Q1 2023 Champions Oncology Inc Earnings Call

Okay.

Good day, ladies and gentlemen, and welcome to the first quarter fiscal year 2023 Champions Oncology conference call at.

At this time, all participants have been placed on a listen only mode and the floor will be opened for questions and comments after the presentation.

It is now my pleasure to turn the floor over to your host Ronnie Morris CEO of champions oncology, Sir the floor is yours.

Yeah.

Yes.

Ronnie Morris the CEO of champions oncology.

Me today is David Miller Chief.

Financial Officer.

Thank you for joining us for our quarterly earnings call.

To begin I'll remind you though.

Statements during today's call.

Actual results could differ materially.

Those statements.

Additional information on factors that could cause results to differ.

Available in our forms 10-Q and Form 10-K.

So the issue of non-GAAP financial measures that maybe discussed during the call to GAAP financial measures is available in the earnings release.

I'll start by pointing out that our prepared comments for today will be relatively brief.

Just recently provided our fiscal year end results and company update six weeks ago.

On that call I provided an update on the strategic path, we embarked on in fiscal year 2022, highlighting the exciting opportunities for champions over the next several years.

Those included growing our core services, while investing in other areas such as data and drug discovery the.

The first quarter was representative of the continuity, we strive for while executing on our strategy.

Our oncology research services business, which includes in vivo and ex vivo studies, along with an extensive array of biomarker assays continues to grow with another record high in our quarterly bookings with a pipeline that remains robust. The continued strength of our pipeline supports our cautious optimism for this year even during these churn.

Economic times.

We continue to invest in our ex vivo platform and we believe its development over the year will lead to an expanded product offering and it will support revenue growth over the next few years.

With regard to our multifaceted data platform, we have our lumen software product and our data analytics. The update is similar to the one provided a few weeks ago and repeated at our quarterly calls lumina adoption has been slower than anticipated, but we still envision a data play as part of our overall longer term strategy.

Our drug discovery programs are progressing well through the therapeutic discovery stage more specifically our partnership with alloy recently reached a milestone with a completed development of a series of lead antibodies exhibiting favorable bio physical finding.

And specificity characteristics.

Our lead candidate will be selected from this series at evaluated as a potential antibody drug conjugate, which is the first of many potential therapeutic platforms for this program.

Over the coming quarters, we will continue to establish additional datasets with the Gulf propelling other targets towards the preclinical development stage phase in summary, during the first quarter, our research services business continued to expand.

And delivered positive financial results, while we simultaneously continue to invest for future platform expansion. Our target discovery effort continues to progress and we look forward to positive developments over the course of the year.

Now, let me turn the call over to David Miller for them for a more detailed review of the financial results.

Thanks Ronnie.

Full results on Form 10-Q, we filed with the SEC on or before September 14th.

Our first quarter revenue was a new quarterly record of $13 7 million compared to $11 3 million in the year ago period, an increase of $2 5 million or 22%.

Our adjusted EBITDA, which excludes stock comp depreciation and amortization expenses.

450000.

<unk> to a similar gain of 422000 in the year ago period.

Including the noncash expenses, we incurred a small loss of 284000 compared to a loss of 175000 in the year ago period.

Focusing as we do on adjusted EBITDA result.

Total cost of sales was $6 9 million compared to $5 3 million first quarter last year, an increase of 29%.

The increase in our service business cost of sales was primarily from compensation and supply expenses as we ramped up our teams and supply inventory in anticipation of increased steady volume over the year.

Additionally, contributing to the increase our SaaS platform costs were expense during the quarter. They were capitalized in the same period last year.

Our total gross margin for the first quarter was 50% compared to 52% for the period ended July 31 2021.

The minor deterioration in our gross margin was due to the ramping up of our expenses, which are recognized as incurred in advance of the revenue.

For the first quarter R&D expense was approximately $2 9 million compared to $2 3 million in the year ago period.

The $600000 quarterly increase is attributed to our stated strategy to ramp up our R&D spend specifically investing in our discovery platform.

For the first quarter sales and marketing expense was $1 6 million an increase of 120000 compared to the first quarter of last year.

Our G&A expense was $1 9 million for the quarter compared to $1 7 million in the year ago period, an increase of 200000 the.

The increase in the quarter's expense was primarily due to I T computing clock.

What the growth of the business we.

We anticipate G&A as a percentage of revenue to decline over the long term.

Now turning to cash flow.

For the quarter cash used in operating activities was approximately 200000 and was primarily from reducing our accounts payable and accrued liabilities in the ordinary course of business, including the payout of fiscal yearend bonuses.

Cash used in investing activities was 754000 and was primarily for our new lab equipment.

With the strength in our bookings and anticipated revenue growth the cash balance is expected to increase over the course of the year.

We ended the quarter with $8 1 million in cash and no debt.

In summary, we began the new fiscal year with record revenue growing 22% year over year and our adjusted EBITDA was 450000 for the quarter. We are excited about the direction of the company.

Paid improving financial results in the coming quarters, we look forward to our next update in mid December we will now open the call to questions.

