CSBR

Greetings. Welcome to the Champions Oncology Third Quarter Fiscal Year 2026 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Rob Brainin, CEO at Champions Oncology. You may begin.

Good afternoon, and thank you for joining us for our third quarter fiscal 2026 earnings call. I'm Rob Brainin, CEO of Champions Oncology, and I'm joined today by our CFO, David Miller. Before we begin, I'll remind everyone that today's remarks may include forward-looking statements. Actual results may differ materially, and additional information can be found in our filings with the SEC. Before I walk through the quarter, let me briefly highlight 3 key takeaways. First, we delivered another quarter of strong operational performance, including record services revenue and our third consecutive quarter of positive adjusted EBITDA. Second, while quarterly revenue can fluctuate in our business, we remain on track for full year revenue growth and full year positive adjusted EBITDA while continuing to invest in both our data platform and our discovery therapeutics subsidiary. And third, we're beginning to see early momentum in our data business, including new deals closed during the quarter and additional revenue expected in the fourth quarter. Overall, we're pleased with the progress we're making as we scale the core services business while booting the longer-term growth opportunities in data and drug discovery. Turning to the quarter in more detail. We delivered another quarter of record services revenue, underscoring the strength of our core translational oncology services platform and the resilience of our customer relationships. Our PDX Bank remains a true differentiator in the market. And as customer budgets stabilize, we continue to see bookings convert into revenue. I also want to thank our operations team who delivered this growth without material additions to headcount. That reflects the operating leverage in our model and our ability to expand margins as we scale. As we've said repeatedly, this is a somewhat lumpy business. Quarterly revenue can fluctuate depending on the timing of study progression and completion. During the quarter, we saw strong conversion of previously booked work, including some backlog from prior quarters, which benefited revenue in the period. Looking ahead, we would expect revenue to normalize somewhat as studies move through their various stages. That said, the underlying demand for our services remains healthy, and our focus continues to be on expanding the pipeline of future work through increased commercial engagement. This quarter, despite strong services performance, our year-over-year revenue showed a slight decline due to the large data deal we closed in the third quarter last year. Importantly, our services revenue came close to fully offsetting that comparison. Stepping back from the quarter-to-quarter noise, which is why we manage the business on an annual basis, we remain on track for full year revenue growth and full year positive adjusted EBITDA. all while continuing to invest in both our data business and Corellia without dilution of Champions' shares. That balance, growth and investment, coupled with disciplined focus on the bottom line is central to how we're managing the company. While EBITDA remains somewhat suppressed in the near term as we continue investing in these growth drivers, we expect the payoff from those investments to begin showing up in fiscal 2027 with more meaningful acceleration in fiscal 2028, which brings me to an update on our data business. Although we did not recognize data revenue in the third quarter, we are beginning to see tangible signs of momentum in our data business. During the quarter, we closed a 6-figure data deal that we expect to recognize in Q4. We're beginning to see traction with smaller transactions, which is important in building a broader and more diversified data business customer base with the potential to lead to larger deals in the future with those customers. And we continue to progress the large data deal we originally announced in Q3 of fiscal '25 with incremental revenue expected from that deal in the fourth quarter. While I need to reiterate that this is still early, these developments are encouraging. Customer engagement remains strong, and we are spending significant time and strategic discussions with partners who recognize the value of combining deep biological annotation with clinically relevant tumor models. The opportunity here remains substantial, and we are building it deliberately and thoughtfully. Turning to Corellia, our wholly owned target discovery subsidiary. We continue to generate attractive data that is being well received by potential venture capital funding partners and licensing counterparts. The feedback we're receiving is positive, and we believe the science is compelling. As we've communicated previously, we have included the funding of Corellia in our initial fiscal 2027 budgeting assumptions. However, if we're successful in closing an external funding round, the EBITDA currently being invested in that business would be redeployed toward other growth initiatives, particularly in data and/or flow through to the bottom line. I know a common question is the expected timing of funding for Corellia. At this point, I do not have a specific estimate as to when an external financing may occur. These processes take time, particularly in the current biotech funding environment. What I can say is that the discussions are ongoing, engagement remains quite active and the underlying data being generated on an ongoing basis continues to strengthen the investment case. Stepping back, Champions today is a stronger, more diversified company than it was 2 years ago. We have a differentiated and deeply characterized tumor bank that anchors our services platform, a growing radiopharmaceutical capability that enhances our competitive positioning, a data platform that is beginning to generate commercial traction and has significant long-term potential and a therapeutic subsidiary with scientific validation and external interest, where we believe we will soon be positioned to capture some of the return for the investments we have made. These growth vectors are separate but interrelated and our objective remains to maximize shareholder value across all 3 while maintaining disciplined capital allocation. Importantly, we are demonstrating that we can invest in the future while maintaining positive adjusted EBITDA today. That combination is critical. As we move through the fourth quarter, our focus remains on execution, delivering strong service performance, advancing data opportunities, progressing Corellia discussions and finishing the fiscal year with positive adjusted EBITDA and annual growth. Looking ahead, we believe the investments we are making today in these value drivers position Champions to deliver stronger growth and expanding profitability in the years ahead. With that, I'll turn the call over to David to walk through the financial results in more detail.

