Champions Oncology, Inc.

please stand by. Good day, ladies and gentlemen, and welcome to your Champions Oncology first quarter fiscal year 2020 earnings conference call. All lines have been placed on a listen-only mode, and the floor will be open for your questions and comments following the presentation. If you should require assistance throughout the conference, please press star zero. At this time, it is my pleasure to turn the floor over to the CEO, Dr. Ronnie Morris. Sir, the floor is yours.

Good afternoon. Joining me today is David Miller, our Chief Financial Officer. Thank you for joining us for our quarterly earnings call. Before I begin, I will remind you that I 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 GAAP financial measures is available in the earnings release. I will start by pointing out that our prepared comments for today will be relatively brief as we just recently provided our fiscal 2019 year-end results and company update six weeks ago. While there was a high level of activity since the last update, the fundamental vision and strategies for the coming quarters remain unchanged. Revenues for the first quarter of fiscal 2019 grew by more than 8% to $6.7 million compared to $6.2 million in the year-ago period. Excluding stock-based compensation and depreciation, Champions had a loss of $300,000. In looking at the quarter, revenue was below expectations, mostly due to normal fluctuations that we have discussed in the past, but our confidence remains high because of our increased bookings trends. With regard to expenses, we continue the trend of investing in new product capabilities, and specifically for this quarter, there is an accounting changes for the way we accrue the commissions. Although those results are a little worse than expected, it's important to put them in the context of the company's long-term view, which will be my focus today. While quarterly results are important, the story for Champions is our pursuit for sustained revenue growth and profitability over the coming years. We will sacrifice near-term quarterly results for greater future financial successes. Our insight into the longer-term prospects is not always visible in the quarterly numbers. This is not unfamiliar territory. A few years ago, our expenses outpaced revenue, but we were confident in our future as we saw the catalysts in place that would justify our investments and ultimately propel us to break even and then operational profitability. We are in a similar position today. We continue to see strength in our core services. Our bookings are well outpaced in quarterly expenses, and those bookings will drive an increase in revenue over the year. As we have been discussing, we have been focused on expanding our service offerings. Last year we focused on setting up our lab to enable us to offer GLP and clinical flow cytometry services. During the current quarter, we have begun aggressively selling and the level of interest is promising. We are in active discussions with customers and have several potential deals in front of us. We hope to be able to announce a deal in the near future. We have also launched the first part of our ex vivo platform, which will continue to evolve and expand over this fiscal year. In addition to clinical flow services and an ex vivo platform, we have plans to continue adding to our product line, expanding our international footprint, and exploring monetizing our data bank. Each of these opportunities takes time to operationalize but has the potential to meaningfully contribute to the long-term growth of the company. As these opportunities materialize, we will provide an update. I hope the message is clear. The demand for our core services is strong and will drive higher revenue in the coming quarters and support the opportunity to reinvest in additional offerings which will lead to sustained revenue growth. While we are more focused on long-term revenue growth than short-term profitability, we are keeping a close eye on cash and we are not going to put ourselves in a situation where we will need a capital raise to fund operations. Quarterly fluctuations should be viewed in the context of our long-term strategy and prospects, and we remain confident in both. Now let me turn the call over to David Miller for a more detailed review of our financial results.

Thanks, Ronnie. Our full results on Form 10-Q will be filed with the SEC later today. As discussed on our year-end call, Q1 revenue was expected to decline from Q4 levels. total revenue for the first quarter of fiscal 2020 was $6.7 million, an increase of 8.2% compared to $6.2 million in the same period last year. Excluding stock-based compensation and depreciation, we recognize a loss of $300,000 compared to a gain of $675,000 in the year-ago period. Our first quarter gross margin was 44% compared to 51% for the same period last year. cost of sales was $3.77 million compared to $3,070,000, an increase of $700,000 or 23%. The increase in expense and reduction in gross margin was due to our higher bookings and studies in process and the recognition of associated expenses in advance of the revenue. R&D expense was $1.3 million compared to $1.1 million in the year-ago period, an increase of $200,000 or 20%. The increase is due to the continued development work to expand and enhance our product offering. Sales and marketing expense was $848,000 compared to $511,000 last year, an increase of $337,000, or 66%. The increase in sales and marketing was mainly due to two factors. First, we have continued to expand our sales force to opportunistically capitalize on the growing demand for our services. Second is our treatment of commissions. Historically, we did not accrue commissions over the course of the year as we waited until sales targets were achieved. This has led to higher sales and marketing expenses in our fourth quarter. Since we are confident that our sales goals will be achieved, we have begun accruing commissions quarterly. This should lead to a more evenly distributed sales and marketing expense throughout fiscal year 2020, but it also contributes to the quarter's year-over-year increase. The combined impact of the sales team expansion and commission accrual was approximately $275,000. In total, our cash-based expenses were $7 million for the first quarter of fiscal 2020 compared to $5,550,000 in the same period last year, an increase of approximately $1.5 million. Similar to our treatment of commissions, we started accruing for year-end 2020 bonuses in the first quarter. The results should mitigate the annual expense spike in Q4, but in Q1, it added approximately another $75,000 to our total. In summation, we have a $700,000 increase in cost of sales, $200,000 in additional R&D investment, $275,000 in sales and marketing, and $75,000 in bonus accrual. While there will certainly be fluctuations, we believe the current quarter's expenses are a good baseline. and as the revenues grow, we expect to achieve cash-based profitability over the coming quarters. Now turning to cash, at the end of the first fiscal quarter, we had $2.2 million of cash on the balance sheet. For the period, net cash used in operating activities was $279,000 and $750,000 for investing activities. The investment was primarily for lab equipment for our flow services. With our anticipated revenue growth and underlying booking strength, We remain confident that our cash on hand is sufficient to fund our operating activities. In summary, echoing Ronnie's message, while there have been quarterly fluctuations, we are very confident in the underlying strength of our core business and long-term prospects for the company. We look forward to our next update call in mid-December. We would now like to open the call for your questions.