Champions Oncology, Inc.

Good day, ladies and gentlemen, and welcome to the Champions Oncology Second Quarter Fiscal Year 2023 Earnings Call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Dr. Ronnie Morris. 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 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 another good quarter with record revenue in our services business as well as progress in our drug discovery effort. We continue to monitor the current economic environment, and for the first time we have noticed an effect on our business. During this quarter, specifically in September and October, we noticed a slowdown in bookings compared to prior quarters. While the quarter's total bookings remain strong, they were below those attained in our previous quarter. Our late stage pipeline continued to be strong, and we feel that in Q2 there was a general delay when it came to finalizing a proposed statement of work from our customer base. We are halfway through Q3, and we are cautiously optimistic that bookings are back on track to Q1 levels. We are confident that our superior tumor bank, high quality work, and expanded services will continue to propel our growth even in these uncertain economic times. With regards to Lumen, which is our multifaceted data platform, we have our software product and our data analytics product. As I discussed on our last quarterly call, Lumen adoption has been slower than anticipated. We still envision our data platform as an asset and part of our overall long-term strategy. However, we determined that we were at a crossroads with regards to our SaaS platform. We either needed to invest more heavily in both sales and marketing and our software support or to reduce some of our costs and wait for a more opportune time to increase investment. Given the current economic environment and the multiple platforms we are working on to expand our pharmacology offerings, we've decided to reduce our Lumen investment for the time being. While we are still signing up a small number of new users, The short-term focus will be to continue to learn from our active user base and to improve on the product. With regards to our drug development effort, we continue to make good progress. Our lead discovery programs are progressing well through the therapeutic discovery stages. As discussed last quarter, our partnership with Alloy recently reached a milestone with the completed development of a series of lead antibodies exhibiting favorable biophysical binding and specificity characteristics. A lead candidate was selected from this series and evaluated as a promising antibody drug conjugate. We expect to start preclinical testing shortly. Our lead molecule from our FANIN collaboration is also expected to progress into preclinical testing in the next six months. Both programs are the first of many potential therapeutic programs from our platform. In summary, during the second quarter we had record revenue. We continue to expand our platform. We are reacting to the current economic environment, and we are optimistic on our long-term growth prospects. We anticipate that our target discovery effort will progress into the preclinical phase, marking a significant milestone. 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 on or before December 15th. Our second quarter financial results were good with record revenue of $14.3 million compared to $11.8 million in the year-ago period, an increase of $2.5 million or 21%. We generated operating income of $7,000 and excluding stock-based compensation and depreciation, we recognized adjusted EBITDA of approximately $686,000. Focusing as we do on results excluding non-cash expenses such as stock comp and depreciation, our total cost of sales was $7.2 million compared to $5.5 million in our second quarter last year, an increase of $1.7 million or 31%. The increase was primarily from compensation and supply expenses as we geared up for an increase in study volume. Due to the current economic climate, we experienced an uptick in cancellations limiting our anticipated revenue for the quarter and pressuring margins. Gross margin for our pharmacology services was 51% versus 53% in the year-ago period, while total gross margin was 49% compared to 53% for the same period last year. As Ronnie mentioned, we've decided to reduce our Lumen spend in the coming quarters, which should alleviate some of the total margin pressure. R&D expense was approximately 2.6 million compared to 2.3 million in the year-ago period, an increase of 300,000, or 13%. The increase is in line with guidance provided in the past, as we indicated we'd be ramping up our R&D investment, adding data to our tumor bank, and investing in our therapeutic target discovery platform. Sales and marketing expense was a relatively flat 1.65 million compared to 1.6 million in the year-ago period. Our G&A expense was at $2.1 million for the quarter compared to $1.6 million a year ago, a 30% increase. The increase was primarily due to compensation and IT expense as we invest in upgrading our infrastructure to support company growth. Additionally, we increased our bad debt allowance due to the current economic conditions. In total, our cash-based expenses were $13.6 million for the second quarter of fiscal 2023, compared to 11 million in the same period last year, an increase of approximately 2.6 million, or 23%, with the increase primarily stemming from cost of sales as we built an infrastructure to support higher revenue levels. Now turning to cash. At the end of the quarter, we had 10.8 million of cash on the balance sheet, an increase of 2.8 million from our prior quarter. For the quarter, Net cash generated from operating activities was approximately 3.3 million, primarily due to positive cash-based operating results and an increase in accounts payable in the ordinary course of business. Cash used in investing activities of $600,000 was primarily due to equipment purchases for our laboratories. In summary, we had a good financial quarter, hitting a new revenue record of $14.3 million. As discussed, we experienced a slowdown in bookings in the quarter, along with an increase in cancellations. While we're cautiously optimistic that bookings will re-accelerate in the second half of the year, the slowdown in bookings and increase in cancellations will likely impact total revenue for the year. Accordingly, we're expecting our total revenue goals for fiscal 2023 to be in the 10 to 15% range, down from the approximate 20% range provided at the beginning of the year. We're well positioned to weather this revision, and we are excited about the company's overall progression and long-term prospects. We look forward to our next update call in mid-March. We would now like to open the call to your questions.