Champions Oncology, Inc.

Greetings. Welcome to the Champions Oncology third quarter fiscal year 2025 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 store zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to your host, Ronnie Morris, Chief Executive Officer. You may begin.

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'll remind you that we're 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 is to gap financial measures is available in the earnings release. Q3 marked a transformative quarter for Champions Oncology, underscored by our record revenue of $17 million and the successful closure of our inaugural data deal. Our core services business remains at the forefront, driven by our industry-leading PDX bank and its precisely characterized multi-omic data, which has become the foundation for the pharmacology studies that have been used broadly by the biopharma industry. Throughout the year, we have dedicated ourselves to strengthening our teams and refining our processes, resulting in enhanced quality, increased efficiency, and scalability, which in turn have led to improved cost management and profitability. As we look ahead, we maintain a cautiously optimistic outlook for a rebound in our industry sector, with customers beginning to expand their R&D budgets and a slight recovery in the capital-raising environment for biotech industry. Despite the mild improvement in the sector, the environment remains tight, leading to potential performance volatility. However, the overall trend suggests promising opportunities for long-term growth. A significant differentiator for Champions has always been our PDX Bank, offering pharmaceutical and biotech companies invaluable insights for drug development. By consistently expanding our collection of unique tumor models and enhancing their characterization, we have developed a robust multiomic data set with substantial potential for both drug discovery and development. This data set serves as a vital resource for our pharma partners who gain access to model-specific data. With the rise of AI, which can extract deeper insights from the biological data, the demand for our data set has notably increased in both breadth and depth. Recognizing this shift, we are actively exploring ways to extract greater value from this data. The recently closed data deal exemplifies our strategic vision where we licensed our existing deep multi-omic data set while also acquiring perspective omic data sets from our unique bank of tumor models. This continued expansion of our data set aligns with our mission to create the world's most comprehensive biological data set from a clinically relevant tumor population. Such a data set aims to bridge the gaps in existing data used for AI and ML-mediated discovery workflows, ultimately transforming how the biopharmaceutical industry approaches target and biomarker discovery as well as pipeline management. Over the past few years, we have worked diligently to enhance this data platform, pioneering the use of deep multi-omic data sets in oncology discovery. The biopharmaceutical sector is now recognizing the immense untapped value within this type of data set shifting away from classical data sets that offer broad insights but lack depth. We are well positioned to take the lead in this evolving landscape, generating significant traction and enthusiasm for our initiative to build the world's deepest clinically relevant multi-omic data set. However, I must caution that while we are excited about the initial validation of our strategy and continue to engage with other potential customers to build our opportunity pipeline, it remains premature to forecast the number of deals, their average size, or the frequency with which they will occur. Consequently, we are not yet in a position to project the data revenue contribution to our overall results or its impact on our bottom line. In the coming quarters, we hope to secure additional deals that will provide clarity on these important questions. Regarding Corellia, our wholly owned drug development subsidiary, we are highly optimistic about the targets and compounds we have developed using our proprietary data. Our team is actively engaged in discussions to raise capital for the company while carefully weighing the impact on our bottom line results. Despite the challenging funding environment, we have partnered with experienced bankers to bolster our capital raising efforts and both we and our advisors remain hopeful about the outlook. In summary, as highlighted during this call, Q3 was a groundbreaking quarter for us. We are excited about the potential of our core business, and although we face some challenges, we believe we are on a path towards long-term growth. The successful completion of our first data deal represents an initial validation of our strategic vision, signifying that our data asset is poised to evolve into a transparent transformative data business for champions. Now I will hand the call over to David Miller for a more detailed review of our financial results.

Thanks, Ronnie. Our full results on Form 10Q will be filed with the SEC by Monday, March 17th. As Ronnie highlighted, we had a record-breaking quarter with total revenues surpassing $17 million and adjusted EBITDA hitting a record high. Research service revenue was 12.5 million compared to 12 million in the year-ago period, and our data revenue contribution was 4.5 million, reinforcing the early traction of our new platform. On a GAAP basis, our income from operations for the third quarter was 4.5 million compared to our loss of 2.6 million in the prior year. This included $600,000 in non-cash expenses related to stock-based compensation and depreciation, Excluding these items, adjusted EBITDA was a record 5.2 million compared to an adjusted loss of 1.7 million in the prior year. Turning the focus to our cash-based results, total cost of sales was 6.6 million compared to 7.8 million in our third quarter of last year, a decrease of 16%. The decrease was primarily due to our reduction in salary expense, other lab costs, and outsourced lab services. Our gross margin for the quarter was 61% listed by the high margin data revenue. Our research service margins also improved, increasing to 48% compared to 35% in the same period last year. Our research service margins will fluctuate over the next two quarters with some expected volatility in revenue and cost of sales, but we anticipate long-term margin expansion exceeding 50% as long-term revenue grows. Our operating expenses reflected our commitment to discipline plus management. Our R&D expense declined 500,000 or 21% to 1.7 million as we optimized spending while maintaining key investments in our core business. Our sales and marketing expenses remained stable at 1.8 million and our G&A expense declined 200,000 to 1.8 million primarily due to reductions in salary expense. Summarizing our year to date with those first three quarters, total revenue was 45 million compared to 36 million in the first three quarters of 2024, an increase of 22%. Total cost of sales was 21 million compared to 21.9 million, a decrease of 900,004%. Total gross margin was 53% compared to 40% for the same period last year, with the improvement coming from the high margin data revenue, along with the operational efficiencies implemented, which enabled us to improve on our revenue conversion and maintain our costs. Research service margins were 48% compared to 40% for the three quarters ended January 21st, 2024. And total operating expenses were down approximately 3.8 million compared to last year, primarily from reductions in R&D expense. The result was adjusted to about 8.3 million compared to adjusted loss of 4.8 million through nine months of fiscal 2024. Now turning to cash. We ended the quarter with 3.2 million of cash on the balance sheet and no debt. For the quarter, cash generated by operating activities was 900,000 and cash used in investment activities was approximately 500,000. The net 400,000 quarterly increase in cash was primarily from an improvement in operational results offset by an increase in accounts receivable. Our balance sheet is solid and our cash provision is poised to increase in the coming quarters as our long-term operational results continue to improve and we collect our new data revenue stream. To summarize, Q3 was a milestone quarter with record-breaking financial performance in successful execution of our first data licensing agreement. While we anticipate short-term volatility in research revenue, we remain confident in our long-term growth trajectory. We reaffirm our full year revenue growth guidance of 10 to 15% and continue to focus on expanding our data business, enhancing profitability, and driving shareholder value. We look forward to updating you on our progress during our year-end earnings call in July. We will now open the call to Q&A.