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Earnings call transcript: Champions Oncology Q2 2024 beats forecasts, stock surges

Published 12/12/2024, 09:56 am
CSBR
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Champions Oncology (NASDAQ:CSBR) reported a notable financial turnaround for Q2 2024, surpassing earnings expectations and driving a significant after-hours stock price increase. The company reported earnings per share (EPS) of $0.05, outperforming the forecasted loss of -$0.03. Revenue reached $13.5 million, slightly above the expected $13.32 million. In response, the stock rose 10.15% in aftermarket trading, reflecting investor optimism.

Key Takeaways

  • Champions Oncology reported a surprising profit, exceeding EPS forecasts by $0.08.
  • Revenue increased by 17% year-over-year, reaching $13.5 million.
  • The stock surged over 10% in after-hours trading, indicating strong investor confidence.
  • The company achieved a positive GAAP income from operations, reversing the prior year's loss.
  • Strategic initiatives in AI and data licensing are set to drive future growth.

Company Performance

Champions Oncology demonstrated strong performance in Q2 2024, with significant improvements in profitability and revenue growth. The company reversed its previous year's operating loss, achieving a GAAP income of $700,000. This turnaround reflects effective cost management and strategic focus on high-margin services.

Financial Highlights

  • Revenue: $13.5 million, a 17% increase year-over-year.
  • Earnings per share: $0.05, compared to a forecast of -$0.03.
  • Gross margin improved to 45% from 43% last year.
  • Adjusted EBITDA: $1.1 million, up from a $1.4 million loss last year.

Earnings vs. Forecast

Champions Oncology's EPS of $0.05 exceeded the forecasted -$0.03, marking an $0.08 positive surprise. This performance highlights the company's successful transition from loss to profit, a significant achievement compared to previous quarters.

Market Reaction

Following the earnings announcement, Champions Oncology's stock price increased by 10.15% in aftermarket trading, closing at $5.75. This rise reflects a positive investor response, with the stock moving closer to its 52-week high of $7.13.

Company Outlook

Looking ahead, Champions Oncology anticipates revenue growth of 10-15% for fiscal 2025. The company plans to launch a data licensing revenue stream and expects a sequential revenue decline in Q3, with reacceleration in Q4. Long-term, the company targets research service margins exceeding 60%.

Executive Commentary

CEO Ronnie Morris remarked, "We expect our data strategy to morph into a data business that will be transformative for Champions." CFO David Miller expressed confidence in the financial outlook, stating, "We are extremely excited and confident that we return to the path of delivering strong financial results."

Q&A

During the earnings call, analysts inquired about the funding environment and the company's strategy to monetize its deep biological data sets. Executives highlighted ongoing efforts to maintain core in vivo and ex vivo study offerings.

Risks and Challenges

  • Potential reduction in R&D spending could impact future innovation.
  • A sequential revenue decline in Q3 may affect short-term investor sentiment.
  • The broader biotech funding environment, while improving, remains a cautious factor.
  • Market conditions and competitive pressures in the biotech sector.
  • Dependence on successful execution of strategic initiatives for future growth.

Full transcript - Champions Oncology Inc (CSBR) Q2 2025:

Conference Operator: Please note this conference is being recorded.

I will now turn the conference over to your host, Ronnie Morris, Chief Executive Officer. You may begin.

Ronnie Morris, CEO, Champions Oncology: 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'll 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 in our Forms 10 Q and Form 10 ks. A reconciliation of non GAAP financial measures that may be discussed during the call to GAAP financial measures is available in the earnings release. Q2 was another strong quarter for Champions Oncology. The positive momentum that began in the Q4 of 2024 continued through the first half of this year with another quarter of positive financial results. Our core services business saw sustained growth driven by our industry leading PDX Bank, our precisely characterized multi omic data, operational improvement and strong customer relationships.

