Joel Ackerman - CEO.

Analysts:.

Good morning. I’m Joel Ackerman, the CEO of Champions Oncology. Thank you for joining us for our quarterly earnings call. As always I will start with the highlights since our last call, discuss the financial results, and then open up the call for questions.

Before I start, I will remind you that I will make forward-looking statements during the call and 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 10-K.

Reconciliation of the non-GAAP financial measures that maybe discussed on the call to GAAP financial measures is available in the earnings release. Clearly the major event since our last call was financing. As you probably know, we raised $14 million last week.

This is the third and largest round of capital that Ronnie and I have raised since we joined the company in 2010. We started the process in the early fall with the goal of raising at least $10 million. Overall the feedback about the company was positive.

There was broad recognition of the magnitude of the problems in oncology for both drug development and clinical care. Investors appreciated the size of the potential markets we are pursuing and the unique strategy that we have. Well, I am definitely biased, we also got good marks on the quality of the management team we have assembled.

Investors were also impressed by the strong support from current investors including myself and Ronnie Morris, the company's President and our continued participation as investors in the company. The $14 million round was led by New Enterprise Associates or NEA, one of the world's largest and most active venture capital firms.

NEA has deep domain expertise in healthcare. Included in their portfolio was a number of drug companies focused oncology, many of whom are customers of Champions. They invested $7.5 million slightly more than half the round.

The balance came from existing investors which included myself and Ronnie through the conversion of the $2 million bridge we made in December and Battery Ventures, our lead investor in our first financing. One of the big questions for us was how to size the round. Our goal was to raise enough capital to allow us to achieve two goals.

One, continue to invest in future growth through R&D and the growth of the TumorBank and two, achieve cash flow breakeven. We believe that $14 million gives us a sufficient runway to grow the revenue and gross margin of the company to a level where the company will be profitable.

We believe two to three years is an appropriate timeframe for achieving cash flow breakeven and the $14 million will get us there. As I will discuss later, we do expect a significant increase in revenue in our fiscal fourth quarter which will have a positive impact on our quarterly burn rate.

This combined with a positive trend in bookings growth gives us the confidence to project forward despite the inherent volatility in the financial results of our company. Another important factor in sizing the round was ensuring sufficient capital to uplift to a national exchange. This is an important goal for the company and for the new investors.

We believe that the $14 million ensure sufficient capital to qualify for an uplifting in the coming quarters. Overall we are excited with the financing and feel it sets us up well to the next stage of growth and our path to profitability.

The next area I would like to highlight from the previous quarter is the development of our tumor model research collaborations. Building our TumorBank is a strategic imperative for Champions.

Our customers are looking for very specific models that fit their hypothesis around molecular targets in different tumor types and are looking for large panels of models with different clinical subtypes to simulate the clinical trials they are planning. Either way, we need more models in the bank to satisfy the needs of current and future customers.

Over the last few years, the work we do for patients in the TOS business has been our dominant source of new tumors for the bank. The TOS business is a great source of tumors for a number of reasons.

These tumors tend to be from later stage patients who’ve been pretreated with chemotherapy which makes them similar to the types of patients who sign up for clinical trials. Also, the testing we do on behalf of these patients is a great source of validation for the fidelity of the chemo response predictions we make.

However, we do not always get the types of tumors we want from TOS and the volumes are not sufficient for our goals. As a result, we started more than a year ago to develop collaborations with academic medical centers to provide us with tumor tissue for building models.

We’ve had one productive agreement in place for a while and we are looking to diversify our sourcing, increase our volumes, and develop relationships with some of the most prestigious academic medical centers in oncology. These relationships are hard to develop, take a lot of time to sign, and even more time to actually see a flow of tumors.

This past quarter we feel like we are finally seeing the fruits of our labor. We now have collaborations in place with eight institutions for sending us tumor tissue and partnering in the development and use of TumorGrafts.

These institutions include some of the best names in oncology and include three of the top ten cancer centers in the U.S., news and world report rankings of oncology hospitals. Of these collaborate -- each of these collaborations is different depending on their interest in tumor graphing and the types of physicians we are working with.

For our fiscal third quarter, we generated 55 new implants from these non-TOS sources, almost triple the number from the same quarter last year. The process of developing and nurturing these relationships is ongoing.

As we work with many physicians and academic centers, we are encouraged with the interest in tumor grafting as a tool for personalizing the development and the use of oncology drugs.

We are equally excited with the reputation Champions has developed as a leader in the field with the unique offering that drive these great physicians and institutions to want to work with us. Finally, I’d like to update you on core TOS bookings.

As a quick reminder core bookings represent the signing of new contracts or statements of work with customers in our core TOS bookings. This includes all of our TOS work with the exception of large one off sources of revenue including the Pfizer deal in 2013 and the onetime risk sharing payment from Teva a few years ago.

Bookings are the key leading indicator on future revenue. They can be volatile from quarter-to-quarter, however, when looked at over the course of a number of quarters in combination with our future sales pipeline that give us an important leading indicator on our progress.

