Champions Oncology, Inc. (CSBR) Q1 2019 Earnings Report, Transcript and Summary

Ladies and gentlemen, greetings and welcome to Champions Oncology First Quarter Fiscal Year 2019 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this program is being recorded. It is now my pleasure to introduce your host, Ronnie Morris. Thank you. You may begin.

Good afternoon. I’m 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 being, I will 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 GAAP financial measures is available in the earnings release. I’ll start by pointing out that our prepared comments for today will likely be shorter than on previous earnings calls for several reasons. First, as you know, we just recently provided our fiscal 2018 year-end results only six weeks ago. And while there is a consistent high level of activity, growth and enthusiasm at Champions Oncology, the overall themes and strategy remain unchanged. Second, going forward, we’ll be altering our call format by minimizing some of the repetitive messaging and information easily obtained by reading our earnings release and financial statements. Instead, we will look to give a more general and broad overview of the quarter’s results, highlighting some key points and providing new information on Company initiatives when applicable. Overall, we had another successful quarter. We started fiscal year 2019 with another quarter of record revenues, on pace with our revenue guidance for the full fiscal year 2019 and reached profitability on both an operating and GAAP basis. Our customer base continues to expand and we continue to see increased demand for our core products with a growing quarterly bookings number and a strong pipeline. These indicators give us the confidence that we’ll be able to hit our revenue guidance for fiscal 2019, along with our stated goal of quarterly profitability. Revenues for the first quarter of fiscal 2019 grew by more than 20% to $6.2 million. On a GAAP basis, net income of nearly $0.5 million. And when looking at non-GAAP income excluding stock-based compensation and depreciation, we had income from operations of $675,000. In addition to our core products, over the next several months, we’re rolling out new services, which include our ex vivo platform and pre-approved clinical flow cytometry. This ex vivo platform and services will enable us to leverage our large tumor bank to provide large screening studies and assist our customers at some of their early preclinical work. While we currently have flow cytometry services for our preclinical work, we are expanding our capability to analyze clinical samples as well. As we discussed during the last earnings call, we expect to increase in bookings from these new product rollouts towards the middle of the end of this fiscal year and revenue from those bookings in the beginning of next fiscal year. We are encouraged by the recent trends towards increased demand for our services and plan to continue expanding our offerings to enable improved oncology drug development. Now, let me turn the call over to David Miller for a more detailed review of financial results.

Thanks, Ronnie. Our full results on Form 10-Q we filed with the SEC on September 14th. As mentioned by Ronnie, we’re going to alter the format of the call and not read every line-by-line P&L results in comparison to prior period. All this can be found in our press release and 10-Q. I will briefly highlight some noteworthy financial results and then open the call to questions. One such highlight is our total revenue for the first quarter of fiscal 2019, which was a record $6.2 million, an increase of 23.7%, compared to $5 million in the same period last year. Our consolidated gross margin improved to 51% for the first quarter of fiscal 2019, which is in line with prior guidance that we expect our gross margin to increase slowly over time as our revenues continue to grow. Although our revenues have been increasing, our sales and marketing expense remained well contained with the total expense of $512,000, compared to $649,000 in the same period last year. The decrease is mainly due to lower payroll costs. However, as discussed on the year-end call, we do expect the sales and marketing expense to increase over the course of the year as we continue to expand our sales force. In total, our expenses for the first quarter of fiscal 2019 were $5.7 million, virtually unchanged from the first quarter last year. As always, we evaluate our financial results by excluding non-cash items such as stock-based compensation and depreciation expense. Our total cash based expenses were $5,550,000 for the first quarter fiscal 2019, compared to 5,050,000 in the same period last year, an increase of approximately $500,000. The increase however, was primarily due to higher cost of sales as the level of pharmacology work continues to expand. For the full year, we expect our expenses will grow in the mid single digits as we grow our revenue in excess of 20%. On a GAAP basis, we reported first quarter net income of approximately $0.5 million, a significant achievement for the Company and an improvement of $1.1 million from our $600,000 net loss in the year-ago period. Excluding non-cash items such as stock-based comp and depreciation, we reported record net income of $675,000. We are encouraged by our total results and look forward to maintaining consistent profitability throughout the year. Now, turning to cash. Net cash generated by operating activities was $336,000 for the three months ended July 31, 2018. At the end of the first fiscal quarter, we had slightly more than $1 million of cash on the balance sheet. While the exact timing of cash flows is difficult to predict, our anticipated continued profitable results will lead to an increasing cash position along with the strengthening balance sheet over the course of the year. We remain confident that our cash on hand is sufficient to fund our operating activities. In summary, we had another record high quarterly revenue, exceeding $6 million for the first time and growing our revenue by almost 24%. Our sales pipeline is strong and we remain on track to deliver revenue growth in excess of 20% for fiscal 2019. We were profitable on both the GAAP and non-GAAP basis and look to remain so over the coming quarters. We look forward to our next update call in mid-December. We’d now like to open the call for your questions.

