Champions Oncology Q3 FY2026 Earnings Call - Record services revenue, positive adjusted EBITDA, early data momentum

Operator: Greetings. Welcome to the Champions Oncology third quarter fiscal year 2026 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. 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.

Rob Brainin, Chief Executive Officer, Champions Oncology: 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 three 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 Corellia AI.

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 building 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 six-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. We continue to progress the large data deal we originally announced in Q3 of fiscal 2025, 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 in 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’ve 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 two 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 three 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.

David Miller, Chief Financial Officer, Champions Oncology: 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 seventeenth. 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’s 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 thousand, while our GAAP loss from operations for the quarter was approximately $275 thousand. 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 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. G&A expense increased primarily due to leadership transitions and investments in IT infrastructure. While these investments increase 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 growth 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: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, that is star one if you wish to ask a question. Please hold while we pull for questions. Once again, that will be star one on your phone at this time if you wish to ask a question. There were no questions currently from the lines. I will now hand the call back to Rob Brainin for closing remarks.

Rob Brainin, Chief Executive Officer, Champions Oncology: Yeah. 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.

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