Q1 2021 Champions Oncology Inc Earnings Call
Greetings and welcome to champions oncology first quarter fiscal year 2021 earnings conference call.
This time all participants are in a listen only mode. A question answer session will follow the formal presentation.
Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded I would now like to turn the conference over to your host Dr., Ronnie Morris President and CEO of the company. Thank you you may begin.
Hi.
Yeah.
Okay.
David Miller, our Chief Financial Officer.
For joining us.
Before I begin.
Thank you.
During today's call.
Sure.
Right.
Additional information on factors that could cause results.
<unk>.
Okay.
Non-GAAP financial measures that may be discussed during the call to GAAP financial measures is available in the earnings release.
I will start by pointing out that our prepared comments for today.
As we just recently provided our fiscal 2020 year end results and company update six weeks ago.
Continued progress expenses have been achieved the last update.
The mentally vision and strategy for the coming quarters remain unchanged.
Revenue for the first quarter of fiscal 2021 jump to a record $9.5 million compared to $6.7 million in the year ago Korea.
Bookings and pipeline remain strong, which will continue to drive further revenue expansion during the.
During the quarter, we completed our moved into that space.
Leading our work under one roof. The additional states increase capacity will enable us to meet the growing demands of our business.
Despite the continued pandemic an uncertain economic environment to date our own.
The operations have been minimally affected.
The active measures we took in early February to mitigate the risks of co that remain in effect.
As of now all indications point to continued robust oncology R&D budget and a demand for our services.
As we have mentioned many times before our platform was based on our unique Pdx bank and data and that has led to our growth in in vivo services over the last several years.
Recently, we have capitalize on our unique bank to introduce our ex vivo services as well.
So you don't platform continues to grow rapidly and contribute meaningfully to our total revenue.
Scott previously we are investing to expand our ex vivo offering.
Have a comprehensive internal offering by the end of this fiscal year.
Secondly, we continue to look for ways to capitalize on our unique platform data and experience in working with the pharmaceutical companies in their drug development efforts.
Regarding our biomarker assays and its specific regulatory flow cytometry, we booked our first clinical flow cytometry study this quarter as we mentioned on our year end call. We have signed several regulatory flow validation studies as a reminder, the validation study is often the initial step.
Prior to signing the full regulatory flow statement of work I will caution that the signing of these studies does not change the revenue guidance and expectations for the current fiscal year. However.
However, we are cautiously optimistic that these recent signings are an indication that this offering which has taken longer than expected to generate the desired results has turned the corner and the products future will be more in line with our initial expectations.
The R&D front, we continue to invest on expanding our service offerings and enriching the data contained in our models.
Lastly over the coming quarters, we anticipate additional spend to obtain additional characterization on our models. We believe the additional data will be valuable to our pharmaceutical customers and will fuel continued usage of our models in pdx endpoint analysis studies.
In summary, overall, we kicked off in fiscal year 2021, with a strong first quarter.
We had both strong revenue and bookings, while we continue to progress on expanding our offerings.
Emanation of strong bookings and expanded services lays the foundation for sustained revenue growth over the coming quarters, we look forward to providing further updates over the course of the year now let me turn the call over to David Miller for a more detailed review of our financial results.
Thanks Rodney.
The adult on form 10-Q, we filed with the FCC later today.
First quarter revenue was a record 9.5 million compared to 6.7 billion in the year ago period, an increase of $2.8 million or 42%, it's worth pointing out that the high growth percentage was due in part to the relatively low Q1 2020 revenue results.
Holding stock based compensation and depreciation we recognized income of $421000 compared to a loss of $300000 in the year ago period.
Non cash expenses, including stock comp and depreciation totaled 396000 for the quarter.
We'll now focus on our Taf based results.
First quarter gross margin was 44% remaining flat compared to the same period last year plus.
Cost of sales was 5.3 million compared to 3.7 3.75 million from the year ago period, an increase of 1.6 million.
As we discussed on our year end call. We've partnered with other companies to expand our service offerings and drive revenue growth.
These studies, we incurred upfront costs upon finding the business and there was an initial mismatch between cost and revenue.
This effect is magnified as you continue to sign new studies so.
For the quarter, we recognized a total of 1.2 million of such expenses and cost of sales accounting for a majority of the increase compared to last year.
This increased expense negatively impacted our gross margin looking.
Looking ahead over a few quarters, we expect improving margins as we will recognize more of the revenue associated with these studies.
Additionally, as part of our longer term strategic plan, we intend to bring some of this work in house, which will lower our cost and provide greater leverage alleviating some of the margin pressure.
R&D expense was 1.6 million compared to $1.3 million in the year ago period, an increase of 20 of $300000 what 23% the ink.
The increase is due to the continued development work to expand and enhance our product offering.