Thank you. Ladies and gentlemen, we will now be conducting our Q&A session. [Operator Instructions] Our first question comes from the line of Matt Hewitt from Craig-Hallum. Your line is live.

Good afternoon, gentlemen. Thank you for taking the questions. A couple for me. So, first off, maybe if you could talk a little bit about the pipeline in the co-clinical services offerings, where that sits and how you expect that to grow over the course of the year?

Yes. So, in terms of the co-clinical offerings, our pipeline is pretty much flat, a little bit of growth, not the type of growth that we had been looking for historically from our co-clinical product. The other products are more than making up for it. But, the co-clinical is right now being retooled to include a bunch of ex vivo and some other clinical cytometry work. So, we’re looking at more of the package deal. So, we’re in the process of kind of retooling that. We have had some bookings, but not the bookings that we’d expected in the past -- that we’ve seen or expected at this point.

Okay. And then, following up on that ImmunoGraft, maybe talk a little bit about the charts you’re seeing there and how you expect that to play out over the remainder of the year?

Yes. So, the ImmunoGraft, we continue to do a lot of R&D. We have put out a couple of products within the ImmunoGraft space. A lot of our products are now a combination of both humanized mice but also ex vivo. So, we’re now looking at doing some of our immuno-oncology work, ex vivo as opposed to in vivo. We continue to increase the products that we’re offering. And we’re excited about it. It’s still early times, Matt. And we’re kind of incrementally building that side of the business. But, we think over the next six months to a year, we’re going to see a lot of traction in that area.

That’s great. Okay. And then, maybe one more for me, and I’ll hop back in the queue. But, you’ve talked I think the last two calls about several new offerings that you’re working on. How should we be thinking about the launch of those new services from a cadence perspective? I would think that you’d want to -- get a couple out the door, start working on building a pipeline, and then launch the next -- or will these be basically coming in one big basket? Thank you.

Yes. So, we’re launching two of them right around this time. And what I mean around this time, it’s now to over the next couple of months. Those two, we mentioned on the calls, the ex vivo platform, which we think is going to be a large platform for us. It’s basically using our tumor bank to be able to do work in either organized or ex vivo assays. So, people can utilize a lot of our models at once to do big screening studies and do a lot of work early, preclinical, before they get into the [mouse] expensive system with PDXs. So, that we’re actively rolling out now. The clinical flow cytometry is going to be rolled out in the next couple of months. We have everything in place. And it’s currently -- we’re going to start marketing it very, very shortly. We also believe that that has a really big upside. There is a lot of interest. We have a deep relationship with a lot of the pharmaceutical companies that have been asking us for this. There is a lot of demand, not as much supply in the market for marketplace. So, we’re excited about that offering as well.

That’s great. I look forward to seeing more details on those.

Great, thanks.

Thank you. [Operator Instructions] Our next question comes from the line of Mike Gaugler from Janney. Your lines live.

