Champions Oncology Inc (CSBR) 2024 Q2 法說會逐字稿

Greetings and welcome to the Champions Oncology second-quarter fiscal year 2024 earnings call. (Operator Instructions) Please note this conference is being recorded. I will now turn the conference over to your host, Ronnie Morris, CEO. 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 begin, 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 and factors that could cause results to differ is available on our Form 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.

Overall, our second quarter's results were mixed as we continue to navigate through some of the challenges, we've been highlighting over the past several quarters. Our financial results were weaker than we have been accustomed to delivering. However, there were several positive foundational developments in our core business that have us well-positioned for the future.

As we have discussed in the past, approximately one year ago, we encountered business headwinds on multiple fronts. The economic environment specifically in our sector turned markedly negative, which impacted our customers, and ultimately, Champions Oncology.

As our customer's R&D budgets were reduced, we encountered longer sales cycles and fewer studies signed. Additionally, customers had a much higher propensity to cancel all or part of the study they had recently signed. The resulting lower net bookings was the precursor to the anticipated revenue decline we are currently experiencing.

Additionally, in conjunction with the external factors, we identified some operational issues that led to slower revenue conversion, creating further downward pressure on our operating results. I remain optimistic that we've made significant progress towards reversing these trends, and we see a light at the end of the tunnel as positive trends are emerging.

We've made the necessary operational changes with some key hires and internal restructuring that we are confident will lead to greater efficiencies and improvement in our overall operations. Cancellations have receded back to historical levels.

Our bookings which are the fundamental foundation for building long-term success are strong, and we're anticipating continued acceleration for the second half of this fiscal year. As these higher bookings convert to revenue over the coming quarters, we will see a return to quarterly revenue growth and profitability.

With regard to specific services, we've increased our clinical biomarkers pipeline with an uptick in bookings. This has been an area that has lagged behind our internal expectations, but we're feeling more confident that our clinical work can finally become a more meaningful contributor to our long-term revenue growth as it ramps up in accordance with our initial expectations. Similarly, we continue to expand our ex vivo offering adding additional models to our platform, which should lead to increasing ex vivo revenue in the coming quarters.

With regards to Corellia, our wholly-owned drug development subsidiary, our lead discovery programs are progressing well through the therapeutic discovery stages with our two lead programs exhibiting promising results.

We continue to be actively engaged with investors in an effort to raise capital to support and accelerate our growth. Although we anticipate a return to revenue growth and profitability given some of the recent weakness in our revenue in the short-term, we're reducing our quarterly investment in the subsidiary. We do not anticipate this short-term reduction in spend will have a material effect on our progress.

In summary, the quarter's performance was as expected. We anticipate that improvements will slowly take hold and put us back on our targeted trajectory. Despite the slowdown, we continue to have robust bookings, a comprehensive platform, a stellar reputation, and a strong team that is poised for the next stage of growth. We are confident that we will emerge with stronger revenue and profitability over the long-term. 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 10-Q we filed with the SEC on or before December 15, our second quarter revenue was $11.6 million, a decline of 19% from the second quarter of fiscal 2023. As we've been guiding over the last several quarters, the challenges encountered last year, specifically, the customer cancellations led to a decline in prior quarter net bookings and would be total revenue in the first half of 2024.

We believe Q2 was the low point and a gradual improvement will follow over the coming quarters. On a GAAP basis, our loss for the second quarter of 2024 was approximately $2 million compared to a gain of $8,000 in the prior year. Included in the $2 million loss were non-cash expenses of stock comp and depreciation totaling approximately $600,000. Excluding these non-cash items, our adjusted EBITDA loss was approximately $1.4 million for the quarter compared to an adjusted EBITDA profit of $686,000 in the year ago period.

Turning the focus to our cash based-results for the total cost of sales was $6.6 million compared to $7.2 million in our second quarter last year, a decline of 9%. The decrease relative to the same period last year was primarily due to a reduction in outsourced lab services and supply expenses. Despite the decline in cost of sales as a result of our lower top-line revenue, our gross margin for the quarter was 43% compared to 49% for the same period last year.

Our margins should begin to improve over the coming quarters as our revenue expands and we leverage against the fixed cost component of cost of sales along with our variable costs increasing at a slower pace for the quarter, R&D expense was approximately $2.5 million compared to $2.6 million in the year-ago period.

