Champions Oncology, Inc. — Form 10-Q Summary
Reporting period: Three and six months ended October 31, 2017; balance-sheet comparisons are to April 30, 2017. The company develops oncology research and treatment-personalization services using its TumorGraft platform. Its reportable businesses are Translational Oncology Solutions (TOS) and Personalized Oncology Solutions (POS); management says future growth will focus on TOS, not POS.
Financial performance
| Metric | Three months ended Oct. 31, 2017 | Six months ended Oct. 31, 2017 |
|---|---|---|
| Revenue | $5.203 million, up 16.7% year over year | $10.237 million, up 26.0% |
| Operating loss | $70,000, versus $493,000 | $689,000, versus $3.017 million |
| Net loss | $94,000, versus $504,000 | $768,000, versus $3.051 million |
| Net loss per share, basic and diluted | $0.01, versus $0.05 | $0.07, versus $0.32 |
Amounts are in U.S. dollars. TOS revenue was $4.825 million for the quarter and $9.419 million year to date, up 21.8% and 32.3%, respectively. POS revenue was $378,000 and $818,000, down 23.9% and 18.8%. TOS accounted for 92% of six-month revenue. Quarterly gross margins were 50.4% for TOS (53.8% prior year) and 31.5% for POS (24.8%); six-month margins were 50.7% and 21.0%, respectively.
For the six months, operating expenses were $10.926 million, down from $11.143 million. Sales and marketing and general and administrative costs declined, while TOS cost of services rose with the number and size of studies. Research and development was approximately $2.2 million, broadly unchanged. Management attributes improved operating cash use to revenue growth and expense management.
Cash, liquidity, and obligations
- Cash and cash equivalents were $660,000 at October 31, down from $3.295 million at April 30. Six-month operating cash outflow was $1.680 million; investing outflow was $942,000, primarily for the new Rockville laboratory; financing outflow was $13,000. The comparable prior-year periods had operating outflow of $2.555 million and investing outflow of $30,000.
- Current assets were $3.541 million and current liabilities $5.818 million, producing negative working capital of approximately $2.3 million. Deferred revenue was $3.879 million. Total liabilities were $6.120 million and stockholders’ equity $373,000.
- No line-of-credit borrowings were outstanding. A bank facility entered into October 30 allows borrowing up to $1.5 million, secured by company assets, at prime plus 1.5%–2.0%; amounts are due on demand and the facility matures October 29, 2018. Capital-lease obligations had a present value of $55,000.
Changes, outlook, and risks
- Revenue growth and the sharply reduced operating loss were principally associated with TOS growth and lower overall operating costs. POS revenue continued to decline; the company cites lower implant and drug-study revenue.
- Management believes cash on hand and future revenue are adequate to fund operations through at least December 2018 and says it does not plan to use the credit line. Continuing beyond that point depends on revenue growth and expense management; otherwise, the company may need external financing or may reduce, delay, or eliminate activities. Financing may be unavailable or dilutive/restrictive.
- The new Rockville facility commenced operations in August 2017. The company reported approximately $910,000 of equipment investment and approximately $100,000 of non-capitalized, non-recurring lab setup costs. Property and equipment, net, increased to $2.026 million from $1.216 million.
- Registration-rights provisions could require penalties in certain circumstances; no damages were accrued, as management reported required filings and expected continued compliance. The company reported no material legal proceedings. It recorded $121,000 of liabilities for uncertain tax positions related to a foreign operation.
- Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter. No off-balance-sheet debt or similar obligations were reported.
Important facts for investors to verify
- Whether TOS revenue growth and segment margins persist, given quarterly margin variability and increased study costs.
- Cash runway and the assumptions supporting management’s estimate of funding operations through December 2018, particularly with negative working capital and continued cash outflows.
- Availability and terms of the secured, demand-repayable credit line, and potential financing needs beyond December 2018.
- Execution and costs of the new laboratory facility, and the company’s plan to prioritize TOS while POS revenue declines.
- Potential dilution from outstanding options and warrants; as of October 31, 2017, 2.495 million options and 2.004 million warrants were outstanding.