Champions Oncology, Inc.

Good day, ladies and gentlemen, and welcome to the Champions Oncology first quarter fiscal year 2022 earnings 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 on your telephone keypad to reach a live operator. At this time, it is my pleasure to turn the floor over to your host, Ronnie Morris, CEO of Champions Oncology. Sir, the floor is yours.

Good afternoon. I am Ronnie Morris, CEO of Champions Oncology. Joining me today is David Miller, our CFO. Thank you for joining us for our quarterly earnings call. Before I 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 get 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 year-end results and company update six weeks ago. On that call, I outlined our transformative strategic vision for the next few years. While we continue to progress on its execution during the first quarter, the fundamental message and status remain unchanged. Our oncology research services business, which includes in vivo and ex vivo studies, along with an extensive array of biomarker assays, continues to grow and deliver successful results, supporting our investment in other opportunities that will accelerate our long-term revenue growth. Our differentiating factor continues to be our data and scientific platform that come from our unique PDX tumor bank, combined with our expertise to provide high-quality scientific studies in our laboratories. It is this data, our platform, and our scientific operational excellence that have enabled us to expand our platform and initiate software services and engage in therapeutic discovery efforts. To that end, approximately one year ago, we rolled out our new software platform, Lumen, a revolutionary data interpretation software tool capable of analyzing proteomic, genomic, and transcriptomic data sets in real time. We have been licensing this platform to our customers using a SAS model, and the initial results of its launch are promising. We have integrated customers' feedback into our platform as we continue to invest in its development, such as adding data sets and improving the user interface. We have sold licenses to over 100 unique customers, including several multi-seat license packages. We appreciate the level of interest from our early Lumen users, but it is still premature to draw definitive conclusions about customer satisfaction and renewal rates. We look forward to learning and disclosing more over the course of the year. As discussed on our last call as well, we have developed an internal computational discovery team to discover novel therapeutic targets. Our computational approach leverages a more complete data set that is derived from tumor models with a more authentic tumor cell biology and heterogeneity. As a result, our computational analysis identified targets that are overlooked or missed when using other data sets. We have validated more than six targets and we are now advancing those targets through the development pipeline. We are evaluating each target to determine the most strategic and advantageous path to advance that target. There is no one single approach with regard to the development of these targets. We are assessing whether we want to partner license or develop internally each validated target while working to add targets to our pipeline. We are in discussions with potential partners on ways to advance some of these targets. Continued progress has been made and while I can't provide an exact timeline, I do anticipate we'll have announcements to share over the next quarter or two. In summary, during the first quarter, our oncology research services business continued to expand and produce positive financial results while we simultaneously continue to capture more value from the proprietary data that we create. Our innovative SAS business continues to grow, and we're advancing our therapeutic targets through the pipeline. Now let me turn the call over to David Miller for a more detailed review of the financial results.

Thanks, Ronnie. Our full results on Form 10-Q will be filed with the SEC later today. Our first quarter revenue was a record $11.3 million compared to $9.5 million in the year-ago period, an increase of $1.7 million or 18%. Excluding stock-based compensation and depreciation, we recognized a gain of $422,000 compared to a similar gain of $421,000 in the year-ago period. Focusing as we do on results, excluding non-cash expenses such as stock comp and depreciation, Our first quarter gross margin was 53% compared to 44% for the same period last year. Total cost of sales was $5.3 million compared to the same $5.3 million in our first quarter last year. As we discussed on several prior calls, our quarterly gross margins were pressured because we outsourced some lab work, enabling us to accelerate our revenue growth. We have brought most, but not all, of that work internally. The reduction in outsourced costs more than offset increases in compensation, lab supply, and rent expenses, resulting from the increase in study volume and our lab extension in Q4 of last year. The net result is a flat year-over-year cost of sales and with a growth in revenue and improvement in gross margin. R&D expense was approximately $2.3 million compared to $1.6 million in the year-ago period, an increase of $700,000 or 44%. The $2.3 million is generally in line with our guidance provided on our year-end call where we indicated we would be ramping up our R&D investment, adding data to our tumor bank, and investing in our therapeutic target discovery platform. It is worth noting that by increasing our investment in R&D, we're intentionally sacrificing short-term profitability for greater long-term revenue growth profit and revenue potential. Sales and marketing expense was $1.5 million compared to $1.2 million in the year-ago period, an increase of $363,000, or 31%. The increase in sales and marketing was mainly due to compensation-related expenses resulting from the expansion of our sales team. Our G&A expense was at $1.7 million for the quarter compared to $1.1 million a year ago, a 59% increase. The increase was primarily due to an increase in compensation and IT-related expenses. In total, our cash-based expenses were $10.8 million for the first quarter of fiscal 2022 compared to $9.1 million in the same period last year, an increase of approximately $1.7 million, or 19%, with $1 million stemming from increased investment in R&D and the expansion of our sales forces. Now turning to cash. At the end of the first fiscal quarter, we had $4 million of cash on the balance sheet. For the period, net cash generated from operating activities was $216,000. Cash used in investing activities of $1 million was primarily due to the continued investment in our software platform along with fixed asset purchases for our laboratories, including the new European lab. We have no debt. In summary, we hit a new record for quarterly revenue, surpassing 11 million for the first time. Excluding stock company depreciation, we generated an operating profit in excess of $400,000. We continue to see underlying strength in our research service business and increasing contribution from our software platform. We are excited about the direction of the company and look forward to our next update call in mid-December. We would now like to open the call for your questions.