Thank you, Rob, and good afternoon, everyone. Before I dive in, just a quick reminder that our full results will be filed on Form 10-Q with the SEC before March 17. And as always, I'll reference certain non-GAAP metrics with reconciliations to GAAP included in our earnings release. Total revenue for the quarter was $16.6 million compared to $17 million in the prior year period, a decrease of approximately 3%. However, the mix of revenue this quarter is important to understand. Our core study revenue reached a record $16.6 million compared to $12.6 million in the year ago period, representing growth of approximately 32%. This performance reflects strong study execution and conversion of previously booked work during the quarter. We did not recognize any data revenue from our nascent data platform this quarter compared to $4.5 million in the prior year period, which accounts for the overall year-over-year revenue decline. As we have discussed previously, data revenue will vary from quarter-to-quarter at this stage of the platform development. We anticipate it will become a more meaningful and regular contributor to our results over time. It is also worth noting that study revenue in the quarter benefited in part from strong study completion timing, which will normalize in the near term before continuing to grow as bookings expand. As a result, quarterly revenue can fluctuate as studies move through different phases of execution. Taken together, this revenue performance and continued operating discipline supported our third consecutive quarter of positive adjusted EBITDA coming in at $575,000, while our GAAP loss from operations for the quarter was approximately $275,000. Importantly, on a year-to-date basis, we remain on track to achieve full year positive adjusted EBITDA. Turning to margins. Cost of sales for the quarter was $8.8 million compared to $6.6 million in the prior year period, resulting in a gross margin of 47% compared to 61% last year. It's important to highlight that more than $2 million of cost of sales in the quarter was attributable to outsourced laboratory work primarily related to radiolabeling workflows. As we continue bringing this work in-house, we expect these costs to decline and margins to improve. At current revenue levels, had this work been performed internally, our gross margin would have been in excess of 50%. It is also worth noting that prior year margins benefited from the data license transaction recognized in that period. Operating expenses for the quarter were $7.2 million compared to $5.3 million in the prior year period. The increase reflects investments aligned with our strategic priorities. Research and development expenses increased as we invested in sequencing and related activities to support the continued development of our data platform. Sales and marketing expenses increased as we expanded both our data business development team and our commercial POS team supporting both platforms. And G&A expense increased primarily due to leadership transitions and investments in IT infrastructure. While these investments increased operating expenses in the near term, they are intended to support future revenue growth and operating leverage. Turning to cash flows. Net cash used in operating activities for the quarter was $1.4 million, primarily driven by changes in working capital, including a decrease in deferred revenue related to the timing of billings during the quarter. We ended the quarter with $7.1 million in cash and no debt, and our cash balance remains within our projected range for the quarter. Looking ahead, our focus remains on consistent execution, driving revenue growth, improving both gross and operating margins and continuing to invest in the strategic capabilities that support our long-term growth. As we are now in our fourth and final quarter of fiscal year 2026, our next earnings call will be in July. With that, we'll open the call for questions.

[Operator Instructions] And there were no questions currently from the lines. I will now hand the call back to Rob Brainin for closing remarks.

Yes. Thank you all for listening in today. Like we said, we're pleased with the progress we're making. Look forward to sharing with you another update in July to give you an update on that continued progress. Have a wonderful day.

Thank you. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.

Greetings. Welcome to the Champions Oncology Second Quarter Fiscal Year 2026 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Rob Brainin, Chief Executive Officer.

