Champions Oncology, Inc.

Good afternoon, ladies and gentlemen, and welcome to the Champions Oncology third quarter fiscal year 2022 earnings call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Dr. 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 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 10Q and Form 10K. A reconciliation of non-GAAP financial measures that may be discussed during the call to GAAP financial measures is available in the earnings release. Overall, we had another great quarter in which we had record revenue and record bookings as we continued to execute on our plans for growth. As discussed on our year-end call, we presented our transformative strategic vision for the next several years, highlighting the uniqueness of our tumor bank and related data. I indicated that we would continue to grow our existing oncology research services business while also expanding into new, high-value opportunities that leverages our data and platform, which would affect our longer-term growth. While executing on this long-term plan, we continue to be very excited about our existing core business as it continues to set quarterly record revenues, thereby enabling us to fund our investment for the future. We continue to see a lot of demand in our oncology research services, which include our in vivo, ex vivo, and biomarker services. We continue to advance our SAS Lumen platform, a data interpretation software clients use to analyze translational data as well as to derive insights from proteomic, genomic, and transcriptomic data sets. Through Lumen, companies have the ability to query our unique data either by themselves through the Lumen workspaces or by consulting with us through Lumen Acuity Services. In all, we have created a multifaceted data analytics platform centered around Lumen. I will reiterate the message conveyed throughout the year, which is that we are encouraged by the initial success of our Lumen launch, and we envision it contributing to the overall growth of the company in the next two to three years. However, it is still too early to make any definitive projections regarding the magnitude of its future success. We continue to be excited by the build out of our discovery platform. While still early, our internal programs are showing promise and we look forward to seeing how our computational approaches perform as we establish our therapeutic pipeline. External validation to our platform has come through a co-development therapeutic partnerships with Fadden Innovation Studio and a unique T-cell receptor discovery partnership with Giga Immune. We look forward to seeing how the products of these partnerships add value to our emerging discovery effort. In summary, during the third quarter, our oncology research services business continued to expand and delivered strong financial results while we simultaneously continued to capture more value from the proprietary data that we create. Our innovative SaaS business continues to grow, and we are 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 10Q will be filed with the SEC later today. Our third quarter financial results were strong, with record revenue of $13.2 million compared to $10.8 million in the year-ago period. an increase of $2.4 million, or 22%. For the year, our revenue growth is at 19%, putting us on target for the higher end of the guidance provided of 15% to 20% for the full year. Our operating income for the third quarter was $829,000, and our adjusted EBITDA, which excludes stock-based compensation and depreciation, was approximately $1.5 million. Focusing as we do on adjusted EBITDA, Our third quarter gross margin was 52% compared to 57% for the period ended January 31st, 2021. As pointed out on our third quarter call last year, our cost of sales for that quarter was atypically low, resulting in the inflated gross margin of 57%. As such, the current quarter's gross margin of 52% is not representative of a downward trend. Rather, the nine-month ended January 31st comparison is a more accurate representation and shows an improving margin to 53% compared to 49% for the same period last year. We're seeing the leverage in our operating model as the past investment to adequately support our growth is being realized. Additionally, the gross margin improvement continues to be driven primarily from our core business, with room for additional expansion as higher margin products will likely contribute more meaningfully to total revenue in the future. Total cost of sales was 6.3 million compared to 4.6 million in our third quarter last year. The increase was mainly due from increases in compensation, mice, and lab supply expenses resulting from our growing study volume. R&D expense was approximately 2.2 million compared to 1.9 million in the year-ago period. an increase of $300,000, or 16%. As we indicated, we would be ramping up our R&D spend, investing in our discovery platform. We anticipate the trend to continue, but also project our revenue growth to offset the additional R&D spend so that our operating results remain positive over the long term. We reiterate the message that we will sacrifice some short-term profitability for longer-term growth opportunities. Sales and marketing expense was relatively flat with $1.5 million in expense this quarter, an increase of $56,000 or 4% compared to $1.4 million in the year-ago period. Our G&A expense was $1.7 million for the quarter compared to $1.4 million a year ago, an 18% increase. This was primarily due to an increase in compensation and IT expense as we invest in upgrading our IT infrastructure to support company growth. In total, Our cash-based expenses were $11.7 million for the third quarter of fiscal 2022, compared to $9.3 million in the same period last year. Now turning to cash. At the end of the quarter, we had $8.7 million of cash on the balance sheet, an increase of approximately $4 million, nearly doubling our cash balance from the prior quarter. Net cash generated from operating activities for the current period was approximately $4.3 million, due to improving cash-based operating results and continued strength in our bookings. We anticipate that cash generating from operating activities will continue to grow over the long term, likely leading to a growing cash balance. Cash used in investing activities of $400,000 was primarily due to fixed asset purchases for our laboratories. In summary, we had a strong financial quarter, hitting a new revenue record of $13.2 million. Our adjusted EBITDA was a healthy 1.5 million, and with the underlying strength in our research service business, we're positioned for continued revenue growth while we expand our other revenue streams and platforms. We are excited about the company's continued success and look forward to our next quarterly call, which, since it's our year end, will be in late July. We would now like to open the call for your questions.