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spk01: Greetings and welcome to the Champions Oncology third quarter 2021 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. And as a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ronnie Morris, Chief Executive Officer. Thank you, sir. You may begin.
spk02: Good afternoon.
spk03: I am Ronnie Moore, 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 I 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 the GAAP financial measures is available in the earnings release. Overall, this quarter's successful results reflected the execution of our strategic vision and a continuation of the positive momentum that has been building throughout the year. Our revenue grew to $10.8 million as we continued to successfully expand our services as well as investing for future growth opportunities. As you know, last quarter we announced a significant achievement for Champions. the launch of Lumen Bioinformatics, our proprietary SAS platform. As a reminder, Lumen was developed by combining our unique and proprietary data with large publicly available data sets to provide a tool for biologists to leverage computational analytics in their discovery and development programs. We continue to add functionality, enhanced analytic tools, and visualizations, as well as additional data to the platform. As an example, We recently announced the addition of a proteomics module, which provides biologists with unique analytics and visualizations to understand proteomic effects in relation to genomic characterizations. While Lumen is still considered in the early launch stage, the feedback from our customers has been extremely positive, and we have successfully increased our software license sales this quarter. It is still too early to project the potential revenue contribution of our Lumen software, but we are continuing to invest in its development and will be looking to broaden its adoption with both our existing and new customers. Turning to our ex vivo platform, it continues to expand and contribute meaningfully to our revenue growth. As we have discussed throughout the year, we have historically worked with partners to perform our solid tumor ex vivo studies with a goal of bringing this work in-house at the start of the fourth quarter. We are on track and have started performing solid tumor ex vivo work at Champions. We expect to benefit from the lower costs and greater control. Furthermore, we believe that as we continue to expand our comprehensive and unique ex vivo platform, it will contribute meaningfully to our revenue growth as we head into the next fiscal year. With regard to our biomarker assays and specifically regulatory flow cytometry and histology, our bookings were in line with our expectations for the quarter. As COVID's negative impact on clinical trials recedes and our deal flow grows, We remain cautiously optimistic that our regulatory clinical services will reach the levels anticipated when we first decided to enter the market. In order to expand our available market opportunities, over the next several months we will be opening a lab in Europe, which will enable us to bid on additional global clinical trial work being performed in Europe. We look forward to continued expansion of our clinical biomarker business in the coming quarters. On the R&D front, we are investing in the development of our service offerings and enriching the data contained within our models. As mentioned earlier, we have begun the proteomic characterization of our tumors, which will only further enhance the uniqueness and value of our tumor bank. Over the coming quarters, we anticipate that we will be reinvesting some of our profits in new R&D projects that will lead to further strategic opportunities for champions, as we transition towards new services and revenue streams. In summary, we had a successful third quarter as we executed on multiple fronts, continuing to grow our service business while also investing for future revenue growth opportunities. Now let me turn the call over to David Miller for a more detailed review of our financial results.
spk04: Thanks, Ronnie. Our full results on Form 10Q will be followed with the SEC on or before Monday, March 15th. Our third quarter revenue was a record $10.8 million compared to $9 million in the year-ago period, a robust year-over-year increase of $1.8 million, or 20%. As we've noted over the years, quarterly revenue can fluctuate based on the timing of study completions. This quarter, we did benefit from some Q4 scheduled revenue completing early, pulling into Q3. Excluding stock-based compensation and depreciation, we recognized income of $1.3 million compared to income of $900,000 in the year-ago period, an increase of 46%. Our non-cash expenses, including stock company depreciation, totaled $530,000 for the quarter, resulting in gap income from operations of $763,000 compared to $433,000 in the year-ago period. I will now focus on our results on a cash basis. Our third quarter gross margin was 56%, up from 52% in the same period last year. Cost of sales was $4.8 million in the quarter, compared to $4.3 million last year, a year-over-year increase of $500,000, or 11%. As discussed on our prior earnings calls, we've partnered with other companies to expedite the expansion of our service offerings, specifically our Expo platform, to continue to drive top-line growth. While these partnerships enabled us to accelerate our growth rate, it put pressure on our margins as we recognized upfront costs on finding the business, while the revenue was only recognized when the work is completed. I indicated that as revenue was recognized, we would see an improving margin, which materialized this quarter. I'll highlight that just as our true margins were higher than the 45% reported previously, our margins received a lift this quarter above their traditional norm. But most importantly, as Ronnie mentioned, We are taking this work in-house, which will generate higher ex vivo-specific margins in the future, as well as smoothing out the ex vivo-related margin fluctuations. R&D expense was $1.9 million compared to $1.4 million in the year-ago period, an increase of $500,000, or 35%. The increase is due to the continued development work to expand and enhance our product offerings, including an investment in proteomic characterization of our tumor banks. Sales and marketing expense was $1.4 million compared to $1.2 million last year, an increase of $229,000, or 19%. The increase in sales and marketing was mainly due to compensation-related expenses as we continue to invest in expanding our sales team and marketing efforts. Our G&A expense increased to $1.4 million compared to $1.2 million in the year-ago period. As a percentage of revenue, our G&A expense remained flat at 17%, and we anticipate greater leverage as we grow. In total, our cash-based expenses were $9.5 million for the third quarter of fiscal 2021 compared to $8.1 million in the same period last year, an increase of approximately $1.4 million consisting of a $500,000 increase in R&D and modest increases in other expenses given our revenue jump. Now turning to cash. We ended the quarter with a balance of $7.4 million compared to $3.3 million in the same period last year. For the quarter, Bad cash from operating activities was near break-even. During the quarter, we reduced our accounts payable by nearly two million, which contributed to this result. While there can be variability in cash from operations on a quarterly basis due to the timing of receipts and disbursements in our working capital accounts, directionally, our anticipated revenue growth should lead to an overall increase in cash generated from operations over the coming quarter. Our balance sheet remains strong and we have no debt. In summary, It was a very successful quarter. We hit a new record for quarterly revenue and excluding stock company depreciation, we had net profit of 1.3 million. The underlying strength of our core business remains solid and our new products are contributing to our revenue growth. Overall, our long-term prospects are promising. As we're currently in our year-end quarter, the next earnings call will likely occur in late July. We will disclose any significant milestones should they occur before our next call. Looking forward to closing out our fiscal year 2021 and speaking with you again on our year-end call. We would now like to open the call for your questions.
