Champions Oncology, Inc.

Good day, ladies and gentlemen, and welcome to the Champions Oncology Second 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 your host for today, Mr. Ronnie Morris. Sir, the floor is yours.

Good afternoon. I am Ronnie Morris, CEO of Champion 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'll remind you that we'll 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. Overall, we had a strong second quarter. Revenue increased almost $1 million to $7.6 million as compared to Q2 of last year, and we recorded profitable results on both an operating and Gap basis. Our bookings pipeline for our core services remains strong, and we continue to be encouraged by the interest in the products and services that are in development. In addition, We continue to progress nicely in our R&D efforts as well as our expansion of our tumor bank and in vivo models. Turning to our relatively new offering, regulatory clinical flow cytometry, we have been discussing the anticipated launch of our GTLP flow cytometry services for several quarters. As we previously mentioned, after approximately one year of building the necessary infrastructure, including state-of-the-art equipment and scientific expertise, We began aggressively selling our regulatory GOP flow services last quarter. We are building an impressive pipeline of opportunities that we are confident will lead to signed studies in the coming months. Because these are generally larger studies and are tied to the planning of a clinical trial, we expect the sales cycle as well as the conversion to revenue to be longer than our preclinical business. Because of our new GLP flow cytometry lab and our newly acquired scientific and operational excellence, market awareness of our comprehensive suite of services has increased significantly, resulting in an increase in preclinical flow cytometry bookings as well. Another exciting area of product development has been our ex vivo platform, which as a reminder leverages our tumor bank to support large screening studies and assist our customers with their early preclinical work. We've had a successful launch of the initial phase, which has contributed to our bookings pipeline and revenue. Our recently announced partnership with PhenoVista has enabled us to develop a unique imaging-based solid tumor platform, which complements our numerous internal platform development strategies well. This multifaceted approach to our ex vivo platform development will allow champions to offer a comprehensive, differentiated, and unique set of ex vivo services. In summation, it was a solid quarter for the company and we remain encouraged by the growing demand for our core PDX services and the market opportunity for our new products. 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 a successful quarter. realizing the anticipated jump in our revenue off of Q1 levels as well as achieving profitable results. Second quarter revenue increased to a total of $7.6 million compared to $6.7 million in the year-ago period, an increase of 14%. Excluding stock-based comp and depreciation, we recognized income from operations of $550,000 compared to income of $480,000 in the year-ago period. including stock-based compound depreciation, we recognize income from operations of $300,000 for the quarter. I'm going to focus on costs excluding the stock compound depreciation. Our gross margin for the second quarter was 49% compared to 48% for the same period last year, with cost of sales increasing $440,000, or 13%. The increase is in line with the uptick in revenue and continued expansion of studies and process. R&D expense was $1.3 million compared to $1.1 million in the year-ago period. We increased our R&D investment to continue growing our tumor banks along with expanding the capabilities of our in vivo models. This continued investment allows us to design and provide far more tools to run increasingly larger and more complex in vivo studies. Sales and marketing expense was $950,000 compared to $700,000 in the year-ago period. The increase was mainly due to two equally contributing factors. We are strategically growing our sales force to penetrate deeper into existing territories, as well as expanding into new geographies and product lines. Additionally, as discussed on our first quarter call, we adjusted our methodology for accruing commissions by allocating those costs over the course of the year. While this treatment results in a second quarter year-over-year increase, It should mitigate the sequential quarterly spike we've seen in the second half of prior fiscal years. Our G&A expense was $917,000 for a quarter and notably mostly flat compared to the year-ago period. In total, our costs, excluding stock-based comp and depreciation expenses, were $7.1 million for the second quarter of fiscal 2020 compared to $6.2 million in the same period last year. An increase of approximately $865,000, or 14%. The majority of our expense increase was in cost of sales and the results of our revenue growth. Overall, our expenses for this quarter and for the first half of fiscal 2020 are generally more aligned with the long-term operating leverage we believe exists in our business model. Our sequential quarter-over-quarter expenses were mostly flat, while revenue grew by almost $1 million. Looking ahead to Q3, we do anticipate an increase over our second quarter levels. The increase will mostly be in cost of sales as we are currently running studies in more expensive advanced mouse models. Overall, however, and while there will certainly be percentage fluctuations, we believe we'll see positive operating margins as our revenues continue to grow. Now turning to cash. At the end of the second quarter, we had $2.8 million of cash on the balance sheet, approximately $800,000 higher than the same period last year. For the quarter, net cash generated from operating activities was $363,000. With our anticipated revenue growth and profitability, we reiterate our confidence that cash on hand is sufficient to fund our operating activities. Looking ahead to the remainder of fiscal year 2020, We look forward to our next call in mid-March. We'll now open the call to questions.