several tests and assays from the New York
State Department of Health, allowing the Company to provide these tests
across the majority of the United States.
These approvals included our AmpiProbe® technology platform that
encompasses high sensitivity, real time nucleic acid amplification
assays that is expected to provide low cost molecular diagnostics to
benefit independent laboratories. At the same time, the AmpiProbe® HCV
Assay was approved for the quantitative detection of hepatitis C virus,
which is expected to be the first in a line of expanded applications
using the AmpiProbe® platform. Last year, Enzo scientists presented data
at the prestigious American Society for Clinical Pathology annual
meeting showing new thresholds of sensitivity for the Company’s
AmpiProbe® – based HCV Assay. This demonstrated that the limit of
detection was greater in sensitivity than leading commercially available
HCV viral load assays.
Also approved was the Candidiasis™ Assay, the Company’s second test
aimed at the rapidly expanding women’s health market, and Enzo Clinical
Labs’ PLAQPRO™ Lp-PLA2 Assay, for evaluating
lipoprotein-associated phospholipase A2 activity, a marker associated
with the potential for coronary heart disease. Currently under
development are tests for Hepatitis B virus, HIV viral diseases, and
cancers, as well as a full spectrum of tests designed to identify a
number of infectious diseases related to women’s health, one of the
fastest growing segments of the molecular diagnostic market.
Conference Call
The Company will conduct a conference call Friday, October 14, 2016 at
8:30 AM ET. The call can be accessed by dialing 1-888-459-5609.
International callers can dial 1-973-321-1024. Please reference PIN
number 85947927. Interested parties may also listen over the Internet at http://tinyurl.com/hlgvp9k.
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 Friday, October 28, 2016.
The replay of the conference call can be accessed by dialing
1-800-585-8367, and when prompted, use PIN number 85947927.
International callers can dial 1-404-537-3406, 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.
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 Non-GAAP 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 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, litigations,
and general business conditions. See Risk Factors in the Company’s Form
10-K for the fiscal year ended July 31, 2016. 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 Fiscal year ended

Selected operations data:

July 31 July 31
(unaudited) (unaudited)

2016

2015

2016

2015

Revenues:
Clinical laboratory services $ 18,140 $ 17,210 $ 70,915 $ 63,414
Product revenues 8,071 8,059 30,337 31,690
Royalty and license fee income 392 428 1,521 2,495
Total revenues $ 26,603 $ 25,697 $ 102,773 $ 97,599
Gross profit $ 12,085 $ 11,317 $ 45,583 $ 42,827
Gross profit % 45 % 44 % 44 % 44 %

Income (loss) before income taxes (1)

37,068 8,523 46,515 (2,292 )

(Provision) benefit for income taxes

(933 ) (81 ) (1,229 ) 7
Net income (loss) $ 36,135

$ 8,442 $ 45,286 $ (2,285 )
Basic net income (loss) per share $ 0.78 $ 0.18 $ 0.98 ($0.05 )
Diluted net income (loss) per share $ 0.77 $ 0.18 $ 0.97 ($0.05 )
Weighted average shares outstanding – basic 46,267 46,061 46,153 45,355
Weighted average shares outstanding – diluted 46,717 46,091 46,602 45,355

(1) – includes legal settlements of $38.8 million, $11.3 million,
$57.3 million and $11.5 million for the three months ended July
31, 2016 and 2015
and for the fiscal year ended July 31, 2016
and 2015, respectively.

Selected balance sheet data:

July 31, 2016 July 31, 2015
Cash and cash equivalents $ 67,777 $ 18,109
Working capital $ 70,829 $ 22,528
Stockholders’ equity $ 89,554 $ 42,606
Total assets $ 111,821 $ 68,394

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 months and fiscal year ended July
31, 2016 and 2015, respectively:

ENZO BIOCHEM, INC.
Non-GAAP, Reconciliation Table
(Unaudited, in thousands, except per share data)
Three months ended Fiscal year ended
July 31 July 31

2016

2015

2016

2015

Reported GAAP net income (loss) $ 36,135 $ 8,442 $ 45,286 $ (2,285 )
Adjusted for:
Legal settlements, net (38,800 ) (11,288 ) (57,250 ) (11,458 )
Legal fees associated with settlements 217 217
Costs related to contested proxy 16 1,483 76
Separation payments 207
Tax effect on adjusted items 721 1,064
Non-GAAP net loss $ (1,944 ) $ (2,613 ) $ (9,210 ) $ (13,450 )
Weighted Shares Outstanding
Basic 46,267 46,061 46,153 45,355
Diluted 46,717 46,091 46,602 45,355
Basic and diluted earnings per share
Basic net income (loss) per share GAAP $ 0.78 $ 0.18 $ 0.98 ($0.05 )
Diluted net income (loss) per share GAAP $ 0.77 $ 0.18 $ 0.97 ($0.05 )
Basic net income (loss) per share non-GAAP ($0.04 ) ($0.06 ) ($0.20 ) ($0.30 )
Diluted net income (loss) per share non-GAAP ($0.04 ) ($0.06 ) ($0.20 ) ($0.30 )

The following table presents a reconciliation of reported net
income (loss) for the three months and fiscal year ended July 31,
2016 and 2015,
respectively to EBITDA and Adjusted EBITDA:

ENZO BIOCHEM, INC.
EBITDA & Adjusted EBITDA, Reconciliation Table
(Unaudited, in thousands)
Three months ended Fiscal year ended
July 31 July 31

2016

2015

2016

2015

GAAP net income (loss) $ 36,135 $ 8,442 $ 45,286 $ (2,285 )
Plus:
Depreciation and amortization 978 992 3,840 3,789
Interest expense 14 69 136 245
Provision (benefit) for income taxes 933 81 1,229 (7 )
EBITDA $ 38,060 $ 9,584 $ 50,491 $ 1,742
Adjusted for:
Legal settlements, net (38,800 ) (11,288 ) (57,250 ) (11,458 )
Legal fees associated with settlements 217 217
Costs related to contested proxy 16 1,483 76
Separation payments 207
Adjusted EBITDA $ (740 ) $ (1,471 ) $ (5,069 ) $ (9,423 )

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