Champions Oncology, Inc.

Greetings. Welcome to Champions Oncology third quarter fiscal year 2019 earnings call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone today should require operator assistance during the conference, please press star zero on your telephone keypad. Please note that this conference is being recorded. I would now turn the conference over to Ronnie Morris. Mr. Morris, you may now begin.

Good afternoon. I am Ronnie Morris, CEO of Champions Oncology. Joining me today is David Miller, our Chief Financial Officer. Thank you for joining us for our quarterly earnings call. Before we begin, I will remind you that we will be making forward-looking statements during today's call and that actual results could differ materially from what is described in those statements. Additional information on factors that could cause results to differ is available in our Forms 10-Q and Form 10-K. A reconciliation of non-GAAP financial measures that may be discussed during the call to Gap Financial Measures is available in the earnings release. Our financial results for the third fiscal quarter reflect the continued revenue growth and strong demand for our services. We recorded our third consecutive quarter of revenue in excess of $6 million and another quarter of year-over-year revenue growth in excess of 20%. As we head toward the end of fiscal 2019, we reiterate our guidance of at least 20% revenue growth for the year. Now I will turn to specific highlights. Our bookings for the quarter continue their upward trend as we continue to see strong demand for our services from new and existing customers. Within our core line of products, customers continue to seek innovative study designs, expanding the use of our platform. This demand coupled with our bookings growth is setting the stage for continued incremental revenue as we head into next fiscal year. As discussed on prior calls, In addition to our existing services, we've been developing new services to add to our product line. I'm pleased to announce we launched two new products in the quarter, our ex vivo platform and clinical flow cytometry services. These products represent a significant achievement for champions as they demonstrate our power to both leverage our tumor bank and our relationships with pharma to expand our capabilities. Our ex vivo product focuses on large early screening studies ideally leading to further PDX preclinical studies, while our flow services create an entry into the clinical space. We are excited by the early interest in both of our offerings. As a reminder, clinical flow will typically have a longer conversion cycle from bookings to revenue than our traditional PDX offerings. Accordingly, we do not expect any meaningful contribution to revenue from these offerings until the second half of next fiscal year. At the same time, we are incurring expenses as we ramp up our sales capabilities and lab operations, including securing additional lab space, which we completed this quarter, to support these new opportunities. The additional space provides room for service expansion without limiting the capacity of our core PDX business. Over the coming quarters, as we focus on selling these offerings and building our pipeline, we will share some additional details. Although we had a successful quarter, the rapid growth in bookings has caused some speed bumps along the way. We've had some study execution challenges, which caused models to be delayed, leading to an inability to recognize the revenue in the current quarter. That, along with the expense of having to repeat some studies, has led to a quarter where our revenue was slightly lighter than expected and our expenses were higher than expected. Without getting into the operational specifics, We constantly are enhancing our operational processes to allow us to continue to absorb our increased bookings and growth. To summarize our results and position, our strategic priorities and financial guidance are on the course outlined for the year. We have a growing business that despite occasional quarter to quarter fluctuations is set up for improving financial results in the future. We are excited about our two new product launches and we're confident that we're tackling the operational challenges that often accompany aggressive growth and expansion. Now let me turn the call over to David Miller for the highlights of our financial results.

Thanks, Ronnie. Our full results on Form 10-Q will be filed with the SEC later today. We had another good quarter for revenue, recording $6.4 million for the third quarter of fiscal 2019, an increase of 26% compared to $5.1 million in the same period last year. including stock-based compensation depreciation, recorded our third consecutive profitable quarter on an operating basis, earning $91,000 versus $184,000 in the year-ago period, and bringing our total net income through January 31st to $1.3 million. Our total costs and operating expenses have increased by $1.6 million, or 32%, compared to $5.1 million in the year-ago period. Excluding stock-based compensation and depreciation, Our total costs and operating expenses were $6.3 million compared with $4.9 million in the year-ago period, an increase of $1.4 million, or 29%. The increase in total expenses is mostly due to an approximate $1 million increase in the cost of sales. This increase was driven by a combination of factors. Our revenue has increased and our bookings remain strong. As we incur costs in advance of future revenues, the rising cost of sales is an expected result. In addition, as Ronnie mentioned, we have experienced some study execution challenges, which negatively impacted results on two fronts. The delays in completing some of our studies during the quarter led to a lower than expected revenue recognized, while at the same time, correcting those issues led to incurring some unanticipated costs in the period. Our sales and marketing expenses increased $200,000, or 33%, over the year-ago period, which is mainly the result of commissions paid on exceeding sales quotas. As a result, our sales and marketing expenses are generally higher in the latter half of the year and is an indicator of new business generated. On a GAAP basis, we reported a third-quarter loss from operations of $370,000 compared with a loss of $66,000 in the same period last year. Now turning to cash. Debt cash generated from operating activities was $1.2 million for the three months ended January 31, 2019, compared to net cash generated from operations of $400,000 for the same period last year. At the end of the quarter, we had approximately $3.3 million of cash, continuing our trend of strengthening our cash position and balance sheet. We expect this to continue even as we invest for future growth. In summary, while we encountered some short-term challenges this period, we delivered another quarter of revenue growth in excess of 20%, We achieved operational profitability and our accelerated bookings and a strong pipeline of new business opportunities are setting us up for continued future success. We remain on track to deliver full-year revenue growth in line with guidance and an excess of 20% for fiscal 2019 and we're confident in the underlying long-term strength of the business. I would now like to open the call for your questions.