Q1 2022 Champions Oncology Inc Earnings Call

Good day, ladies and gentlemen, and welcome to the champions oncology first quarter fiscal year 'twenty 'twenty two earnings call. All lines have been placed on a listen only mode and the floor will be opened for your questions and comments. Following the presentation. If you should require assistance throughout the conference. Please press Star zero.

A telephone keypad to reach a lot of operator at this time. It is my pleasure to turn the floor over to your host Ronnie Morris the CEO of champions oncology first the floor is yours.

Yeah.

Yeah.

Joining me today is David Miller, our CFO.

Thank you for joining us for our quarterly earnings call.

Before I begin I'll remind you.

No.

During today's call.

Actual results could differ materially from what is described in those statements.

Additional information on factors that could cause.

He is available.

10-K.

A reconciliation of non-GAAP financial measures that may be discussed during the call.

GAAP financial measures is available in the earnings release.

I will start by pointing out that I prepared.

Comments today will be relatively brief.

Our fiscal year.

The end results and company update six weeks ago.

On that call I outlined our transformative strategic vision for the next few years.

Continue to progress on its execution during the first quarter, the fundamental message and status remain unchanged.

Ecology research services business, which includes in vivo and ex vivo studies, along with an extensive array of biomarker assays continues to grow and deliver successful results.

They are investing in other opportunities that will accelerate our long term revenue growth.

Differentiating factor continues to be our data and scientific platform that come from our unique pdx tumor bank combined with our expertise to provide high quality scientific studies in our laboratories.

This data our platform and our scientific operational excellence have enabled us to expand our platform.

Software services and engage in therapeutic discovery efforts.

And approximately one year ago, we rolled out our new software platform lumen and revenue.

Data interpretation software tool capable of analyzing proteomics genomic and transcript tomich datasets in real time.

We have been licensing this platform to our customers using a SaaS model and the initial results of this launch are promising.

Integrated customers feedback into our platform as we continue to invest in its development, such as adding datasets and improving the user interface.

So licenses over 100 unique customers, including several multi seat license packages.

We appreciate the level of interest from our early human users, but it's still premature to draw definitive conclusions about customer satisfaction and renewal rates, we look forward to learning and disclosing more over the course of the year.

As discussed on our last call as well we have developed an internal computational discovery team to discover novel therapeutic targets are.

Our computational approach Leverages, a more complete dataset that is derived from tumor models with a more authentic tumor cell biology, and heterogeneity as a result, our comp.

Mutational analysis identified targets that are overlooked or missed when using other datasets.

We have validated in more than six targets and we are now advancing those targets through the development pipeline.

We are evaluating each target to determine the most strategic and advantageous path to advance that target. There's no. One single approach with regard to the development of these targets. We are assessing whether we want to partner license or develop internally each validated target while working to add targets to our pipeline we are in discussions with potential.

Partners in ways to advance some of these targets continued progress has been made and while I can't provide an exact timeline I do anticipate we'll have announcements to share over the next quarter or two.

In summary, during the first quarter, our oncology research services business continued to expand and produce positive financial results. While we simultaneously continue to capture more value from the proprietary data that we create our innovative SaaS business continues to grow and we are advancing our therapeutic targets.

Through the pipeline now let me turn the call over to David Miller for a more detailed review of the financial results.

Thanks, Ronny our full results on Form 10-Q will be filed with the SEC later today.

Our first quarter revenue was a record 11.3 billion compared to $14.0 million in the year ago period, an increase of $8.0 million or 18%.

Excluding stock based compensation and depreciation we recognized the gain of 422000 compared to a similar gain of 421000 in the year ago period.

Focusing as we do unresolved, excluding not noncash expenses, such as stock comp and depreciation.

First quarter gross margin was 53% compared to 44% for the same period last year.

Total cost of sales was $8.0 million compared to the same $8.0 million in our first quarter of last year.

As we discussed on several prior calls our quarterly gross margins were pressured because we outsourced the lab work and eat only lots to accelerate our revenue growth. We have brought most but not all of that work internally.

