Champions Oncology Inc

NASDAQ:CSBR

Earnings Call Analysis

Champions Oncology Reports 17% Revenue Growth and Positive Adjusted EBITDA

Champions Oncology experienced a robust quarter with revenue hitting $13.5 million, representing a 17% increase year-over-year. The company marked a GAAP income of $700,000, up from a $1.9 million loss last year. Gross margins improved to 45%, with projections indicating future research margins exceeding 50%. Adjusted EBITDA reached $1.1 million, a significant recovery from last year’s loss. Looking ahead, revenue growth for fiscal 2025 is forecasted at 10% to 15%, buoyed by innovations in data licensing. Although a slight dip in research service revenues is anticipated next quarter, a rebound is expected to begin in the fourth quarter of fiscal 2026.

Strong Financial Performance Drives Confidence

In the second quarter of fiscal 2025, Champions Oncology reported revenue of $13.5 million, reflecting a 17% increase from the same period last year. This momentum continues from a financial rebound that began in the last quarter of 2024. The company's income from operations reached $700,000, a significant recovery from a loss of $1.9 million in the same quarter last year, showcasing a strong turnaround.

Improved Profitability and Operational Efficiency

The company's gross margin improved to 45%, up from 43% year-over-year, indicating enhanced operational efficiency. Adjusted EBITDA for the quarter stood at $1.1 million compared to an adjusted loss of $1.4 million in the previous year. This increase suggests that Champions Oncology is not only growing its revenue but is also effectively managing its costs alongside revenue growth.

Strategic Cost Management Enhances Bottom Line

Champions Oncology has emphasized a renewed focus on enhancing its bottom line results, leading to a strategic reduction in R&D expenses. The R&D expenses were approximately $1.7 million, down from $2.5 million year-over-year, while general and administrative costs declined to $1.6 million from $2.1 million. These cost management strategies resulted in total operating expenses decreasing by approximately $3.1 million compared to last year.

Future Growth Expectations and Revenue Guidance

The company provided optimistic guidance for revenue growth for fiscal 2025, projecting an increase of at least 10% to 15%. While a slight decline in research service revenues is expected in the coming quarter, a reacceleration is anticipated in the fourth quarter and into fiscal 2026. This reflects a cautious yet positive outlook, leveraging ongoing market dynamics and internal growth strategies.

Emerging Data Revenue Stream Offers New Opportunities

Champions Oncology is introducing a new revenue stream through data licensing in the upcoming quarter, which is expected to positively impact both revenue and margins. This initiative aligns with the rise of AI and growing demand for enhanced biological data insights, demonstrating the potential for transformative growth in the company's data strategy.

Solid Financial Position with No Debt

Champions Oncology ended the quarter with a cash balance of $2.8 million and no debt, highlighting a solid financial foundation. The company reported cash used in operating activities of $300,000, primarily affected by increases in accounts receivable. However, they anticipate growth in cash reserves as operational efficiencies and new revenue streams take effect.

Market Conditions and Long-Term Outlook

Despite some continued lumpiness in the funding environment, particularly in comparison to previous years, there are signs of improvement as investment in the biotech sector is starting to pick up. The company expresses cautious optimism regarding emerging funding opportunities, especially from larger pharmaceutical companies.

Conclusion: A Positive Path Forward

Overall, Champions Oncology's Q2 performance reflects a robust recovery trajectory, driven by strategic cost management and new revenue opportunities. The management’s positive outlook, supported by the anticipated growth from data licensing, positions the company favorably for shareholders looking for value creation in the evolving biotech landscape.

Earnings Call Transcript 2025-Q2

[Operator]

Greetings. Welcome to the Champions Oncology Second Quarter Fiscal Year 2025 Earnings Call. [Operator Instructions] 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, executive]

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 will 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 Forms 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. Q2 was another strong quarter for Champions Oncology. The positive momentum that began in the fourth quarter of 2024 continued through the first half of this year with another quarter of positive financial results.

Our core services business saw a sustained growth, driven by our industry-leading PDX bank, our precisely characterized multiomic 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&D budgets in the sector have further boosted our confidence leading to increased bookings and reduce 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 multiomic 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 mill-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 Corellia, our wholly owned drug development subsidiary, we remain highly enthusiastic about the targets and compounds we have 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, executive]

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 second quarter with revenue of $13.5 million, 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 second quarter was $700,000, compared to a loss of $1.9 million in the prior year. Included in the $700,000 of income were noncash expenses of stock comp and depreciation totaling approximately $400,000, excluding these noncash items, our adjusted EBITDA was $1.1 million for the quarter, compared to an adjusted loss of $1.4 million in the year ago period.

Turning the focus to our cash-based results. Total cost of sales was $7.4 million compared to $6.6 million in our second quarter of 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 cost and expected long-term growth in revenue we anticipate delivering research revenue margins in excess of 50%. For the quarter, R&D expense was approximately $1.7 million compared to $2.5 million 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&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 $1.7 million compared to $1.8 million last year. Our G&A expense was $1.6 million compared to $2.1 million 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 onetime reduction in our allowance for credit losses.

Summarizing our first half results, Total revenue was $27.6 million compared to $24 million in the first half of 2024, an increase of 14%. Total cost of sales was $14.4 million compared to $14.1 million, a small increase of $300,000 or 2%. The operational efficiencies implemented which enabled us to improve on our revenue conversion percentage was only a modest increase in costs, lifted gross margin to 48% compared to 41% in the first half of last year.

Total operating expenses were down approximately $3.1 million compared to last year, primarily from reductions in R&D and G&A expenses. The result was adjusted EBITDA of $3.2 million compared to an adjusted loss of $3.1 million last year.

Now turning to cash. We ended the quarter with $2.8 million 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. Inflammation, our second quarter financial results were strong with revenue of $13.5 million and adjusted EBITDA of $1.1 million. We anticipate a slight quarterly sequential decline in our research service revenues next quarter with an expected reacceleration occurring in the fourth quarter 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% and 15%, and our quarterly adjusted EBITDA will remain positive.

We're extremely excited and confident that we've returned 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 third quarter results.

We can now open the call to questions.

[Operator]

[Operator Instructions] The first question comes from Matt Hewitt with Craig-Hallum.

[Jack Christopher Siedow, analyst]

Hello. This is [ Tolf Corman ] on for Matt Hewitt. First off, congratulations on a 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?

[Ronnie Morris, executive]

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.

[Jack Christopher Siedow, analyst]

And then are there any new tests or services you could be rolling out to drive further growth?

[Ronnie Morris, executive]

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 is 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 a biomarker studies, and that's the bread and butter of what we do.

[Operator]

[Operator Instructions] We have no further questions in queue. I'd like to turn the floor back to management for any closing remarks.

[Ronnie Morris, executive]

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.

[Operator]

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