Champions Oncology, Inc. — Q2 FY2022 Form 10-Q
Reporting period: Three and six months ended October 31, 2021; compared with the periods ended October 31, 2020. The company provides oncology research and pharmacology services, along with bioinformatics and drug-discovery platforms.
Financial performance
| Metric | Three months 2021 | Three months 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $11.786 million | $10.117 million | $23.039 million | $19.664 million |
| Operating income | $263,000 | $7,000 | $88,000 | $31,000 |
| Net income | $277,000 | $1,000 | $105,000 | $76,000 |
| Diluted EPS | $0.02 | $0.00 | $0.01 | $0.01 |
| Gross margin | 52.4% | 44.2% | 52.2% | 44.2% |
Revenue increased 16.5% for the quarter and 17.2% for the six-month period. Pharmacology services remained the primary revenue source. Other Translational Oncology Solutions revenue was $643,000 for the quarter and $1.169 million for six months. One customer represented approximately 15% of revenue in both the current quarter and six-month period.
For six months, operating cash flow was $1.444 million, investing cash outflow was $1.473 million, and financing cash inflow was $123,000. Cash increased $94,000 to $4.781 million. At October 31, current assets were $13.702 million and current liabilities $12.465 million, yielding working capital of approximately $1.237 million. Total liabilities were $21.225 million, including $9.455 million of operating lease liabilities; the filing reports no off-balance-sheet debt.
Changes and management commentary
- Gross margin improved as more lab work was performed internally, offsetting higher compensation and lab-supply costs.
- R&D expense rose 39.3% for the quarter and 41.8% for six months, mainly due to compensation and sequencing costs tied to investment in the therapeutic-target discovery platform.
- Sales and marketing costs increased with expansion of research-services and SaaS business-development teams. General and administrative costs increased primarily due to compensation and IT infrastructure expenses.
- Capital spending was primarily for additional laboratory equipment and software development. Lumin platform enhancements in progress totaled $1.4 million and were expected to be placed into service in the latter half of fiscal 2022.
Outlook, risks and unusual items
Management said cash on hand and expected positive operating cash flow for fiscal 2022 should fund operations for at least 12 months from filing. If revenue expectations are not achieved, management cited potential cost reductions; additional capital may be needed, with no assurance it could be raised on acceptable terms. No specific numerical revenue or earnings guidance was provided.
Management reported a material weakness in controls over identifying and reviewing royalty obligations and recognizing related liabilities, making disclosure controls ineffective as of October 31, 2021. Remediation measures were being implemented. The filing states that the financial statements nevertheless fairly present the company’s financial position and results. Royalty arrangements include payments generally ranging from 2% to 12.5% under certain licenses; approximately $194,000 was paid or accrued for the six months. The company reported no known legal proceedings and no accrued registration-rights damages. Deferred tax assets remained fully reserved due to insufficient earnings history.
Key facts for investors to verify
- Whether revenue growth and improved gross margins continue, and whether growth translates into sustained operating profitability and cash generation.
- Customer concentration and the durability of demand for pharmacology and other services.
- Progress and commercial uptake of Lumin and other platform investments, including the timing and returns from capital spending.
- Remediation and independent validation of controls over royalty agreements and related liabilities.
- Liquidity relative to operating lease commitments of $20.084 million in undiscounted future minimum payments and the company’s ability to meet its 12-month funding outlook.