Good afternoon, and thank you for participating in our second quarter fiscal 2026 earnings call. I'm joined today by our CFO, David Miller. Before we begin, I'll remind you that today's remarks may include forward-looking statements. Actual results may differ materially, and more information can be found in our filings with the SEC. Before we get into the quarter, I want to ground everyone in our 3 core goals for the year: one, deliver year-on-year revenue growth, scaling matters, and we can get margin leverage in our core TOS business as we grow; two, invest in our big growth levers, especially our data platforms, which opens the door to more strategic biopharma relationships; and three, stay fiscally disciplined, maintaining full year positive adjusted EBITDA and self-fund our growth without shareholder dilution. These goals guide our priorities, our investments and our execution focus. We remain committed to them. And importantly, based on our year-to-date results and visibility into the second half of the year, we believe we are on track to deliver on all of these. Turning to the broader environment. We continue to see gradual improvement across pharma and biotech budgets. Funding levels are not fully restored, but customer engagement and our opportunity pipeline generation are gradually improving relative to what we experienced over the last 1.5 years. As R&D budgets reset for calendar 2026, we're cautiously optimistic for booking momentum in the next calendar year. Within that context, our focus continues to be on execution, maximizing conversion of existing bookings, improving operational efficiency and advancing the capabilities to distinguish Champions in the market. Our second quarter reflects this execution focus. Revenue was up year-over-year, driven by stronger conversion of booked work due to reduction in cancellations. Importantly, margin performance continued to improve, supported by the operational efficiencies we've implemented as we capitalize on the leverage in our operating model as study revenue increases. A key highlight of the quarter was our continued success in our radiolabeling and radiopharmaceutical support workflows. As we introduced recently, Champions operates under the very few labs in the industry approved to perform this type of highly specialized radiolabeling work. This is an emerging area of significant interest within oncology drug development and the demand we're seeing from customers reinforces the strategic importance of this capability. Our radiolabeling offering positions us uniquely with both established and emerging radiopharmaceutical testing and we expect this segment to become an increasingly meaningful part of our service offering over time. Bringing more of this work in-house over the coming quarters should also improve gross margin as reliance on outsourced services declines. Alongside radiolabeling, we continue to invest in our data platform, enhancing its functionality and expanding its utility for our pharma partners. The combination of deep biological data, pharmacology capabilities and our PDX assets gives us a differentiated platform that supports target identification, validation and translational insights. Customer interest continues to grow and we view this as a critical long-term value driver for Champions. We've made targeted investments in our commercial and business development teams to support the anticipated growth of these offerings. While these investments do increase near-term OpEx, they are aligned with our strategy and are necessary to expand our revenue base and customer footprint. I also want to address Corellia, our wholly owned subsidiary focused on target discovery. We are making solid progress in discussions with potential venture capital funding partners and are encouraged by the level of interest in that business. Until the transaction is completed, Corellia will continue to be reflecting in our P&L and that may remain the case through fiscal 2027. Importantly, once external funding is secured, our plan is to redirect the majority of those investment dollars toward accelerating growth in our data business. We're not managing this transition for near-term P&L impact. Instead, the focus is on using capital efficiently to reflect longer-term revenue growth curves, particularly in areas where we believe that Champions has competitive advantages. Stepping back a bit, we're encouraged by the progress we made during the quarter. Our performance reflects improved operational discipline, a strengthening commercial position and continued strategic investment in areas where we hold clear competitive advantages, namely our uniquely characterized tumor bank, radiolabeling capability and our data platform. As we enter the second half of the fiscal year, we remain focused on delivering year-over-year revenue growth and full year positive adjusted EBITDA, and we believe the actions we have taken position the company to meet these goals. With that, I'll turn the call over to David to discuss our financial results in more detail.

Thank you, Rob, and good afternoon, everyone. Before I dive in, as a quick reminder that our full results will be filed on Form 10-Q with the SEC later today. And as always, I'll reference certain non-GAAP metrics with reconciliations to GAAP included in our earnings release. As Rob highlighted, the second quarter reflected meaningful progress across both revenue and margin performance, supported by disciplined execution and a more stable operating environment. Total revenue for the quarter was $15 million compared to $13.5 million last year, an increase of 11% year-over-year, driven by improved conversion of booked work due to a lower level of cancellations. Income from operations for the quarter was $185,000 and adjusted EBITDA was approximately $800,000. Importantly, on a year-to-date basis, we remain on track to achieve full year positive adjusted EBITDA which is one of our core financial goals for fiscal 2026. Turning to margins. Cost of sales for the quarter was $7.3 million compared to $7.4 million last year. Our flat cost of sales on an increased revenue base generated gross margin of 52% compared to 45% last year. While there is quarterly margin variability due to the timing of specific costs such as outsourced lab services, this quarter is a good reflection on the margin expectations of our core business. Operating expenses for the quarter were $7 million, up about $2 million from last year, but the increase was in line with our strategic priority, specifically investment in our data platform. Let me break that down. R&D increased by about $900,000 due to investments in sequencing and related costs to support the development of our data platform. Approximately $200,000 of the total increase was related to Corellia's target discovery initiatives. Sales and marketing increased modestly, driven by higher compensation as we strengthened our commercial organization to support data sales, and G&A increased about $800,000 and mostly related to leadership transitions and IT infrastructure investments. We expect some of those G&A increases to be temporary as we work through system inefficiencies and find ways to streamline costs. Although these investments raise OpEx in the short term, they are essential to positioning the company for sustained growth and operating leverage. Turning to cash flows. Net cash used in operating activities for the quarter was $1.9 million, the primary driver was a decrease in deferred revenue as we recognized revenue on a cash received in advance. All changes in our working capital accounts were in the ordinary course of business. We ended the quarter with $8.5 million in cash and no debt, maintaining a solid financial position. Looking ahead, our focus remains on driving consistent execution, strengthening margins and supporting long-term growth through continued investment in strategic capabilities. While quarterly results may fluctuate, with improving market conditions and increased engagement across both services and data offerings, we believe the company is well positioned to deliver year-over-year revenue growth and positive adjusted EBITDA for the full fiscal year while we continue to invest in our data platform and core services to drive our longer-term growth. With that, we'll open the call for questions.