spk01: Thank you. We will now be conducting the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question is coming from Matt Hewitt with Craig Hallam. Please proceed with your question.
spk05: Good afternoon. Congratulations on the strong quarter. Thank you, Matt. The first question regarding Lumen, obviously a lot of excitement is building for that platform. I'm just curious if there's any metrics that you could update us on as maybe number of contracts or number of customers, anything that would help us kind of Garner, you know, the traction that you've seen over the past couple of quarters?
spk03: Go ahead, David.
spk04: Sure. So I think we announced on our last call that we signed a couple dozen new customers, and I would say that this quarter we did the same as well. So we've increased it basically, you know, by the same amount that we did the previous quarter, but we're certainly continuing to gain traction, continuing to grow, et cetera. That's great.
spk05: And then... Um, maybe an update on, on the flow cytometry business. Uh, what was it? A quarter or two ago, you'd signed your first deal. Um, how is that pipeline building? Have you had any more success signing contracts and how should we be thinking about the cadence of those contracts as they're completed? Obviously, given that that's when you get to recognize the revenues.
spk02: Hello?
spk04: Oh, okay, sorry, sure. So our flow has, yes, we have five more contracts this quarter. I believe Ronnie just indicated that on the call. And it's certainly falling more in line with our expectations when we first, you know, announced flow quite some time ago. Certainly the, you know, COVID has an impact on the clinical trials, which I know we've discussed. And we're certainly seeing a, you know, more clinical trials coming to market and our pipeline becoming more robust, and so it really is meeting our expectations. It will contribute to revenue in fiscal year 2022, and we'll see beyond based on the number of studies that we continue to sign.
spk05: Got it, got it. And then maybe two more from me, and I'll hop back into queue. First, I know last quarter you spoke about some of the investments that you're going to be making, at least from a headcount perspective. particularly with Lumen. And now you're talking about the proteomics. And then you also mentioned on the call earlier that you're going to be looking to expand by adding a facility in Europe. From an investment standpoint, what is your expectation as far as when you hire a new salesperson or you make this expansion? Is there a certain time period that you would expect to to be generating return, or how should we be thinking about that from a modeling perspective?
spk04: So from a new, when we hire some, oh, you take that, fine.
spk03: Go ahead.
spk04: No, no, no, you take this one.
spk03: Yes, I would say, Matt, that, you know, there's a couple different areas there. So there's the geographic expansion because some of the clinical trials that we're bidding on are international trials. And so it's a lot easier for us to win the contract if we have both the capabilities to take patients from Europe as well as the United States. A lot of the pharmaceutical companies don't want to have a different supplier for the samples from the US versus the EU. So that's just an expansion of our abilities. In terms of expanding our team, we have a pretty well-oiled machine. in terms of just training, getting people up to speed. And we pretty much see that the people that we bring in, I wouldn't say immediately, but pretty close to within the first quarter or two, they're contributing. Again, obviously, the more time they're with us, the more they contribute. But we have a fairly quick... timeline between bringing somebody on board and having them contribute.
spk05: Okay. Thank you for that. And then one last one and I'll hop back into the queue. Regarding the big pop in gross margins this quarter, I think you commented that some of that was because you're starting to bring some of these services in-house, but there was also the benefit in the third quarter from completing a few contracts and that the the timing of completing the contracts versus when the expenses were incurred previously. When we look at Q4, given that you closed some of the business from Q4 and Q3, is it fair to say that gross margins likely pull back a little bit in the fourth quarter before you start to see maybe another pop in Q1, or how should we be thinking about gross margins?
spk04: I think that's a great way of summing it up, that I would anticipate a small pullback in Q4, and then we could see, you know, expansion as we get into other services with higher margin, you know, that are higher margin. But certainly we got a boost this quarter, which I indicated. Okay.
spk05: Got it. Thank you very much. Congratulations again on the quarter. Thanks.
spk01: Thank you. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad at this time. Please hold while we poll for any additional questions. Gentlemen, I'm not seeing any additional questions coming in at this time. Would you like to make an additional concluding remarks before we end today's program?
spk03: Yeah, I just want to thank everybody for joining us for our quarterly earnings call. As I think we have over the last several quarters and the last several years, continue to make steady progress with what we laid out as our vision and our strategy. We continue to be excited about the expansion and the evolution of what we're doing in the oncology discovery space, first with services, now expanding using our data into a SAS platform. We look forward to continuing to update everybody over the next couple quarters and next year. And thank you, everybody, for joining us. Have a good evening.
spk01: Ladies and gentlemen, this concludes today's teleconference. We thank you for your participation and you may disconnect your lines at this time.
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