They continue to invest in expanding our sales team.
We continue to invest in expanding our sales team and marketing efforts as a result, our sales and marketing expenses increased $300000 to 1.16 million compared to $840000 last year.
<unk> expenses remained flat year over year at 1.1 billion plus respective quarters.
In total our cash based expenses were $9.1 million for the first quarter fiscal 2021 compared to $7 million in the same period last year, an increase of approximately 2.1 billion consisting of a $1.5 million increase in cost of sales on a revenue jump up 2.8 million and approximately $300000 in sales and marketing and.
R&D respectively.
Now turning to cash at the end of the first fiscal quarter, we had 6.9 million of cash on the balance sheet compared to 2.2 million in the same period last year.
Third quarter net cash used in operating activities was $715000 negative cash flow from our from operations was primarily due to fluctuations in our working capital accounts in the normal course of business highlighted by an increase in our accounts receivable of 260000 and a reduction in our payables and accrued expenses of 800000.
With our anticipated revenue growth and underlying bookings plan, we anticipate an overall increase in our cash balance over the course of the yet you have no debt no plans to raise capital.
In summary, we hit a new record for quarterly revenue coming in above 9.5 million when excluding stock a clean depreciation and net profit exceeded $400000. The underlying strength of our core business and new products is promising and we anticipate additional revenue growth in the coming quarters.
We reiterate our guidance of 15% to 20% revenue growth for the year. We look forward to our next update call in mid December we would now like to open the call for your questions.
He will now be conducting a question answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Information Tomo indicate your line is in the question queue.
I start to if you would like to move your question from the queue for participants using speaker equipment. It may be necessary for you to pick up your handset pricing sarkies among them only pull for questions.
Our first question comes from the line of Matt Hewitt with Craig Hallum Capital Group. You May proceed with your question.
Thank you and congratulations on the strong quarter.
Thanks.
First off for a couple of questions on the full cytometry, when congratulations or maybe walk us through so what is this one win or multiple wins and how should we be thinking about the costs associated with these versus what the timing of when the revenues will be recorded I think.
Historically, you've talked about a typically about a year lag but is the bulk of the investment there are cost upfront and then it tapers off over the next few quarters, just maybe help us understand the timing here a little bit.
Yeah. So.
So the bulk of the investment was to get the lab up and running and in regulatory shape. So that we can offer the services. Once we book a study there there are two components primarily the study met one is just the validation or.
The transfer assay study, where where they want to make sure that we can do the work.
And that we get that.
That's a separate so W generally and and so we recognize that revenue as we do the work and then there's the samples that come in over the period of time of the clinical trial, and that's going to be a longer lag of that that that.
We really don't incur those costs until the samples come in.
Okay, that's helpful and was it.
Because I think I heard you added us to the end of the flow cytometry wins. If you will so it was their multiple wins in the quarter or is it just one of the validations and you're still waiting on others.
So we had we had one that that that culminated in FW for the actual trial and the others were currently doing to Validations.
Okay very helpful. Thank you and then shifting gears a little bit here. So I think last quarter you were at 19 to 20 salespeople and all that but pointed that since this for you where does your sales head count sit today.
We're still in the same range, what but we are looking to expand that over the next one or two quarters by a couple of salespeople.
We have you know and again I think as as we mentioned in the past we're looking for both.
And our our geography as well as within the geography is.
Go a little bit deeper so we're looking to do both expand geography and also.
<unk> increased the amount of business development activities that we have within those areas.
Great and then one last one for me and I'll hop back into queue. Obviously, there was a pretty significant disruption earlier this year.
<unk> virus is still out there and you know, causing problems, but maybe if you could provide an update on where you see the clinical trials in general and whether or not those some of those are the I guess.
And he's such as your own or adjusting to this new normal and things are kind of getting back on track. Thank you.
Right. So in terms of the preclinical business I think we're back on track I think as as I think we mentioned on the last one or two quick one of our last two calls there was a little bit of a pause when when I would say February March when when things for that but but I think we're back to a normal.
The cadence with the pharmaceutical companies.
And from a preclinical perspective, we feel like we have good line of sight to our bookings when it comes to the clinical trials. There's there has clearly been a slow down <unk> I would say a pause in some of the clinical trial do it enrollment and we're kind of new to the.
Gaming.
Clinical medicine clinical trial. So we're still you know I I think where we said we see a pretty good pipeline. We're excited about the conversations we're having about some of the early validation work were doing and clearly things have shifted a little bit in terms of.
Have you know a little bit of a delay but from our perspective you know.
I don't think its going to be that long of a delay in it and I think what we're seeing now are.
You know different conversations and different work with the validation studies is hopefully the beginning of things returning to normal.
That's great. Thank you very much.
