Greetings, and welcome to the Champions Oncology Third Quarter 2021 Earnings Call. [Operator Instructions] And as a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ronnie Morris, Chief Executive Officer. Thank you, sir. You may begin. .
Good afternoon. I am 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 on 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, this quarter's successful results reflected the execution of our strategic vision and a continuation of the positive momentum that we've been building throughout the year. Our revenue grew to $10.8 million as we continue to successfully expand our services as well as investing for future growth opportunities. .
As you know, last quarter, we announced a significant achievement for Champions, the launch of Lumin Bioinformatics, our proprietary SaaS platform.
As a reminder, Lumin was developed by combining our unique and proprietary data with large publicly available data sets to provide a tool for biologists to leverage computational analytics in their discovery and development programs.
We continue to add functionality, enhanced analytic tools and visualizations as well as additional data to the platform. .
As an example, we recently announced the addition of a proteomics module, which provides biologists with unique analytics and visualizations to understand proteomic effects in relation to genomic characterizations.
While Lumin is still considered in the early launch stage, the feedback from our customers has been extremely positive, and we have successfully increased our software license sales this quarter.
It is still too early to project the potential revenue contribution of our Lumin software, but we are continuing to invest in its development, and we'll be looking to broaden its adoption with both our existing and new customers. .
Turning to our Ex Vivo platform. It continues to expand and contribute meaningfully to our revenue growth. As we have discussed throughout the year, we have historically worked with partners to perform our solid tumor Ex Vivo studies with the goal of bringing this work in-house at the start of the fourth quarter.
We are on track and have started performing solid tumor Ex Vivo work at Champions. We expect to benefit from the lower cost and greater control. Furthermore, we believe that as we continue to expand our comprehensive and unique Ex Vivo platform, it will contribute meaningfully to our revenue growth as we head into the next fiscal year. .
With regard to our biomarker assays and specifically regulatory flow cytometry and histology, our bookings were in line with our expectations for the quarter.
As COVID's negative impact on clinical trials recedes and our deal flow grows, we remain cautiously optimistic that our regulatory clinical services will reach the levels anticipated when we first decided to enter the market. .
In order to expand our available market opportunities, over the next several months, we will be opening a lab in Europe, which will enable us to bid on additional global clinical trial work being performed in Europe. We look forward to continued expansion of our clinical biomarker business in the coming quarters. .
On the R&D front, we are investing in the development of our service offerings and enriching the data contained within our models. As mentioned earlier, we have begun the proteomic characterization of our tumors, which will only further enhance the uniqueness and value of our tumor bank.
Over the coming quarters, we anticipate that we will be reinvesting some of our profits in new R&D projects that will lead to further strategic opportunities for Champions as we transition towards new services and revenue streams. .
In summary, we had a successful third quarter as we executed on multiple fronts, continuing to grow our service business while also investing for future revenue growth opportunities. Now let me turn the call over to David Miller for a more detailed review of our financial results. .
Thanks, Ronnie. Our full results on Form 10-Q will be filed with the SEC on or before Monday, March 15. .
Our third quarter revenue was a record $10.8 million compared to $9 million in the year ago period, a robust year-over-year increase of $1.8 million or 20%. As we've noted over the years, quarterly revenue can fluctuate based on the timing of study completions.
This quarter, we did benefit from some Q4 scheduled revenue completing early pulling into Q3. .
Excluding stock-based compensation and depreciation, we recognized income of $1.3 million compared to income of $900,000 in the year ago period, an increase of 46%.
Our noncash expenses, including stock comp and depreciation, totaled $530,000 for the quarter, resulting in GAAP income from operations of $763,000 compared to $433,000 in the year ago period. I will now focus on our results on a cash basis. .
Our third quarter gross margin was 56%, up from 52% in the same period last year. Cost of sales was $4.8 million in the quarter compared to $4.3 million last year, a year-over-year increase of $500,000 or 11%.
As discussed on our prior earnings calls, we've partnered with other companies to expedite the expansion of our service offerings, specifically our Ex Vivo platform, to continue to drive top line growth.
While these partnerships enabled us to accelerate our growth rate, it put pressure on our margins as we recognize upfront costs on finding the business while the revenue is only recognized when the work is completed. .
I indicated that as revenue was recognized, we would see an improving margin, which materialized this quarter. I'll highlight that just as our true margins were higher in the 45% reported previously, our margins received a lift this quarter above the traditional norm.
But most importantly, as Ronnie mentioned, we are taking this work in-house, which will generate higher Ex Vivo specific margins in the future as well as smoothing out the Ex Vivo related margin fluctuation. .
R&D expense was $1.9 million compared to $1.4 million in the year ago period, an increase of $500,000 or 35%. The increase is due to the continued development work to expand and enhance our product offerings, including an investment in proteomic characterization of our tumor bank. .
Sales and marketing expense was $1.4 million compared to $1.2 million last year, an increase of $229,000 or 19%. The increase in sales and marketing was mainly due to compensation-related expenses as we continue to invest in expanding our sales team and marketing efforts. .
Our G&A expense increased to $1.4 million compared to $1.2 million in the year ago period. As a percentage of revenue, our G&A expense remained flat at 17%, and we anticipate greater leverage as we grow.
