Champions Oncology Inc (CSBR) 2023 Q3 法說會逐字稿

Good day, everyone, and welcome to the Champions Oncology third quarter fiscal year 2023 earnings call. (Operator Instructions) It is now my pleasure to turn the floor over to your host, Dr. Ronnie Morris, Chief Executive Officer of Champions Oncology. Sir, the floor is yours.

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 begin, I want to remind you that we may make some forward-looking statements during today's call and that actual results could differ materially from what is described in those statements.

Additional information on (inaudible) that could cause results to differ available in our Form 10-Q and Form 10-K. Our reconciliation of non-GAAP financial measures that need to be discussed during the call and the GAAP financial measures will be available in the earnings release. Overall, our financial results were weaker than the previous quarter.

However, we continue to make progress on strengthening our platform as well as furthering our drug discovery efforts. As we reported last quarter, due to the macroeconomic environment, we cancelled some headwinds in our servicing businesses in two main areas.

First, during our second quarter we experienced basic client and quarterly booking for the first time in over a year. As we saw customers re-evaluating their discovery efforts, and re-aligning priorities within their budgets, give their new economic viability.

This manifested to [drop by] customers taking longer to commit to signing a study while not finding at all. Second, we saw an uptake in study cancellation, specially in work that's not yet started. Once when we started, impacted future revenue, as we indicated on last quarter's call, our second-half results will be adversely impacted.

And on a positive note, I often discuss that despite these negative trends, we were seeing a strengthening of our [bookings] pipeline and we were cautiously optimistic that we have turned the corner and weathered the worse of the decline. While we still need to reiterate the cautious sentiment, we finished our third quarter with a new record high of bookings and we started the fourth quarter with a strong bookings as well.

Cancellations are still higher than our stock leverage and have come down for the prior quarter. These positive developments should enable us to re-accelerate our revenue growth next fiscal year which starts May 1. With regards to our drug development [offer], we continue to make good progress. Our lead discovery programs are progressing well through the therapeutic discovery stages.

The two wholly-owned lead programs continue to advance at exciting results and we are now at a stage where we are beginning to [clutch] in the (inaudible) data and therapeutic kits for each program. These data sets will help to gauge the level of progression for these compounds and programs and the relative significance. We're also establishing in vitro data for the therapeutic kits to establish on the (inaudible) collaboration with possible in vivo studies, forthcoming.

In summary, we've led the third quarter and second half of the year as a bump in a road of our longer term strategy. We continue to invest in expanding our platform and we are optimistic in our long term growth prospects. We anticipate our target discovery that will progress into the pre-clinical phase marking a significant milestone. Now let me turn over the call to David Miller who will give a more detailed review of the financial results.

Thanks, Ronnie. Our full results on Form 10-Q will be filed with the SEC on or before March 16. As Ronnie mentioned, our previously disclosed dip in bookings and an uptick in cancellations, as expected, impacted our third quarter financial results leading to revenue of $12.8 million compared to $13.2 million in the year-ago period. A decline of $420,000 was 3%.

Year to date, our revenue is $40.8 million compared to $36.2 million last year, an increase of 13%. For the quarter, we had a loss of $2.5 million compared to income of $829,000 in the year-ago period. Excluding stock-based compensation and depreciation, we had an adjusted EBITDA loss of $1.6 million. Focusing as we do, unresolved, excluding non-cash expenses such as stock comp and depreciation, our total cost of sales were $7.5 million compared to $6.3 million in our third quarter last year, an increase of $1.2 million or 19%.

The increase was primarily from compensation expenses as we staffed our operational teams during the year to meet the demand of our expected bookings growth. While our revenue took a hit this quarter, demand is still strong and we anticipate the revenue downturn will be relatively short-lived. Accordingly, we kept our operations teams intact to meet the expected increase in study volumes without any delays executing for our customers.

As a result of maintaining our staffing levels on lower revenue, the gross margin was 41% versus 52% in the year-ago period. We anticipate a return to margins in the 50% range in our fiscal 2024. R&D expense was approximately $3.2 million compared to $2.2 million in the year-ago period, an increase of $1 million or 47%. The increase is primarily due to compensation expense in our discovery business, along with sequencing and mice costs as we added proteomic data to and replenished our tumor base.

Sales and marketing expense was $1.7 million compared to $1.5 million in the year-ago period, an increase of $200,000 or 14%. Our G&A expense was at $1.9 million for the quarter compared to $1.7 million a year ago, a 14% increase. The increase was primarily due to compensation and IT expense as we invest in upgrading our infrastructure to support company growth.

In total, our cash-based expenses were $14.3 million for the third quarter of fiscal 2023 compared to $11.7 million in the same period last year, an increase of approximately $2.7 million or 23%, with the increases primarily stemming from cost of sales to support bookings growth, and R&D for advancing our discovery efforts.

Now turning to cash, at the end of the quarter, we had $11.6 million of cash on the balance sheet, an increase of $800,000 from our prior quarter. For the quarter, net cash generated from operating activities was approximately $1.6 million, primarily due to an increase in deferred revenue, which includes billings from recent bookings. Cash used in investing activities of $750,000 was for equipment purchases for our laboratory. Our balance sheet is strong with approximately $12 million in cash and no debt.

In summary, we experienced an anticipated decline in revenue in the quarter, primarily from an increase in cancellations and studies signed during the first half of the year, the pace of cancellations has slowed and we're optimistic that the bookings' reacceleration will continue setting the stage for a return to revenue growth and positive adjusted EBITDA in 2024.