Our R&D spend is split between our traditional R&D, supporting our core business services and investing in our drug discovery platform. Approximately, $1.2 million that was invested towards our drug discovery efforts during this quarter. For the quarter, sales and marketing expense was a relatively flat $1.8 million compared to $1.7 million in the year-ago period. Our generic G&A expense was also unchanged at $2.1 million for the quarters ended October 31, 2023, and 2022.

Now turning to cash, we ended the quarter with $5.5 million of cash on the balance sheet and no debt. For the quarter, cash generated from operating activities was approximately $600,000, resulting from an increase in receivable collections and an uptick in deferred revenue.

The change in these working capital accounts within the ordinary course of business investment in new lab equipment was a modest $150,000. And cash generated from financing activities was approximately $200,000, primarily from stock option exercises. We anticipate remaining in a generally cash neutral position for the next quarter or two with a gradual acceleration towards the end of fiscal 2024 and into next year.

As our operational results are expected to improve, we believe our cash position remains sound. Information directionally, our second quarter financial results were mostly as expected. However, revenue was a bit below our expectations. This is mostly due to timing uncertainty on study completions, the bookings to revenue conversion path.

As a result, despite the anticipation of revenue reacceleration in the second half of fiscal 2024, we are revising our full year revenue guidance and expect that revenue growth will be generally flat compared to last year. However, with continued strength in our bookings, which are a leading indicator of revenue with the operational collections made beginning to take effect and with reduction cancellations, we are confident that despite these short-term obstacles, our long-term prospects are positive.

We anticipate a slow but steady improvement in our operational results, including revenue growth and ultimately profitability within the next couple of quarters. We look forward to our next update in mid-March when we report our third quarter results. We'll now open the call for questions.

(Operator Instructions) Matt Hewitt, Craig-Hallum.

Hi, guys, this is Jack on for Matt. As you commented in your prepared remarks, you spoke to elevated cancellations. Is this broad-based or is there out one or two large cancellations that represented the delta? And then how are things looking so far this quarter, what are you're hearing from other? We're hearing from others in the industry that the rate of cancellations is declining. We're curious if that's consistent to what you're hearing. And then I have a follow-up as well.

Yeah, I would say that it's pretty much a broad-based effect that started a couple of quarters ago that's washing out now. And we don't see it from necessarily one or two customers. We saw it as a broad-based industry-wide exercise. We were just a lot of cancellations. Your second question was what, again sorry, remind me your second question.

How are things looking so far this quarter? We're just hearing from others in the industry that the rate of cancellations is declining, we're curious about what you're hearing from?

Yeah, totally consistent with what we're seeing. The cancellations have come back down to what we call our historical norms. The way it was before I would say it started about a year or maybe a little over a year ago. So we are seeing that. We're seeing the bookings remain consistently strong with cancellations coming down, which gives us the optimism that we think things are going to get back to the way they were and back to normal profitability and growth in the short term.

And then for my follow-up, a lot of pharma and biotech companies are in the midst of budget planning. What are you hearing from them as far as expectations for next year? And how do you think they'll impact your business?

Yeah, so we're hearing some mixed feelings. I think we're generally optimistic. Certainly, a lot of the larger pharmaceutical companies as opposed to some of the smaller biotech companies. We feel very confident that their budgets are healthy, and we've been in discussions with them about planning for next year. So I think it's a mixed bag still.

I don't think we're back to the way things were a couple of years ago where there was a tremendous amount of investment in biotech, but I don't think it's as bad as it was a year, year-and-a-half ago where nobody knew what to do and everyone is hoarding cash and was worried about where they're going to be able to raise money and holding onto budgets really tightly.

So I think we're better than we were. I don't think we're back to the way things were a couple of years ago, but they're certainly different strategies. And one of our strategies is to focus more on the large pharma and who I think have more visibility into their R&D budgets than some of the smaller biotechs.

That's helpful. Thank you.

(Operator Instructions) Okay. We have no further questions in queue. I'd now like to turn the call back over to management for closing remarks.

Thank you, everybody, for joining us for our quarterly call. Clearly not the quarter, we expected -- certainly, the quarter we expected a quarter ago, but certainly not something that we have generally expected over the last couple of years with a lot of growth. We're looking forward based on all the information that we see in front of us to getting back to the continued growth. We're excited about the joint development effort and the subsidiary that we've carved out in terms of that endeavor.

We're also excited about some of our newer service lines, including clinical biomarkers and our ex vivo platform, so a lot of promising news to come. And we look forward to updating everybody on our next quarterly call in a couple of months. Thank you, everybody, for joining. Bye.

This concludes today's conference, and you may disconnect your lines at this time (multiple speakers) --