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

It sounds like cancellations have kind of gotten back to maybe historic levels. The funding environment is improving. So a lot of good things from an external standpoint. I'm just curious, from an RFP perspective, the inbound call volume that you're receiving, have you seen an uptick there? And how quickly do you think you can translate that into kind of getting back to that recurring double-digit revenue growth?

Yes, I'll take that one. And David, maybe you want to weigh in question. We're definitely feeling good about the -- what we call OpGen, the opportunity generations we're seeing. It still is a tough market out there, but it is improving, and we have optimism. Endpoints News did a recent survey of 77 biotech execs and over 1/3 of them talked about increasing their outsourcing next year. It wasn't specific to preclinical pharmacology. But in general, with less than 2% forecasting a decline. And so we can play right into that. We've -- as David mentioned, we've built out some investments in our commercial team as well. So we feel really well positioned as the market continues to recover with what we'll be able to do there.

That's great. And regarding the data platform, it's nice to see that you're making some investments there. When you look at the sales and marketing investments, specifically, are those new hires, are they specifically and exclusively targeting the data opportunity? Or are they also supporting the PDX and some of the other services that you provide?

To some extent, some are both, but I really want to highlight a recent hire we just made. I was very excited to be able to bring on Dr. Tammer Farid to lead the data business as a General Manager. He joined us most recently from Illumina, but spent a chunk of his early career at the Boston Consulting Group. So he brings not only a very strategic mindset to the business, but also important domain expertise that will serve us well, not only as we execute against the opportunities we have in the near-term pipeline, which we're seeing and getting excited about, but also then longer term as we really think strategically about what is the right way to grow this business and to partner with our customer base around their opportunities to use this data in ways that will really enhance their discovery and development programs. We still have a lot of work to do, just to be clear, but we're believers in it, and we'll continue to invest there.

Got it. I guess lastly is on the margin side, specifically gross margins, a nice pop here, both sequentially and year-over-year. It sounds like this is kind of a way to think about the base business or the core business. As you look out over the remainder of the year, what would -- where could those go? You've obviously added a few people. I don't know if that's going to necessarily impact gross margins. It sounds like it's more OpEx. But can we expect to see further growth in gross margins, which in theory should be flowing through to the bottom line? Or is there something that would cause those to kind of trick down a little bit here, maybe in Q3 or Q4?

Yes. I could take that one. So a couple of things. So I think this is really where we see the margin for the service business being in the 50%, 52%, even a little bit higher range, all things remaining equal. We all think this is covered on several quarters over the years. There can be various expenses that hit in a given quarter. We mentioned one of them, which is outsourced lab service costs, specifically related to radiolabeling. So while we bring some of that work in-house, we are still in the middle of the transition, and there can be some left over outsourced services costs that will hit in a future quarter, which can impact margin. But -- so that would be a change. But overall, this is the area where we really expect to be in our core services business. And obviously, when we get more heavily into data, we can certainly see an overall lift to margins. And then similarly, based on variances, fluctuations in revenue, that would impact the margins. But overall, this is the way we're thinking about the business.

[Operator Instructions] The next question comes from [ Richard Beferin ], private investor.

Can you comment on how far along your drug candidates are for Corellia before Corellia files for an IND application. Can you comment on that? And as a follow-up, can you comment or give us a range as to what kind of valuation you're looking at or the investors are looking at too on Corellia, please?

Richard, thanks for the question. We really haven't shared that information publicly about Corellia. What I will share is that we're very excited about the data we're seeing and where we are on our lead program and programs and the traction we're starting to get with some of these VC partners as we share that story is gaining real traction. So I think we'll have to leave that one as a watch this space coming attractions, and we'll be sure to share that information as soon as there's something more meaningful and relevant that we can share.

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

Yes. I just want to say thank you all for joining. As you can tell from what David and I have shared, we're excited about the business and the direction we're heading. We're looking forward to updating you more in future quarters about our radio opportunities, about our data opportunities, about Corellia to be able to give more clarity and crispness around where we are on those. But in the meanwhile, I just want to wish everyone a happy holidays, and thank you again for joining. Have a great afternoon and evening.

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