Ronnie Morris - CEO David Miller - VP, Finance & Administration.

Analysts:.

Good day, ladies and gentlemen. And welcome to Champions Oncology First Quarter Fiscal Year 2018 Earnings Call. All lines have been placed on a listen-only mode and the floor will be open for questions and comments following the presentation. [Operator Instructions]. At this time, it is my pleasure to turn the floor over to your host, Ronnie Morris.

Sir the floor is yours..

Good afternoon. I'm Ronnie Morris, the CEO of Champions Oncology. I'm joined today by David Miller, our CFO. Thank you for joining us for our quarterly earnings call. Before I start, I will remind you that we 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 Form 10-K. Reconciliation of non-GAAP financial measures that may be discussed during the call to GAAP financial measures is available in the earnings release.

As you know our last call was only six weeks ago, because we reported our year end results, which is also reported 90 days after the close instead of the usual 45 days after a quarter. As a result, this call maybe a little shorter than usual but we still have exciting news to report.

Overall, we had another quarter of considerable progress for Champions Oncology. Highlights by quarterly revenue of more than $5 million, continued strong quarterly booking and bottom line of result that excluding stock-based compensation were very close to breakeven.

While strong performance in near term visibility give us the confidence to reiterate our expectations for year-over-year revenue growth in excess of 20% achieving operational profitability and generating positive cash flow by the end of the current fiscal year.

We had another solid booking quarter with growth only 25% over the same period last year another proof point that reinforces our confidence in a solid growth here. Subsequent to the end of the first quarter we announced a multi-year strategic collaboration with AstraZeneca to develop new PDX models for their oncology R&D programs.

These breast and lung cancer models melted [ph] in actual tumor bank are currently unavailable and will be vital to researchers at the pharmaceutical companies in their drug development efforts for this underserved group of patients.

This partnership is expected to be pivotal to the development of next generation drugs and represents another dimension in our capabilities to deliver a specific cohort of models to clients in support of the drug development portfolios in key areas. We are optimistic about the opportunities, this is multi-year initiative there we'll provide.

We also announced a collaboration with Addario Lung Cancer Medical Institute to develop new PDX models that will be beverage develop new therapies for ROS1 a rare subtype of cancer. Based on the models, we'll also further expand Champions' TumorGraft bank offerings in non-small cell lung cancer.

We believe that by working together these unique models will be valuable for cancer research and the pharmaceutical drug development and result in new and more therapies for lung cancer patients. While we are certainly excited about the future revenue potential from these models.

On collaborations with top tier pharmaceutical companies and researchers demonstrates our strategic leadership position advancing these new PDX models for using the oncology drugs. Our work also continues in the development of new products that will help us further accelerate revenue growth.

As we mentioned during our fourth quarter earnings call, the three areas we are giving most attention to our acute myeloid leukaemia, known as AML, ImmunoGraft and our co-clinical product.

As a researcher, the first product AML which was started [indiscernible] revenue of fiscal 2017 is expected to provide an even greater contribution to revenue in fiscal 2018 in the coming years. We also begin with recognizing revenue from the second product ImmunoGraft during fiscal 2017 and deemed also grow to output in fiscal 2018.

But certain products in our so clinical tumor graft offerings, which to-date has resulted in booking of more than $9 million. As you mentioned in the past, because the conversion to revenue can be challenging to predict, timing of studies, which is controlled by our customers. We do not include co-clinical contracts in our booking numbers.

This quarter with books -- first quarter were co-clinical revenue had a little contribution to our own program. We remain committed to expanding the market opportunities for co-clinical studies which represent significantly higher budget dollars and to accelerate our revenue growth in the future.

Last month we begin moving into our new owned and state of the art lab facility at Rockville Maryland. The move is almost completely and we are pleased that we were able to adhere to our projected timeline and cost. This new [indiscernible] will double our capacity enabling us to our studies more efficiently but also providing capacity for growth.

In summary, this quarter was highlighted by record quarterly revenue growth of 37% year-over-year, signing of two important collaborations one with AstraZeneca and the other the Addario Lung Cancer Medical Institute and continuous progress in product development.

The combination of solid bookings which we expect will drive strong revenue growth and especially fixed nature of our cost provide us with the confidence to reiterate our expectation that we will meet profitability but the end of fiscal 2018. With that I'll turn over to David Miller, our CFO who will review our financial results for the quarter..

Thanks Ronnie. Our full results on Form 10-Q will be filed with the SEC this afternoon. Overall, revenue for the first quarter was a record $5 million, a 37% increase year-over-year driven primarily by a 25% increase in revenue in our TOS segment.

The year-over-year increase in our first quarter is the realization of revenue on the sustained strong quarterly bookings in prior quarters which we have discussed on all of our recent quarterly calls.