Over the past year, we have focused on strengthening our teams and refining processes, resulting in enhanced quality, greater efficiency and scalability. The expanding R and D budgets in the sector have further boosted our confidence, leading to increased bookings and reduced cancellations, reinforcing our strong long term growth outlook. A key differentiator for us is our industry leading PDX Bank, which provides pharmaceutical and biotech companies with invaluable insights for drug development. By continuously expanding our collection of unique tumor models and enhancing their characterization, we have built a rich multi omic data set with significant potential for both drug discovery and development. This data set has always been a valuable resource for our pharma partners with access to model specific data embedded in the pricing of our studies.

With the rise of AI and its ability to unlock deeper insights from biological data, demand for our data has grown, particularly in terms of both its breadth and depth. Recognizing this shift, we have been exploring ways to more effectively monetize this data over the past year, making substantial progress with our customers. In the coming quarter, we expect to introduce a new revenue stream through data licensing, which will have a significant positive impact on our revenue, margins and enterprise value. Regarding Karelia, our wholly owned drug development subsidiary, we remain highly enthusiastic about the targets and compounds we have developed using our proprietary data. We are actively engaged in discussions to raise capital for the company.

As with all of our cost centers, we are mindful of the impact on our bottom line results. To that end, we are focused on minimizing costs while ensuring that drug development progresses without compromise, all while pursuing potential investors. Although the funding environment remains challenging, we have recently engaged with bankers to support our capital raise efforts and both they and we are optimistic about the outlook. In summary, as I hope is evident from this call, Q2 was a very positive quarter on multiple fronts. We are excited about our core business and feel we are back on track to sustain growth.

Additionally, we feel like the external validation on the value of our data asset is forthcoming. We expect our data strategy to morph into a data business that will be transformative for Champions. Now let me turn the call over to David Miller for a more detailed review of the financial results.

David Miller, CFO, Champions Oncology: Thanks, Ronnie. Our full results on Form 10 Q will be filed with the SEC by Monday, December 16. As we've been highlighting, the financial rebound that began in the final quarter of 2024 has continued through our 2nd quarter with revenue of $13,500,000 a 17% increase over the same period last year. We reported income on both a GAAP and non GAAP basis, marking sequential quarters of strong financial results in fiscal 2025. On a GAAP basis, our income from operations for the Q2 was $700,000 compared to a loss of $1,900,000 in the prior year.

Included in the $700,000 of income were non cash expenses of stock comp and depreciation totaling approximately $400,000 Excluding these non cash items, our adjusted EBITDA was $1,100,000 for the quarter compared to an adjusted loss of $1,400,000 in the year ago period. Turning the focus to our cash based results. Total (EPA:TTEF) cost of sales was $7,400,000 compared to $6,600,000 in our Q2 last year, an increase of 11%. The increase was primarily due to mouse costs as the number of studies grow and even more specifically mouse costs for humanized studies. Our gross margin for the quarter improved to 45% compared to 43% for the same period last year.

Our research service margins will fluctuate over the next few quarters with some expected volatility in revenue and cost of sales. But over the long term, with the stabilization in our costs and expected long term growth in revenue, we anticipate delivering research revenue margins in excess of 60%. For the quarter, R and D expense was approximately $1,700,000 compared to $2,500,000 in the year ago period, a decline of $800,000 We have a renewed emphasis on our bottom line results and we've strategically reduced our R and D expense. While we continue to invest in our core business to facilitate future growth, we've scaled back some investment in developmental programs that are not integral to our operations or long term strategic vision. For the quarter, sales and marketing expense was mostly unchanged at $1,700,000 compared to $1,800,000 last year.

Our G and A expense was $1,600,000 compared to $2,100,000 in the year ago period, a decrease of $500,000 The decrease was primarily due to a reduction in compensation and recruitment expenses along with a one time reduction in our allowance for credit losses. Summarizing our first half results, total revenue was $27,600,000 compared to $24,000,000 in the first half of twenty twenty four, an increase of 14%. Total cost of sales was $14,400,000 compared to $14,100,000 a small increase of $300,000 or 2%. The operational efficiencies implemented, which enabled us to improve on our revenue conversion percentage with only a modest increase in cost, lifted gross margin to 48% compared to 41% in the first half of last year. Total operating expenses were down approximately $3,100,000 compared to last year, primarily from reductions in R and D and G and A expenses.