We're well positioned to weather the small downturn, and we are excited about the company's overall progression and long term prospects. As our next call is for year-end results, the call will be in late July. We look forward to a positive outlook for 2024. I would now like to open the call for your questions.

Certainly at this time, we'll be conducting a question-and-answer session. (Operator Instructions) Matt Hewitt, Craig-Hallum.

Good afternoon. Thank you for taking the questions. Maybe just to understand the difference here, you're having this period of increased cancellations. At the same time, you're announcing record bookings, and I'm just trying to match the two together. They seem to run counter to each other. If you could provide a little bit more color on what you're seeing and hearing from customers?

Yeah, sure, Matt. So if we think about the delay between the bookings and revenue, there were two things at play during this quarter from revenue perspective. The first is the bookings that we -- the weaker than our usual bookings quarter resulted in a lower revenue for this quarter, but that bookings -- that weaker bookings quarter was from a previous quarter.

So that was during the period of time when we were -- when there was a lot of uncertainty and I think there's still to a certain extent is uncertainty out there, but there was -- there was a lot more uncertainty and we were definitely seeing -- what I would say a pause in a lot of our customers, not sure what they're happening with their budget.

So we saw a [weakening] quarter in terms of bookings and that had an effect in terms of this quarter's revenue. This quarter, though, the sentiment -- I think came back and the bookings and the pipeline are much stronger. So that should -- and that's why I think our comments about starting Q1 next year, we really feel like we're going to get back to where we were, and where we're going to get back to, quote-unquote, where we left off from this period.

The second factor was we noticed during this period -- and this period, as I say, August through November, we noticed a greater percentage than usual than historical of cancellations. So people who had booked in previous quarters were re-evaluating their budgets, and we're cancelling some of their studies to be appropriate -- some of their budget. So between those two factors, that was the largest contributors to the decreased revenue that we saw in this quarter.

Got it. Thank you. Thanks for the help there. As far as your cadence, I didn't hear an update on your full year guidance. I'm not sure if that means it's the same or whatnot, but how should we think about cadence or how -- revenues recover a little bit here in Q4 before the big step-up, it sounds like we would see early in 2024 or what should we be thinking for Q4?

Yeah, I think Q4 is going to look somewhat similar to -- kind of Q3 in that respect. I think we're looking at the lower end of our guidance that we had given. I think that what we're seeing now with the pipeline and with the cancellations coming back to normal rates, I think is that we're poised for and Q1 to be back on track to how we were imagining things. And Q3 and Q4, the latter half of this year is going to be weaker than we had expected.

Got it. And then as far as gross margins are concerned, historically, there was -- we've talked about -- you've talked about the mismatch between the costs -- when you start a new trial or news service for customer versus when you get to book those. That doesn't appear to be the case here in Q3 unless I'm misunderstanding something. It sounds like this is more because of the cancellations, yet you kept and rightfully so it sounds like kept all your staff in place anticipating that rebound. Did I hear that correctly?

Yeah. (multiple speakers) I think you heard that correct.

Yeah. No, it started. So Matt, yeah. So it always is a factor actually that we have expenses in advance of our revenue. It's not that, that's not the case this quarter, but to really give you the flavor, there was a much more important component and a much more -- there was a different reality here. So I believe that always contributes, but because of this new reality, so I think that was the more important factor. And I think that's the message I wanted to convey.

Got it. And then maybe one more and I'll hop back in the queue, but I'm wondering if we could get an update on how the Italian lab is performing. It's now been, I think, a couple of quarters since it was open for business, maybe (technical difficulty) to fill some of the opportunity there and how -- what are your expectations for that as we look out?

Yeah. So in general, the clinical biomarker -- we opened the European lab in order to be able to access more clinical of biomarker opportunities. I would say, in general on the clinical biomarker opportunities, we are continuing to grow slowly, not as fast as we had expected. I think at this point, our operations are in good shape.

We do really high quality work and now it's more of a business development, getting the word out, making sure that people know that even though we'd always been known in the preclinical space, as a very strong quality oncology provider that we're also in the clinical space with a lot of the competitors out there.

So I think it's a little bit of a challenging time in the sense that trials are down globally and we're just continuing to inch up and continuing to win more business just based on our quality. But it's a work in progress. And I would say that we're still -- we still think this is a good addition to our suite of services, but certainly not on the adoption that we had expected a couple of years ago.

The good news for us is that, all the only investment is kind of there. We've already got the labs. We have the expertise. Now it's more of just making sure that we can get the word out, that we're not just a preclinical, but we're also a clinical CRO, and start getting more customers getting to be comfortable with using us.

Got it. Thank you very much.

You're welcome, Matt.

Thank you. (Operator Instructions) Thank you. That concludes our Q&A session. I will now hand the conference back to our host for closing remarks. Please go ahead.

So I wanted to thank everybody for joining our quarterly conference call, which certainly it was a challenging quarter in terms of the results. But in terms of our outlook, there's a lot of positivity. We went through a challenging time, but we feel like we have we weathered it well and the pipeline is strong. The interest is strong. Our operations are in a good place, and we're excited about bringing everybody the results for the next couple of quarters. So have a good evening and thank you for joining.

Thank you, everyone. This concludes today's event. You may disconnect at this time, and have a wonderful day. (technical difficulty) Thank you for your participation.