She'd been outsourced to collect more than offset increases in compensation that supply and rent expenses, resulting from the increase in study volume in a lab extension in Q4 of last year.

Net result is a flat year over year cost of sales and with the growth in revenue and improvement in gross margin.

R&D expense was approximately $5.0 million compared to $7.0 million in the year ago period, an increase of 700000 or 44%.

2.3 million is generally in line with our guidance provided on our year end call. We indicated we would be ramping up our R&D investment I think data to our tumor bank and investing in a therapeutic target discovery platform. It.

It is worth noting that by increasing our investment in R&D. We're intentionally sacrificing short term short term profitability for greater long term revenue growth profit.

Revenue potential.

Sales and marketing expense was $6.0 million compared to $3.0 million in the year ago period, an increase of 363000 or 31%.

The increase in sales and marketing was mainly due to compensation related expenses, resulting from the extension of our sales team.

Our G&A expense was at $8.0 million for the quarter compared to $2.0 million a year ago.

The 9% increase the increase was primarily due to an increase in compensation and related expenses.

In total our cash based expenses were $18.0 million for the first quarter of fiscal 2022 compared to $10.0 million in the same period last year, an increase of approximately $8.0 million or 19% with 1 million stemming from increased investment in R&D and the extension of our sales forces.

Now turning to cash at the end of the first fiscal quarter, we had $4 million of cash on the balance sheet for the period net cash generated from operating activities was 216000 cash used in investing and investing activities of 1 million. When it was primarily due to the continued investment in our software platform.

Along with fixed asset purchases for our laboratories, including the new European Lab, we have no debt.

In summary, we hit a new record for quarterly revenue, surpassing 11 million for the first time, excluding stock comp and depreciation we generated an operating profit in excess of $400000. We continue to see underlying strength in our research services business and increased income contribution from our software platform.

We are excited about the direction of the company and look forward to our next update call in mid December we would now like to open the call for your questions.

Thank you. The floor is now opened for questions. If you do have a question. Please press star one on your telephone keypad at this time questions will be taken in the order that where we see is that anytime. Your question has been answered you cannot remove yourself from the queue by pressing one again, ladies and gentlemen.

You do have a question. Please press star one on your telephone keypad at this time.

Our first question comes from Matt Hewitt with Craig Hallum Capital. Please state your question.

Thank you for taking our questions and for the update but maybe first off I realize it's still early days on the renewals, but what is the feedback that you've been getting from those customers that had been up for renewal.

Any any incremental discussions that they've been having with you and have any of those resulted in expansions.

Yeah.

Rodney you got that.

So believe me to take it.

Sorry, Matt.

That's okay.

Hey, David I got it.

Some of them have I got disconnected from the call. So I'm back no problem I met.

Hi, there.

I'm not sure if you heard the question, but I realize it's early days I mean, if you could provide us any feedback on those customers that have been up for renewal.

What they're saying about the platform have any of them signed not just a renewal, but maybe expansions as they've come back after that first year.

Yeah. So.

I think we've said you know it literally is early days I think we have under 10 contracts that are free of neuro I think our renewal rate was over 80%, but again, we're talking about such small numbers. So it's hard to draw any conclusions from that.

Yeah, I think in general.

The challenge for US now is just just to continue to get our active users very comfortable with the platform I think the ones that are becoming more comfortable are really seeing the value like any new software. The challenge is just is in getting people to use it and to understand all the case.

Abilities. So we're expanding effort to make sure that that we are giving them the tutorials and making sure that they feel comfortable using it so the ones that that have been using it more and more are definitely seeing the value and I think the challenge now is just to get more of our users to be using it on a more regular basis.

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Got it okay.

One of the things that it was kind of added into in addition to the software itself was the ability to contract with a champions team essentially a services component.

To the Illumina platform has said is that launch are you seeing any traction with that.

That yes that has launched and we are certainly seeing traction and we think that the long term that's going to be a big red.

Revenue driver and a value add for our customers. So as theyre getting comfortable with the software I think they are realizing that there's a lot of them.

Hum important analytics that they wanted to do.