The result was adjusted EBITDA of $3,200,000 compared to an adjusted loss of $3,100,000 last year. Now turning to cash. We ended the quarter with $2,800,000 of cash on the balance sheet and no debt. For the quarter, cash used in operating activities was $300,000 The decline in cash from operating activities was primarily from an increase in accounts receivable and a reduction in our payables in the ordinary course of business. Despite the minor decline in cash with the aforementioned increase in receivables and reduction in payables, our balance sheet is stronger.

As our operational results continue to improve and as we introduce a new data revenue stream, we anticipate a growing cash balance over the coming quarters. Accordingly, we are confident that our cash position remains solid. In summation, our Q2 financial results were strong with revenue of $13,500,000 and adjusted EBITDA of $1,100,000 We anticipate a slight quarterly sequential decline in our research service revenues next quarter with an expected reacceleration occurring in the Q4 and continuing into fiscal 2026. As a result of these projections and the expected data revenue, revenue growth for fiscal 2025 should be at least between 10% 15% and our quarterly adjusted EBITDA will remain positive. We're extremely excited and confident that we return to the path of delivering strong financial results that should create value for our shareholders.

We look forward to our next update in mid March when we report our Q3 results. We can now open the call for questions.

Conference Operator: Thank you. At this time, we will be conducting a question and answer session. The first question comes from Matt Hewitt with Craig Hallum. Please proceed.

Talf Korman, Analyst, Craig Hallum: Hello. This is Talf Korman on for Matt Hewitt. First off, congratulations on the strong quarter. Could you please provide any color on the market dynamics? Other CROs are saying that there is some lumpiness in the funding environment.

What are you seeing? Yes. Thank you for that question. Yes, so we definitely it's still not back to, I would say, where it was a couple of years ago, but it's gotten better over the last year. So I guess the short answer is we are cautiously optimistic that the funding is coming back certainly from the big pharma.

There is funding from the biotech sector. There is definitely more investment in the biotech sector. It's not where it was a couple of years ago. But we are starting to see it opening up and we are starting to see signs that it is improving. Thank you.

And then are there any new tests or services you could be rolling out to drive further growth? Yes. So as I think we mentioned on the call, something we have been focused on for a very long time is value in the data that we have created. From the beginning of the company, we always knew that the data we were creating was very unique from a biological perspective. And where I think for many years people were focused on longitudinal data so they would be interested in 100,000 patients who have RNA expression or some type of expression of a gene, we were always focused on adding rows and rows and rows to the same tumor, the same patient, the different treatments, different omics, whether it's transcriptomics or genomics or proteomics and on and on just to try to understand the tumor and what was making the tumor turn on and off.

And we did that for many, many, many tumors. So we went very deep where everyone else went long. And I think that now with the advent of AI and kind of we're at the right time now where everyone's interested in those type of data sets and those are the type of data sets that are going to provide a lot of value going forward. So from that perspective, we feel like that's an area where we're going to where there's going to be growth and we're going to focus on that area. In terms of our other core business, those continue to be strong businesses.

There's a lot of interest in both in vivo and ex vivo studies and biomarker studies and that's the bread and butter of what we do. Thank you.

Conference Operator: Okay. We have no further questions in queue. I'd like to turn the floor back to management for any closing remarks.

Talf Korman, Analyst, Craig Hallum: Okay. Thank you very much for joining us for our quarterly earnings call. We're excited about the progress we're making, both on the core business and the data strategy as well as the drug development subsidiary. So we feel very confident about the growth of the company and we are excited to give the next update in 90 days. So thank you, and have a good evening.

Conference Operator: Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

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