In total, our cash-based expenses were $9.5 million for the third quarter of fiscal 2021 compared to $8.1 million in the same period last year, an increase of approximately $1.4 million, consisting of a $500,000 increase in R&D and modest increases in other expenses, given our revenue jump. .
Now turning to cash. We ended the quarter with a balance of $7.4 million compared to $3.3 million in the same period last year. For the quarter, net cash from operating activities was via breakeven. During the quarter, we reduced our accounts payable by nearly $2 million, which contributed to this result. .
While there can be variability in cash from operations on a quarterly basis due to the timing of receipts and disbursements in our working capital accounts, directionally, our anticipated revenue growth should lead to an overall increase in cash generated from operations over the coming quarters. Our balance sheet remains strong, and we have no debt.
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In summary, it was a very successful quarter. We hit a new record for quarterly revenue, and excluding stock comp and depreciation, we had net profit of $1.3 million. The underlying strength of our core business remains solid, and our new products are contributing to our revenue growth. .
Overall, our long-term prospects are promising. As we're currently in our year-end quarter, the next earnings call will likely occur in late July. We will disclose any significant milestones should they occur before our next call. We're looking forward to closing out our fiscal year 2021 and speaking with you again on our year-end call.
We would now like to open the call for your questions. .
[Operator Instructions] Our first question is coming from Matt Hewitt with Craig-Hallum. .
Congratulations on the strong quarter. The first question, regarding Lumin. Obviously, a lot of excitement is building for that platform.
I'm just curious if there's any metrics that you could update us on as maybe number of contracts or a number of customers, anything that would help us kind of garner the traction that you've seen over the past couple of quarters?.
Sure. So I think we announced on our last call that we signed a couple of dozen new customers. And I would say that this quarter, we did the same as well. So we've increased that basically by the same amount that we did the previous quarter, but we're certainly continuing to gain traction, continuing to grow, et cetera. .
That's great. And then maybe an update on the flow cytometry business. Just was it a quarter or two ago, you had signed your first deal.
How is that pipeline building? Have you had any more success signing contracts? And how should we be thinking about the cadence of those contracts as they're completed, obviously, given that that's when you get to recognize the revenues?.
Okay, sorry. Sure. So the -- our flow has -- yes, we have signed more contracts this quarter. I believe Ronnie just indicated it on the call. And it's certainly falling more in line with our expectations when we first announced flow quite some time ago. .
Certainly, the COVID has an impact on the clinical trials, which I know we've discussed, and we're certainly seeing more clinical trials coming to market and our pipeline becoming more robust, and so it really is meeting our expectations. It will contribute to revenue in fiscal year 2022.
And we'll see beyond based on the number of studies that we continue to sign. .
Got it. Got it. And then maybe 2 more for me, and I'll hop back in the queue. First, I know last quarter, you spoke about some of the investments that you're going to be making, at least from a headcount perspective, particularly with Lumin, and now you're talking about the proteomics.
And then you also mentioned on the call earlier that you're going to be looking to expand by adding a facility in Europe.
From an investment standpoint, what is your expectation as far as when you hire a new salesperson or you make this expansion, is there a certain like time period that you would expect to be generating return? Or how should we be thinking about that from a modeling perspective?.
So from a new -- when we hire some -- oh, you take that, fine. .
No, go ahead. .
No, no, no. You take this one. .
Yes. So I would say, Matt, that there's a couple of different areas there.
So there's the geographic expansion because some of the clinical trials that we're bidding on are international, and so it's a lot easier for us to win the contract if we have both the capabilities to take patients from Europe as well as the United States, a lot of the pharmaceutical companies don't want to have a different supplier for the samples from the U.S.
versus the EU. So that's just an expansion of our abilities. .
In terms of expanding our team, we have a pretty well-oiled machine in terms of just training, getting people up to speed. We pretty much see that the people that we bring in, I wouldn't say immediately, but pretty close within the first quarter or two, they're contributing. .
Again, obviously, the more time they're with us, the more they contribute. But we have a fairly quick timeline between bring somebody on board and having them contribute. .
Okay. And then one last one, and I'll hop back into the queue.
Regarding the big pop in gross margins this quarter, I think you commented that some of that was because you're starting to bring some of these services in-house, but there was also the benefit in the third quarter from completing a few contracts and the timing of completing the contracts versus when the expenses were incurred previously. .
When we look at Q4, given that you closed some of the business from Q4 and Q3, is it fair to say that gross margins likely pull back a little bit in the fourth quarter before you start to see maybe another pop in Q1? Or how should we be thinking about gross margin?.
I think that's a great way of summing it up that I would anticipate a small pullback in Q4 and then we could see expansion as we get into other services with higher margin -- that are higher margin. But certainly, we got a boost this quarter, which I indicated. .
[Operator Instructions] Gentlemen, I'm not seeing any additional questions coming in at this time.
Would you like to make any additional concluding remarks before we end today's program?.
Yes. I just want to thank everybody for joining us for our quarterly earnings call. As I think we have over the last several quarters, in the last several years, continue to make steady progress with what we laid out as our vision and our strategy.
We continue to be excited about the expansion and the evolution of what we're doing in the oncology discovery space. First, with services now expanding, you're using our data into a SaaS platform. We look forward to continuing to update everybody over the next couple of quarters, the next year. And thank you, everybody, for joining us.
Have a good evening. .
Ladies and gentlemen, this concludes today's teleconference. We thank you for your participation, and you may disconnect your lines at this time..