Hi. It’s Paul Knight. Congratulations on the quarter. Could you talk -- I just wanted to go through a few things on the model. Number one, what was share account in the quarter?

The total number of shares outstanding?

Yes.

Yes. So, it’s approximately 11 million, slightly higher. But right around 11 million is a good number to use.

Okay. And then, you expect to be a non-tax payer for the foreseeable quarters and years ahead, is that right?

Yes. We’re going to be doing analysis that is determining the exact and NOL that we can carry forward. Obviously, if our revenues continue to expand exponentially, then we’ll have to pay it. But for the foreseeable future, we will not have to pay taxes.

And then, regarding -- I know, you don’t release number of customers except for annually. But, what was the customer trend like, what was the potential of Phase 1 trial work? Is that building, if you could talk about customer count and the potential of larger clinical trials?

Sure. I’ll take the customer count and Ronnie can take the clinical trial. So, our customer base actually continues to grow nicely, adding a significant amount of new customers -- like you said, we don’t really get into the details. But, it actually grew by over 30 new customers, and we’re now doing business at this point. I’d like to say, okay, so we’re doing business with 250 customers. That’s the real number. But, it’s become almost like less significant at this point. So, we’re working with everybody that’s out there.

Okay. Sorry. And then, Ronnie on Phase 1 interest?

Yes. So, I think that was what I was talking about before in terms of the co-clinical trials building the models while -- doing clinical trials. That has not had the traction that we thought it was going to have a year ago. We’re still booking business, but it’s not having exponential growth that we thought it was. And that’s what I was talking about before, where we’re looking to retool the, quote, clinical offering with a combination of ex vivo, in vivo and some other assays, so that we can really work with pharma in a Phase 1. But we’re not just a one-trick pony, that we’re actually going to be able to give them a suite of services that we think will be able to help them when they look at their Phase 1 and using that information to guide them in their Phase 2. So, that’s underway now. As we’re rolling out the ex vivo platform and some of these other platforms, we’re actually working to put together a basket of services and go out and try to engage the pharma customers on some of these co-clinical products.

Okay. And then, the last question I would have would be regarding the tumor bank. Are you in -- what -- your goal for this year? What is it in terms of increasing the number of the size of the bank and what do you want to do regarding further annotation of your bank?

So, in terms of the tumor bank, we’ve had a shift over the last couple of years where we now are very interested in only increasing our tumor bank to build very unique cohorts of cancer patients. We have a lot of every type of tumor type, whether it’s lung cancer or ovarian cancer or breast cancer. We have a large grouping for any of pharmaceutical companies that are really interested in just doing a broad stream; we can easily accommodate them with a very well annotated bank. What we’re really looking to add now is unique cohorts that are very, very hard to get that because of our network and because of our work with all the academic centers that we have, puts us in a position to be able to do that where none of our competitors can really do that. So, we are going after very unique sets of patients, patients that might have been resistant on one or two different drugs or drug combinations that a bunch of the pharmaceutical companies are now trying to attack that problem. And they need those specific patients who have developed resistance to those drugs. So, we’re being very laser-focused about which models we’re building. We’ll probably only try to build 100 to 150 models this year. But, we want to get the right 150 models. Because what we’ve seen is that if we can find and build a cohort of even a couple of patients that have a very interesting or important set of mutations, those 4 or 5 patients can -- we can do so much work with pharma in those 4 or 5 patients. And if we got another 200 garden-variety colorectal or lung cancer, we wouldn’t get any more work in. So, we’re really trying to be laser-focused about how we build the bank going forward.

Thank you. Ladies and gentlemen, we have no further questions in queue at this time. I’d like to turn the floor back over to management for closing.

Thank you very much everybody for joining us for our quarterly earnings call. We’re really excited about the way things are going at Champions Oncology, more good news to come in the following months and quarters. And we look forward to sharing the good news with you. Have a good evening everybody.

Thank you. Ladies and gentlemen, this does conclude our teleconference for today. You may now disconnect your lines at this time. Thank you for participation and have a wonderful day.