But you know, it's a little hard for them to do it because it requires them you know.

More of a deep dive into our data.

And so we are seeing traction with the customers that are starting to utilize the platform more we're seeing them come to us and and.

We call it the acuity product and we're seeing them signing up for it.

Okay.

And then you mentioned there towards the end regarding the European lab.

Is that up and running have you started to sign some contracts using that facility.

So we haven't signed any international contracts yet the lab is open we are currently in the process over the next month or two of.

Certifying and end and making sure we are compliant with all the regulation so.

By the end of this quarter, we will be fully established there and we're talking to customers now. So yeah. We we expect by the end of the year certainly to be in the you know.

To Sydney to be having serious proposals.

So that's great to hear and then maybe last one for me and I'll hop back in the queue.

Regarding the wholesale commentary business, maybe an update on how that's progressing what that pipeline looks like any details there would be helpful. Thank you.

Yeah, the biomarker business in general I think is doing well.

I think as we've talked about this.

Slower than we initially thought.

But we still continue to see a grown we still continue to see it to be a.

Over the next couple of years to be one of the major drivers of growth certainly the opening of the European side. I think is really going to help boost some of the larger studies that that we've always wanted because it was very limiting only having a say in the United States a lot of those.

Larger studies wanted to have.

International abilities to see patients both from trials from Europe, and the United States. So.

We're really excited about opening up our first you know international site, we think it's really going to help with that clinical biomarker business.

And you know slower than we thought but definitely making steady progress.

We've we've built good.

Quality labs and.

And you know are the customers that are using us are happy.

So we're excited about both where we're at from a quality perspective as well as.

Where we think things are going.

Understood great. Thank you.

Welcome Matt.

Again, ladies and gentlemen, if you would like.

Press Star one on your telephone keypad.

He holds all of them call for questions.

Yeah.

Yeah.

Yeah.

Okay. We have another question from Matt ill take your question.

All right I'll keep going.

One of the things that's come up depending upon the company that's reporting about one of the things that's come up has been kind of a it's almost like a disarray for pharma budgets and.

Decision timing it sounds like for the most part the budgets are actually doing very well, but there's been delays on some of the decision making because of the pandemic. What are you seeing in your business are you seeing similar type patterns or given where you're at in the clinical stage processes for the most part that hasn't been.

Factor for you.

Yeah, so because most of our business is preclinical we haven't really seen that much of a fluctuation.

I would say that middle of last year, the middle of the pandemic. There were a couple of months, where we did see a slowdown.

But as it stands right now at least from a preclinical perspective, we feel pretty comfortable there.

That things are back to normal the budgets are robust and our pipelines are strong and theres just a lot of customers that are coming back for repeat business in terms of the clinical biomarkers.

Biomarker space.

No.

We're a little bit newer into the scene. So so so it's harder for us to gauge how robust some of those pipelines were a couple of years ago.

As opposed to now so it's.

It's hard for us to kind of gauge that level of activity, but we certainly have an active pipeline, we're talking to a lot of different companies about their trials, but it's hard for us to gauge that level of activity.

Okay. That's helpful. Thank you very much.

Youre welcome it.

Yes.

Again, ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad at this time, please hold while we poll for questions.

Okay.

Yes.

Yeah.

Yeah.

Yeah.

Okay and it doesn't look like we have any program coming quest.

Okay, great well, thank you very much for.

Joining us for our quarterly earnings call. We are as always very excited about our opportunities. We're excited about our <unk>.

Ecology services business. We're also very excited about our software services as well as our.

Therapeutic discovery.

Really utilizing what we set out to do many years ago, which was build our data engine.

With a data strategy and data analytics. So we're excited to be.

Using it doing all these different things we're excited that we're working with so many partners who trust us and the business continues to grow which is certainly a sign that our platform has a lot of value. So with that I. Thank you for joining us and we look forward to sharing more news over the net.

A couple of months and certainly at the next quarterly earnings call have a good evening everybody.

Thank you. This concludes today's conference. We thank you for your participation you may disconnect your lines at this time.

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