Welcome it.
Our next question comes from the line of Scott Henry with Roth Capital. You May proceed with your question.
Thank you good afternoon, a very strong results.
Couple of questions first in the press release, you mentioned it achieving record quarterly bookings.
Should we think about that is it as a leading indicator for 6% sequential gains throughout the year in revenue.
Yeah, I think Weve you know as as you know Scott, we don't disclose our actual bookings, but I think what we're trying to convey is that we continuously see you know in increasing our bookings you know and I think we've mentioned that before so so yeah that yeah, I think what it shows.
This is that we're going to continue to grow and we continue to have you know one quarter. After another word where we just have better bookings one after the other and I think that.
That's I think the take home point is that we we see growth.
Okay, and then I guess, you know more specifically I it when I'm thinking about it the sequential trajectory here should Q2 be be stronger than Q1, Q3 stronger than Q2, a I mean, because I know that he'll be growth year over year, but would you expect to see sequential growth as well.
So strong you know we've certainly you know this is I think something that we've struggled with whereas because you know bill.
Because of the type of work that we do and and and I think we've mentioned this many many times on these calls because were working with these large studies that are the biological systems. There are times when I study will shift a month or so so we're working.
With the mice were doing all of our studies and for whatever reason the Pharmaceutic company wants to extended they want to change something or the state is going really well or the mice take a longer time to engraft. So so so there's a natural.
Shifting of the sands between one quarter to the next so it's it's harder for us to predict exactly how things are going to roll out quarter to quarter, but when we look at bookings you know remember a booking that we do today.
And well.
We'll generally turn.
Turn it in.
<unk> into revenue approximately six months from now or a couple of quarters now so sometimes if the ex vivo study that'll that'll that will turn into revenue earlier or if it's a in vivo studies, sometimes it can be a little bit. So you know I think it's still too early to say that every quarter every single quarter, we have increased bookings going to mean.
That the next quarter is going to be higher revenue, but I think as a general rule, yes were expecting higher revenue because we have higher bookings and we expect growth and that's why we have the guidance for GAAP.
Gross.
Okay. Thank you for the color on that.
Shifting gears a in the press release, you highlight ex vivo services, becoming a more meaningful contributor to revenue could you talk a little bit about that segment.
You know what specifically you're doing there and is it the same customer base and I guess in the bigger picture how meaningful of a contributor could that be how big of a component of revenues could that grow too just trying to think about that business a little more.
Yeah. So.
Let me try to remember Scott <unk> all the different questions in there. So we're excited about our ex vivo business I'll put that first and foremost right now I would say, it's a you know it's it's certainly over 10% of the revenue.
Overtime. It can certainly climbed to a higher percentage, we still only <unk>.
We still don't even have a full complement of what we think are are are complete ex vivo platform is going to be in the n. So you know.
I think over time, it could play a larger and larger role.
Look the pharmaceutical customers seem very excited about having this the way we think about ex vivo.
It is.
It allows the customers to do larger you know more so.
More screens and more work over a broader array of models and then they can look at what the screening results are and then they can hone in for more target.
Targeted in vivo work, so so when they when.
When they need to do the expenses <unk> pdx work. They actually are using the models that they've screened in an ex vivo setting. So we continue to see a lot of synergy between our ex vivo and our in vivo service.
Service lines, we're excited about it and we think over time, it's going to continue to grow and be a you know even larger part or larger percentage of.
Our revenue.
Okay, great. Thank you for that color and then I guess the final question. When we look at gross margins. That's the revenue continue to climb when would you expect to see gross margins are.
Start to improve in a more meaningful way would we expect that kind of in the second half of 21 or is that a.
Fiscal year 2022 event.
I think it all about improving in the second half of 2021 has gotten a lot of it will depend in terms of how much work Oh, we have we continue to outsource some of our partners.
And it has oh.
Compound effect the more work, we signed with some of these partners and so it means that we're growing but that also increases our up front cost. Initially so I do expect as more and more of this revenue does convert.
We will see an improvement but at the same time, we'll have something pulled in the opposite direction. As we continue to sign more of these studies that will still have some impact on a downward impact on the margins, but but overall I'd say second half of the year.
Okay, great. Thank you for taking the questions.
Sure. Thanks, Scott.
[noise] I don't mind, if you would like to ask a question. Please press star one on your telephone keypad, one moment, please pull for questions.
Ladies and gentlemen, we have reached the end of today's question and answer session I would like to turn the floor back over to Dr., Ronnie Morris for closing remarks.
We just want to.
<unk>.
Thank you everybody for.
Participating in our Q1 call Oh, we're excited about our progress and we look forward to updating everybody on the next call in a couple of months have.
Have a good evening everybody. Thank you.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation have a great day.
[music].