Enzo Biochem (NYSE: ENZ) reported Q1 EPS of ($0.13), versus ($0.13) reported last year. Revenue for the quarter came in at $20.2 million versus the consensus estimate of $20.92 million.

Elazar Rabbani, PhD., Chairman and Chief Executive Officer, Comment:

“We continue to be intently focused on creating the new model of a modern day diagnostics company. Our goals remain to develop and validate platforms focused on high-value areas that can reduce costs 30-50% and satisfy clinical demand for fully automated platforms and products while retaining an attractive profit margin for Enzo. This has required investment in our dynamic vertically integrated infrastructure, investment in personnel, our facilities and a focus on combining our significant intellectual property, technical capability and manufacturing to drive our business goals.

The Company has never been better positioned to achieve our goals. We have validated a number of diverse products on multi-platforms that reduce costs significantly, we have been granted approval in New York for a broad menu of diagnostic tests and have demonstrated we can achieve our primary goal of 30-50% reduction in costs. The labs to labs relationships announced today reinforce this position. We believe there is substantial value in our business model and are working hard to unlock this value for all stakeholders.

Our molecular diagnostics women’s health panel has now been fully instituted in our lab, has run over 100,000 samples and is generating high margins on these tests. This utilization of our independently developed tests is a meaningful development resulting in better returns for products in our lab as well as others in the industry.

We believe that there is a great opportunity in front of us, but to achieve these milestones it is essential we maintain the appropriate balance of investment in innovation and science and manufacturing while reducing operating costs in the difficult environment of continued declines in reimbursements. In the first quarter, we made investments in new billing systems, new personnel, eight new patient service centers, onboarded a number of new payors – while at the same time, we implemented a series of initiatives that are estimated to reduce overall routine expenses in our labs by approximately $10 million this year.

Our first quarter results were impacted by several non-routine charges, including: $800,000 in cash withheld by a provider in an ongoing dispute where we are hopeful a favorable resolution will be achieved and another approximately $600,000 was spent in expenses relating to the pending proxy contest at the Company.

We are pleased to announce our labs to labs relationships and our discussions with strategic partners for our diagnostic business. We feel strongly that the industry understands the new model we have created and it recognizes its value. We are also confident in our ability to unlock value for shareholders in our Therapeutics subsidiary through the newly announced exploration of avenues for value creation.

We welcome David Bench to the Enzo leadership team and look forward to his contributions and collaboration as we enter this exciting new phase and dimension of our corporate development. He has deep experience in our industry, understands the market forces shaping the diagnostic market and has been in the middle of numerous complex transactions over the course of his career. This appointment allows Barry Weiner, our President, to focus his time and energies on both running the company and importantly, developing and expanding the exciting new business opportunities in front of us today and tomorrow.”

1Q20 Operating Results

• Total operating revenues for the quarter amounted to $20.2 million, compared to $21.3 million the year prior, a 5% decline with clinical accession volume up 4%. Product segment revenues increased to $7.4 million, from $6.9 million, a 7% year over year gain reflecting increased U.S. volume and greater sales of diagnostic products as compared to research products. Clinical services revenues amounted to $12.8 million, compared to $14.3 million a year ago. This decrease reflects lower reimbursement rates, with $1.4 million of the decline due to reduced genetics testing reimbursements and insurance company related changes in medical and procedural requirements. Legal and related expenses amounted to $1.7 million, compared to $1.3 million, with the fiscal 2020 first quarter including a charge of $0.8 million related to a dispute over prior fiscal year reimbursements by a third-party payor that Enzo is contesting.
• Overall, cost of revenues were up slightly (+2%) due to the previously cited factors. R&D expenditures increased to $1.1 million, from $0.7 million, up 45% reflecting investments in new assays and LDTs. Total operating costs increased $1.2 million, or 4.3%, including approximately $1.4 million in unusual expenses. At Clinical Services, cost of revenues remained flat at $11 million, with continued cost reductions offsetting a higher volume of lower margin testing offset by other cost reductions. Product cost of revenues increased $0.2 million, to $3.5 million, largely due to higher volume. Consolidated margin was 28%, vs. 33% a year ago. Clinical Services and Products margins were 14% and 52%, respectively, compared to 23% and 53%, respectively, a year ago.
• Products segment operating income doubled to $0.6 million, from $0.3 million, Operating loss at Clinical Services amounted to $4.8 million, up from a year ago operating loss of $2.8 million, reflecting primarily reduced revenues and higher R&D investment in innovative diagnostic platforms, products and services. The GAAP net loss totaled $7.6 million, or $0.16 per share, compared to net loss of $6.0 million, or $0.13 per share the year earlier. Adjusted for unusual expenses totaling approximately $1.4 million, the fiscal 2020 first quarter non-GAAP net loss per share equaled last year’s $0.13 per share, during which there were no unusual expenses. EBITDA, a non-GAAP calculation amounted to a negative $7.1 million, compared to a negative EBITDA of $5.5 million a year ago; adjusted 1Q20 EBITDA loss amounted to $5.7 million. After adoption of a new accounting standard for leases, which resulted in the recognition of $4.6 million of current operating lease liabilities in the current period and changes in other operating assets and liabilities, working capital on October 31, 2019 totaled $54.3 million.

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