For a number of reasons we believe it is still too early in our development to disclose exact quarterly bookings but feel it is important to give a qualitative update on our performance. Bookings for the third quarter showed continued progress. We booked three [indiscernible] studies in the quarter with 14 different customers.

About 80% came from existing customers including four customers who bought four or more studies during the quarter. 20% of the bookings came from four new customers. Looking at these results in conjunction with the results from the second quarter, we think we are establishing a strong bookings foundation of which to continue our growth.

I’ll talk more in the financial section about how this bookings growth is turning into revenue. Now let me turn to the financial results. During the quarter we implanted 97 new patient tumors, an increase of 26% over last year. 42 of these implants came from our commercial TOS offering which represents a 26% year-over-year decline.

Commercial TOS implants this quarter continue to be negatively impacted by a decline in implants in Singapore. As we discussed last quarter, our partners in Singapore, a large private oncology group received a letter from the Ministry of Health that raised some questions about the regulatory approval process related to our test.

As a result we have curtailed new patient implants in Singapore. In addition to the decline in Singapore, we believe that TOS implants were also impacted by the typical fluctuation in our business. This view is bolstered by the implant numbers in TOS observed in February which rebounded nicely and were in line with our prior monthly results.

As I mentioned earlier, 55 of the new patient implants came from a broad array of research initiatives, this represented 175% increase over last year. TOS revenues were $453,000 for the quarter, a decrease of 23% over the prior year.

The decline was largely the result of the decline in noncore TOS revenue associated with physician panels and sequencing studies. Revenue from core TOS was down 5% as a result of the decline in new patient implants. TOS cost of sales were $674,000 for the quarter.

We are working hard to manage this number down and have made good progress this quarter compared to the prior run rate. We expect to make further progress on this over the next few quarters with the goal of reaching a zero gross margin in the TOS business. Now let me talk about TOS, our main commercial business that serves the pharma industry.

TOS revenues were $1.4 million and $3.0 million for the three months ended January 31, 2015 and 2014 respectively a decrease of 56%. The January quarter last year was dominated by the onetime technology licensing deal we did with Pfizer. Looking at core revenue TOS revenue only, the year-over-year decline was 19%.

We talked last quarter about the disruption caused by the new sales team and organization structure in the TOS business and the impact that had on our sales effort. I also talked last quarter about the strong bookings quarter we had and our expectations that this would take some time before it turned into realized revenue.

I am happy to report that the trends we saw developing last quarter have continued. We had another strong bookings quarter in the fiscal third quarter as I mentioned above. We’ve also had another quarter to watch the bookings from prior quarters get implemented in our lab with the goal of completing the work and recognizing the revenue.

As I mentioned last quarter, that process has historically averaged about two quarters. As a result, the results of the strong bookings in the second quarter would be expected to show up as revenue in the fiscal fourth quarter which ends on April 30th.

We have seen this play out in the February results and expect even greater pickup in revenue in March and April. We remain cautious with our projections because the timing of completion of individual studies remains hard to predict. That said, we are confident that the revenue will be at least 2.7 million for the fourth quarter ending in April.

TOS gross margins were 6% for the quarter, well below the historical gross margins of the business. The fixed cost of the business and the lower revenue are one source of the decline in gross margins.

In addition, increases in bookings have the impact of depressing margins in the near-term as the lab cost increased for new studies that are initiated for which we have not yet recognized revenue. Overtime, we expect our margins to get back to our historical levels as the revenue line grows and we manage our expenses.

Regarding our operating expenses, year-over-year sales and marketing grew as we increased the sales effort. This is an important investment in the future growth of the company and we think it will continue to pay dividends in the growth in fiscal 2015 and beyond.

Going forward, we do not anticipate another large increase although total sales and marketing cost will rise as commissions are paid on increases in bookings. R&D showed by far the biggest jump in expenses and is one of the major contributors to our negative cash flow for the quarter.

The increase in expenses is a result of a definitive decision by the company to invest in the growth of our platform. We are adding hundreds of models to the bank each year and are increasing the level of genomic characterization of existing models.

Simultaneously we are engaged in research to broaden our platform to include new tumor types and the ability to test immune therapies. We are excited about these projects and are committed to investing in them for the future.

G&A was down compared with last year as a result of a number of cost management issues we implemented that ensured G&A costs are controlled and we are spending our money on things that help grow the revenue of the company. In addition, last year's results contained a onetime charge in stock based compensation of approximately $300,000.

As we pushed towards profitability, controlling our expense growth will be an important area of focus and the success we have had in managing G&A bodes well for our prospects along this dimension. In conclusion, despite the weaker than anticipated financial results, we are happy with the foundation we have built over the last few quarters.

We have the capital, the team, and the technology we need to grow the revenue and achieve profitability. We have also -- we also have a platform and strategy established for building a truly differentiated technology company over the long-term.

Our leading indicators give us a clear line of sight on the improving financial results next quarter and we are confident that growth will continue from there. These are the end of my prepared remarks. I will now open the call up to question. .

Operator:.

Very good, well thank you all. I appreciate your participation in the call and look forward to updating you in the future. Bye, bye. .

This concludes today's teleconference. You may now disconnect your lines..