Ladies and gentlemen, the floor is now opened for questions. If you have any questions or comments. Please press star one on your phone at this time, we ask that while posing your question you. Please pickup your handset is listening on speaker phone should provide optimum sound quality. Please hold while we.

We pull for questions.

Your first question for today is coming from Matt Hewitt. Please announce your affiliation and pose your question.

Good afternoon gentlemen.

Senior research analyst at Craig Hallum.

So obviously congratulations on a good quarter I'm curious and then kind of maybe the obligatory question given all of the noise that we've heard regarding biotech funding. What are you hearing from customers I mean, given the demand it sounds like you're seeing it's not there, but maybe if you could give us a little bit of detail there would be helpful.

Thanks, Matt Yeah, let me.

I'll take that one so I think that.

It's hard to give you a complete answer as to how we're hearing from all of biotech because obviously, we work with hundreds and hundreds of customers, but not not every quarter as we work with every customer so.

I would say that that.

<unk>.

Our pipeline remains robust.

Our bookings remained strong.

The you know there was certainly a sentiment out there where people are more careful.

It's taking a little bit longer for people to.

Potentially engage us I think they are spending more time thinking about the studies they engage.

But when you work with such a wide.

Of of customers.

Strong reputation I think it.

I think in our case, it's helped US weather these times, but there's certainly been a pullback, especially I would say of the.

Smaller.

Smaller biotechs.

Not as much from the large.

If you're a pharmaceutical companies, but certainly from the smaller biotechs I think there's been a pullback, but theres still funding out there there are still companies who have to get work done there's still a lot of activity.

So you know.

We are I would the way I would describe who we are.

Cautiously optimistic.

But we're keeping an eye on what's going on out there.

No. That's really helpful. Maybe a follow up and I don't know if you would have this handy even if it's just an approximation, but as you look at your customer base.

How does that breakdown between large pharma and biotech versus the other end of the spectrum on the small biotech and pharma I mean, it sounds like it kind of runs the gamut, but is there kind of it does it lean one way or the other.

We generally Matt haven't haven't really disclosed that type of information, but I would I would say in general and I'll, let David comment, but in general it definitely runs the gamut were not heavily weighted towards one or the other you know the way we kind of look at AD buy.

<unk>, it's the top.

20, or 30 large farmer, that's like T raise to your bes or the medium size and the tier sees a small biotechs that have one or two compounds are just a few programs you know and that's kind of the way and historically, we've kind of been.

Weighted evenly throughout.

At different times, one will.

Take a little more.

Central stage, but for the most part over the last five six years I think it's been weighted fairly evenly.

Across those groups, David do you want to.

Yeah sure.

I don't really don't think there's that much to add I think that many times you can disclose that and we haven't really nice distribution across the entire sector and we're not.

All of them to any one group category customer et cetera, It really isn't very wide distribution in terms of the sales bookings.

Ultimately, where the revenue comes from.

That's great that's great and helpful. Maybe shifting gears I think you touched on this a little bit but regarding the dip here in gross margins.

And this is something we've seen historically, so you've obviously got the costs upfront of the studies, starting so you're buying the mice youre getting the lab resources.

Is that essentially it here or was there some inflation.

That is you know kind of adding on top of that both of which you'll recover once you've completed these studies.

Yes, I think there is certainly a component of that also our first quarter is when we let.

Let me see their leases.

And certainly have to teach the market conditions into account and adequate prices are always rising, but I think that there'll be a question of yes. It will certainly be well absorbed and the and as you just mentioned.

The revenue is anticipated to grow over the year and it didn't grow in excess at a faster pace to me then these costs.

Margin should expand.

Got it and then maybe one more here and then I'll hop back into the queue, but I failed to mentioned this last quarter I apologize, but could we get an update on your European lab, and how that is progressing from a business standpoint. Thank you.

Yeah sure. So the European lab is finally up and running it took us I think longer in terms of the European regulatory authorities, just getting stuff in order, but the European lab is up and running now.

We have between seven and 10 a.

Ftes at the European Lab and.

We're starting I mean, we basically just got it up and running recently in terms of all the regulatory approvals and now were starting to book studies in EM and look for work in Europe as well as the United States, which was always our idea that that we would be more competitive once we had a site with.

In Europe for some of these multinational.

Some of these international.

Trials, so took longer than expected.

But we're now up and running and.

We're hoping to see some of the fruits of our labors.

That's really helpful. Thank you.

Both are met.

Once again, if there are any questions or comments. Please press star one on your phone at this time.

There are no further questions in queue.

Thanks, So just and wrap up I just wanted to you know summed.

Sum it up by saying that we still continue to be very excited about the platform that champions that continues to grow and expand working with.

Many many pharma and biotech.

Partners and customers and we continue to look for ways to expand the platform. We're excited about the drug development.

The aspect of our discovery as well as looking away to continue could continue to look for ways.

To monetize the data that we've amassed over the last.

Many years so.

We look forward to updating everybody after Q2.

And thank you for joining us for the call have a good evening.

Thank you ladies and gentlemen, this does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.

Okay.