Champions Oncology, Inc. — Form 10-Q summary
Reporting period: Fiscal third quarter and nine months ended January 31, 2021; comparisons are to the corresponding 2020 periods. Amounts below are in millions of dollars unless noted. Champions provides oncology research services and TumorGraft-based platforms to pharmaceutical and biotechnology customers.
Financial performance
| Metric | Three months 2021 | Three months 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $10.812 | $9.012 | $30.476 | $23.375 |
| Gross margin | 55.2% | 52.0% | 48.1% | 48.8% |
| Operating income | $0.763 | $0.433 | $0.795 | $0.109 |
| Net income | $0.740 | $0.407 | $0.816 | $0.072 |
| Diluted EPS | $0.05 | $0.03 | $0.06 | $0.01 |
| Cash from operations | Not separately provided | Not separately provided | $0.299 | $0.360 |
Quarterly revenue rose 20.0%; nine-month revenue rose 30.4%. The company attributed growth to more and larger studies, expanded platforms and product lines, and increased demand for complex study designs and endpoint analysis. Nine-month operating expenses grew 27.6%, below revenue growth, and operating margin improved to 2.6% from 0.5%. Quarterly operating margin was 7.1% versus 4.8%.
For the quarter, cost of oncology services increased 12.0%, slower than revenue, lifting gross margin. For the nine months, service costs increased 32.3%, and gross margin edged down to 48.1% from 48.8%, reflecting compensation, supplies and outsourced lab costs, including costs incurred ahead of revenue recognition. R&D, sales and marketing, and G&A also increased, primarily due to staffing, lab supplies, platform development and business-development investment.
Balance sheet, cash flow and liquidity
- At January 31, 2021, cash was $7.429 million, current assets $13.969 million and current liabilities $11.414 million; reported working capital was $2.6 million. Cash was $8.342 million at April 30, 2020.
- Total assets were $25.260 million and total liabilities $17.393 million. Stockholders’ equity was $7.867 million; accumulated deficit was $71.857 million.
- Nine-month investing cash outflow was $2.335 million, mainly for laboratory equipment and software development. Financing cash inflow was $1.123 million, principally from option and warrant exercises. Cash declined $0.913 million over the period.
- The filing reports no off-balance-sheet debt or similar obligations. Operating lease liabilities totaled $6.426 million ($0.628 million current and $5.798 million non-current); future minimum lease payments were $21.468 million. The finance lease balance was nil at period end.
Developments, outlook and risks
- The company launched Lumin Bioinformatics during fiscal 2021, a data and analytics offering intended to support computational research, biomarker hypotheses and preclinical evaluation.
- It expanded its Rockville laboratory premises. A further expansion, Suite 201, was scheduled to commence April 1, 2021; the company expected to recognize approximately $3.3 million each in right-of-use assets and lease liabilities at commencement.
- Management expected cash on hand and positive operating cash flows for fiscal 2021 to fund operations for at least 12 months from filing. It gave no specific revenue, earnings or cash-flow guidance. If revenue expectations are not met, management said it could implement cost reductions; any need to raise capital may not be met on acceptable terms.
- Management said COVID-19 had not materially affected operations or required workforce reductions as of the filing, but warned that future disruption could affect travel, partnerships, biologic-material shipments, suppliers and client interactions.
- The company reported no material legal proceedings. It maintained a valuation allowance against all net deferred tax assets due to insufficient earnings history. The filing also notes uncertainty around estimates, including receivable collectability, revenue recognition and stock compensation.
Important facts for investors to verify
- Whether revenue growth and improved quarterly gross margin continue, particularly as study costs may precede revenue recognition.
- Whether operating cash generation improves: nine-month net income was $0.816 million, but operating cash flow was $0.299 million and declined year over year.
- The pace and returns from laboratory, software, TumorBank and Lumin investment, alongside the added lease commitments and expansion.
- Management’s 12-month liquidity assessment and assumptions for positive fiscal 2021 operating cash flow, given the accumulated deficit and possible need for capital if revenue expectations fall short.
- Future effects of COVID-19, customer demand and the disclosed risks in the company’s latest Form 10-K; this filing does not reproduce the full risk-factor discussion.