Champions Oncology(CSBR) delivered a strong earnings message to investors after the market close on Tuesday, letting them know that not only has the company become profitable, they intend to keep it that way going forward.
While many of the recent conference call’s that I have listened to during the past two quarters have been positive, most of the CEO’s had asked investors to temper their expectations for the coming quarters.
This was not the case for CSBR investors on Tuesday. To those on the call, management was optimistic, enthusiastic, and, by all means, confident.
CSBR Delivers A Profit
To the delight of investors, CSBR delivered on their mission to build the company to profitability, and delivering on their promise two quarters earlier than originally expected.
Without relying on one-time accounting treatments or revenue derived from dilutive fund raising activity, CSBR delivered a clean revenue-and-expense based profit of $40,000 dollars for the quarter. Importantly, management took the opportunity to express that this profit would not be glorified; rather, it will become the base-line template used to generate continued profitability in the future.
What this translates into for investors is that CSBR will remain committed to driving revenues higher, expanding their already impressive margins, and maintaining a balanced and disciplined control over expenses.
The first-time profit was driven by strong bookings, entertaining 40 client studies, and amending an additional 30 studies that will provide future revenue. CSBR maintained its guidance of delivering revenue of between $16 million – $18 million dollars for the year. This revenue will be generated by its existing book as well as their backlog of business that will include additional focus on AML and immuno-oncology services.
CSBR And The Future
CSBR has grown from a company focused on building a platform through innovation to a company that is taking advantage of its prior six years of focused work. CSBR has now translated those cumulative efforts into becoming a profitable business while maintaining its industry leading position in the development of advanced technology solutions designed to personalize the development and use of oncology drugs.
Champions has developed into a company that now employs over 70 people, all with a common focus on generating sustainable revenue streams by utilizing its proprietary technology and their expanding bank of tissue and tumor cells, which are used to simulate a clients potential trial.
Management was adamant to point out that this quarter was not an anomaly and that investors can expect similar laser-like focus as the company continues to develop and mature. Important to the maturity was managements ability to increase the liquidity of the common stock, now trading in excess of 80K shares a day, well over the roughly 1K share average only a year ago. This liquidity and relatively consistent volume will lead CSBR to trade in an orderly manner.
With a cash balance in excess of $4 million dollars and a cash burn rate of less than $120,000 dollars per quarter, the company has no need to access the capital markets any time soon, if ever. Unless a deal would deliver immediate accretive and substantial shareholder value to CSBR, a near-term call for capital is unlikely.
Additionally, management has indicated that options for non-dilutive financing could be attained through sponsored research by a client, or through additional grants, such as those already received from the SBIR. Strategic partnerships and collaborations, incorporating the already impressive and well qualified team at CSBR, can also provide additional benefit without the need to dilute shareholder value. In essence, its a win/win for both client and CSBR.
While the accounting recognition at CSBR may generate some fluctuations in quarterly reports, emphasis was made that these fluctuations will smooth themselves out within a few quarters. With that said, though, its important to note that these potential fluctuations in how revenue and expenses are recorded from a timing standpoint will not affect the company’s ability to remain earnings-positive.
CSBR Growth Remains Strong
CSBR continued on its impressive path of increasing revenue. Champions realized a 50% growth in total revenue and a 50.9% growth in its TOS revenue base, while at the same time maintaining strong margins and keeping expenses well under control.
The third quarter for CSBR will include the previously announced $2 million dollar contract, which provides shareholders with early visibility into the quarter. Prior to that announcement, management had guided investors to look for continued revenue growth in excess of 30%, with a honed strategy to accelerate additional growth opportunities without sacrificing its position as a strong leader and innovator in the space.
Joel Ackerman, CEO of Champions, stated his opinion quite confidently, “This was truly a milestone quarter for Champions. We have been focused over the last 2 years on achieving profitability while continuing to invest in expanding our technology and products. We reached this important step in the Company’s evolution by growing our customer base, delivering high quality studies and managing our costs. With 50% revenue growth and a lower cost base than last year, we have delivered on this ambitious objective ahead of schedule. Looking forward, we remain confident we will achieve our projected revenue of $16 – 18 million for our fiscal year ending April 2017. This quarter’s profitability was achieved without any one-time revenue items or non-recurring events while continuing to invest approximately $4 million per year in innovative research and development. We are now poised to shift our attention to the next phase of strategic growth.”
Growth remains visible, as CSBR has built a customer base of almost 150 pharmaceutical and biotech clients that work directly with CSBR to take advantage of the company’s powerful platform and operational excellence. With the financial house in order, CSBR is now prepared to fully seize the opportunities afforded by these customer demands.
Both the Translational Oncology Services and the Personalized Oncology Services experienced strong traction, with both increasing revenue by 59% and 2.3% , respectively. Producing increases in a challenging biotech environment deserves attention from investors, and while the POS revenue only increased marginally, the increases in the TOS segment of the business remains robust.
Changes At The C Level
To align the company’s senior management resources, CSBR will be changing some of the C level titles, but the principals that have built CSBR into a profitable enterprise will remain fully embedded within the company.
Joel Ackerman, the current CEO, will become the Chairman of the Board of Directors, allowing Dr. Ronnie Morris to assume the role as CEO. Also, as part of the new structure, Dr. Philip Breitfeld will now assume the position of Chief Strategic and Innovation Officer.
Investors May Ask…”Now What?”
With CSBR dedicated to maintaining its aggressive but controlled strategy, investors should expect to see sustained growth for the foreseeable future. CSBR is a unique company in a very unique field, with enormous barriers to entry that should protect the company quite well.
With the stock trading at roughly $2.00 a share, management has made it clear that they will do the work necessary to increase shareholder value by executing on the strategy required to produce excellent and compelling results. Eventually, markets figure things out and the proper valuations are bestowed upon deserving stocks. CSBR, at some point in the near future, will be fairly valued and treated to the premium it deserves, getting that value by being a profitable company with significant enterprise value and strong management.
It was refreshing to listen to a call that exuded complete confidence. Management did not feel the need to temper expectations or talk down the accomplishments of the quarter. For investors that are into hearing positive and exuberant confidence, I urge you to read the transcripts or listen to the call once it is published.
I liked CSBR when I first covered it at $1.79 a share, and I like it even more today at prices 10% higher. With the plan and guidance that management laid out for investors, the likelihood for the stock to appreciate is a relatively safe assumption.
Management has not yet failed to deliver on a stated goal and, based on the visibility that they have in regard to current order flow and backlog, I’ll take them at their word when they believe that exciting times are ahead.
Disclosure: I am long CSBR and may purchase additional shares within the next 72 hours.
I wrote this article myself and it includes my own research and expresses my own opinions. I am not receiving compensation for it (other than from CNA Finance). I have no business relationship with any company whose stock is mentioned in this article.
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