Champions Oncology Inc. (NASDAQ:CSBR) Q1 FY2022 Earnings Conference Call September 13, 2021 4:30 PM ET
Ronnie Morris – President and Chief Executive Officer
David Miller – Chief Financial Officer
Conference Call Participants
Matt Hewitt – Craig-Hallum Capital
Good day, ladies and gentlemen, and welcome to the Champions Oncology’s First Quarter Fiscal Year 2022 Earnings Call. [Operator Instructions]
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, CFO. 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 the non-GAAP financial measures that may be discussed during the call to GAAP 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 this 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 Lumin, 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 SaaS 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 datasets and improving the user interface. We have sold licenses to over 100 unique customers including several multi-state license packages. We appreciate the level of interest from our early Lumin users, but it's 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 dataset that is derived from tumor models with a more authentic tumor cell biology and heterogeneity. As a result, our computational analysis identify targets that are overlooked or missed when using other datasets.
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 add targets to our pipeline. We are in discussions with potential partners and 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 SaaS 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 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 recognize the 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 of 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 outsource 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 the 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 extension 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 salesforces.
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 comp and depreciation, we generated an operating profit in excess of $400,000. We continue to see underlying strength in our research service business and increase income 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 will now like to open the call for your questions.
Thank you. The floor is now open for questions. [Operator Instructions] Our first question comes from Matt Hewitt with the Craig-Hallum Capital. Please state your question.
Thank you for taking our questions and for the update. Maybe first up, I realize it's still early days on the renewals, but what is the feedback that you've been getting from those customers that have been up for renewal? Any incremental discussions that they've been having with you and have any of those resulted in expansions?
Ronnie, you got that? Ronnie might take it. Sorry Matt.
Hey David. Hi guys. Somehow, I got disconnected from the call. So, I'm back.
Hi there. I'm not sure if you heard the question, but I realize it's early days. If you could provide us any feedback on those customers that have been up for renewal what they're saying about the platform, have any of them signed, not just a renewal, but maybe expansions as they've come back after that first year?
Yes. So, as I think we've said, it literally is early days. I think we have under ten contracts that were up for renewal. I think our renewal rate was over 80%. But again, we're talking about such small numbers. So, it's hard to draw any conclusions from that. I think in general we – the challenge for us now is just to continue to get our active users very comfortable with the platform. I think the ones that are becoming more comfortable are really seeing the value. Like any new software the challenge just is in getting people to use it and to understand all the capabilities.
So, we're spending effort to make sure that we are giving them the tutorials and making sure that they feel comfortable using it. So, the ones that have been using it more and more are definitely seeing the value. And I think the challenge now is just to get more of our users to be using it on a more regular basis.
Got it. Okay. One of the things that was kind of added in addition to the software itself was the ability to contract with the Champions team, essentially a services component to the Lumin platform. Has that launched? Are you seeing any traction with that?
Yes, that has launched and we are certainly seeing traction. And we think that long-term that's going to be a big revenue driver and a value-add for our customers. So, as they're getting comfortable with the software, I think, they are realizing that there's a lot of important analytics that they want to do. But it's a little hard for them to do it because it requires more of a deep dive into our data. And so, we are seeing traction with the customers that are starting to utilize the platform more. We are seeing them come to us and we call it the acuity product and we're seeing them signing up for it.
Okay. And then you mentioned there towards the end regarding the European lab is that up and running, have you started to sign some contracts using that facility?
So, we haven't signed any international contracts yet. The lab is open. We are currently in the process over the next month or two of certifying and making sure we are compliant with all the regulations. So, probably by the end of this quarter, we will be fully established there. And we're talking to customers now. So, we expect by the end of the year, certainly to be in the – to be having serious proposals.
Well, that's great to hear. And then maybe last one from me and I'll hop back in the queue. Regarding the flow cytometry business, maybe an update on how that's progressing, what that pipeline looks like? Any details there would be helpful. Thank you.
Yes, the biomarker business in general, I think, is doing well. I think as we've talked about slower than we initially thought but we still continue to see it growing. We still can continue to see it to be – over the next couple of years to be one of the major drivers of growth. Certainly, the opening of the European site, I think, is really going to help boost some of the larger studies that we've always wanted, because it was very limiting only having a site in the United States. A lot of the larger studies wanted to have international abilities to see patients both from trials, from Europe and the United States.
So, we're really excited about opening up our first international site. We think it's really going to help with that clinical biomarker business and slower than we thought, but definitely making steady progress. We've built good quality labs and the customers that are using us are happy. So, we're excited about both where we're at from a quality perspective, as well as where we think things are going.
Understood. Great. Thank you.
You are welcome, Matt.
[Operator Instructions] We have another question from Matt Hewitt, please state your question.
All right, I'll keep going. One of the things that's come up depending upon the company that is reporting about, one of the things that's come up has been kind of – it's almost like a disarray for pharma budgets in decision timing. It sounds like for the most part, the budgets are actually doing very well, but there has been delays on some of the decision-making because of the pandemic. What are you seeing in your business, are you seeing similar type patterns or given where you are at in the clinical stage processes for the most part that hasn't been a factor for you?
Yes, because most of our business is preclinical, we haven't really seen that much of a fluctuation. I would say that middle last year, middle of the pandemic, there were a couple of months where we did see a slowdown. But as it stands right now, at least from a preclinical perspective, we feel pretty comfortable that things are back to normal, the budgets are robust and our pipelines are strong, and there's just a lot of customers that are coming back for repeat business.
In terms of the clinical biomarker space, we're a little bit newer into the scene. So, it's harder for us to gauge how robust some of those pipelines were a couple of years ago as opposed to now. So, it's hard for us to kind of gauge that level of activity. But we certainly have an active pipeline. We're talking to a lot of different companies about their trials, but it's hard for us to gauge that level of activity.
Okay. That's helpful. Thank you very much.
You're welcome, Matt.
[Operator Instructions] Okay, and it doesn't look like we have any further incoming questions.
Okay, great. Well, thank you very much for joining us for our quarterly earnings call. We are as always very excited about our opportunities. We're excited about our oncology services business. We're also very excited about our software services, as well as our therapeutic discovery, really utilizing what we set out to do many years ago, which was build our data engine with the data strategy and data analytics. So, we're excited to be using it, doing all these different things. We're excited that we're working with so many partners who trust us and the business continues to grow, which is certainly a sign that our platform has a lot of value.
So, with that I thank you for joining us and we look forward to sharing more news over the next couple of months, and certainly at the next quarterly earnings call. Have a good evening, everybody.