Turning to the results for each of our amount business segment, TOS revenue was $4.6 million for the three months ended July 31, 2017, a 45% over the $3.2 million revenue recognized in the first quarter of last year. TOS gross margin was 51% for the quarter compared to 35% in the same period last year.

The core study completions and the resulting revenue recognition occurred after the expenses are recognized which is as incurred margins can fluctuate quarter-to-quarter. As our revenue continues to grow, we expect our gross margins to improve as we leverage our fixed cost to get a higher revenue base.

This is evidenced by the quarter-over-quarter improvement we've achieved in Q1. In addition, we continue to expect gross margins to trend upward as we increase the operational efficiencies and transition our studies to the new lab and realize a reduction in our uptick and variable per study cost of sale.

TOS revenue was $439,000 for the first quarter compared to $511,000 in the same period last year. The decrease is primarily due to a decline in TOS implant for the quarter. This decline was expected as we shift our strategic efforts primarily to our TOS business. As we have said before, we do not expect POS to drive revenue growth.

However, the segment provides strategic value in our proforma, research and academic collaborators. We are continuing to manage our costs and as a result POS gross margin was 11.9% for the first quarter compared to 7.2% in the same period last year.

TOS has historically been a negative margin business, while we have discussed that we no longer view TOS as a strategic revenue driver. We have focused as part of our overall cost management initiatives on ensuring that TOS has a positive contribution to gross margin.

Research and development expense was $1.1 million for the three months ended July 31, 2017 compared to $1.2 million for the same period last year. Sales and marketing expense were $683,000 for the three months ended July 31, 2017 compared to $925,000 for the same period last year.

The decrease in first quarter sales and marketing is mainly a result of a decrease in stock-based compensation expense. General and administrative expense was $1.2 million for the three months ended July 31, 2017 compared to $1.5 million for the same period last year.

A decrease in G&A is also mainly the result of a decrease in stock-based compensation expense. Combined our cost of sales and operating expenses were $5.7 million for the first quarter compared to $6.2 million in the same period last year excluding non-cash stock-based compensation expense.

Total operating expenses were $5.053 million in the first quarter of 2018 versus $5.26 million for the same period last year. As you can see from these results, while we achieved 37% quarter-over-quarter revenue growth our expenses increased only half a percent.

Even more importantly this number includes approximately $100,000 in one-time nonrecurring expenses incurred to set up and transition over to our new lab facility. Had we not had these one-time costs, our operating results which we define as excluding stock-based compensation expense would have resulted in net income for the quarter.

In addition, the elimination of these one-time expenses are not part of the full cost savings we expect to achieve once we are fully transitioned over to our new lab beginning in our third quarter which starts November 1.

And discussed previously, during fiscal 2018 we expect a modest single-digit percentage increase in total expenses while realizing double digit revenue growth.

In our current second fiscal quarter which ends October 31 expenses are expected to be slightly higher as we continue the full transition to our new lab and carry the additional expense of maintaining two active lab sites.

Once the move is complete, we expect to realise material cost savings which should limit year-over-year expense increases and include our gross margin. We expect that operating out of our own new lab facility will save the company approximately $1 million of correct revenue level. Now, let me focus and take a deeper dive into catch.

As of July 31, 2017, we had approximately $450,000 of cash on the balance sheet. Our burn rate for the quarter was $2.9 million. The accelerated burn rate for the quarter was anticipated and mentioned during the fourth quarter earnings conference call as we invested an additional $900,000 in fixed assets related to our new lab.

On the operating side, on the operating side we a $1.2 decrease in deferred revenue. Additionally, all of our other balance sheet account negatively impacted cash flows for the quarter with an increase in accounts receivable and a decrease in accounts payable and accrued expenses.

However, as expected our cash position has improved since the reporting date of July 31, as we've collected on a buildup in our receivables. As of the date of this call, our cash balance is well over $1 million.

While we remain confident that we have sufficient cash to fund our operations until we reach cash flow positive later this fiscal year, we are in the final stages of securing a small line of credit to support any fluctuations in working capital. At this time, we do not foresee the need or have any plans to issue additional equity in the near term.

We strongly believe our business plans will lead the company to being cash flow positive on a quarterly basis towards the end of this fiscal year. To sum up our quarterly results, we had strong revenue growth record revenue and another strong booking's quarter.

Our [indiscernible] is stable and we anticipate lower comparable expenses after we complete the move crime lab facility this quarter. As a result, we look excitedly ahead the remainder of the year as we head towards results on a quarterly basis. On our next call, we will update and fine tune our review and projection for the remainder of the year.

I hope our excitement and confidence in the future of the company came through in my comment. In a moment, we'll open things up for any questions..

Operator:.

Okay. Thank you so much everybody..

Thank you. This does conclude today's call. We thank you for your participation. You may disconnect at this time and have a great day..