Q3 2021 Inotiv Inc Earnings Call
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Greetings and welcome to <unk> third quarter fiscal 2021 financial results Conference call.
At this time all participants are in a listen only mode.
Question and answer session will follow the formal presentation. If you would like to ask a question. During today's event. Please press star one on your telephone keypad.
If anyone should require operator assistance during the conference.
But he group.
Can you. Please go ahead.
Thank you Donna and good afternoon, everyone Intuitive, Inc. Third quarter fiscal 2021 financial results were released today after the market close.
Copy of the earnings release can be found in the investors section of the company's website at Www <unk> <unk>.
Go Dot com.
As a matter of formality I need to remind you that some of the statements that management will make on this call are considered forward looking statements, including statements about the company's future operating and financial results in plants.
Such statements are subject to risks and uncertainties that could cause actual performance or achievements to be materially different from those projected.
Any such statements represent management's expectations as of today's date, you should not place undue reliance on these forward looking statements and the company does not undertake any obligation to update or revise forward looking statements.
Yes.
Whether as a result of new information future events or otherwise.
Please refer to the company's SEC filings for further guidance on this matter.
Management also will discuss certain non-GAAP financial measures in an effort to provide additional information for investors a definition of these non-GAAP measures and reconciliation to the most comparable GAAP measures is included in the company's financial results press release and corresponding form 8-K.
Joining us from the company. This afternoon are Bob Leisure, President and Chief Executive Officer, Bob.
Taylor, Chief Financial Officer, and John <unk>, Chief Strategy Officer.
Bob will begin with some opening remarks, after which Beth will present, a summary of the Companys financial results. Then we will open the call for questions.
Now, it's my pleasure to turn the call over to Bob.
Alright, Thank you Kelly and good afternoon to everyone. Thank you for.
Joining us today.
This quarter, we continued to make significant progress executing our strategy to build a complete suite of contract research services spanned the entire drug discovery and preclinical development continuum.
With expanded inhouse capabilities, we increasingly are engaging clients earlier in the drug discovery process and serving their needs more comprehensively during the full journey to clinical development.
Our recent success has been supported by three strategic growth pillars.
One is the acquisition of strategic assets.
Two the expansion of existing operations and services.
Three focus startup of new operations and services.
First I'll talk about the acquisitions regarding the acquisitions.
This quarter, we meaningfully enhanced our service offerings and scale than it is businesses business with the acquisitions of Hyster talks labs emboldened bio path.
Which closed on April 30 to May 3rd respectively.
These acquisitions now comprise our Boulder, Colorado operations.
And both delivered strong Dubuque performances parameters contributing approximately.
$4.3 million.
Buying revenue during May and June 2021.
Which corresponds to an annualized revenue run rate of approximately $25.8 million.
Strategically the Boulder acquisitions expand our histopathology non clinical pharmacology services are bringing us highly complementary client base predominantly consisting of emerging biopharma companies, many of which focus cell and gene therapy.
We are pleased with the progress of the integration of his talks bullet bio path.
We're already capitalizing on the existing cross selling opportunities that will further bolster images overall growth.
We're very optimistic that these acquisitions will create substantial value for our clients and shareholders much like we accomplished with the purchase of seventh way from July of 2018 Smithers of bonds in May of 2019.
Preclinical research services in December of 2019.
After the quarter ended we also announced the acquisition of Missouri based gateway.
Necrology laboratories.
While gateways annual revenue run rate is relatively small at approximately $2 million.
That brings us key talent and expertise to assist clients.
Early target validation activity.
And to help evaluate the efficacy and safety of news.
Molecular entities designed for the treatment of kidney and heart disease.
Strategically gateway acquisition dovetail well into our St. Louis operations will be part of our statement of operations.
Regarding the expansion of existing operations in May 2021, we purchased previously leased Saint Louis facility for approximately $4.7 million.
Sharon we commenced the construction of the unfinished shelf space at the 50000 square foot facility expansion will add office and laboratory capacity to accommodate our growing client base and diversity of service offerings.
In particular the expansion will include laboratories for increased DNP, K technology and capability.
As well as new cell and molecular biologic biologic tools capable of delivering <unk> solutions and pharmacology and toxicology early in the drug discovery phase.
We expect the St. Louis expansion to add approximately 20000 square feet of capacity to support our future growth, including new business opportunities. They are being derived from his to talks about with bio path and we are.
Targeting projected project completion at.
At the beginning of the second quarter of fiscal.
Year 2022.
At our Fort Collins facility, we invested more than $1 million over the last year to make improvements expand capacity and broaden our services.
And we're currently evaluating further expansion opportunities at this location.
And Evansville, we recently initiated.
Xyrem planning for another expansion.
We're very pleased with the last expansion in Evansville, which went to operational March of 2020.
To add additional capacity there.
We expect the design build and validation to be completed within 24 months.
And Boulder, they expanded their facilities last year prior to just prior to the acquisition. In addition, we are increasing the lease space by an additional 9000 square feet side, our existing site to support the additional strong demand that we are receiving core services since the acquisition.
Finally in Gaithersburg.
Lee looking for additional space to Jeff's, new growth opportunities and startup operations at that location.
Regarding the startup of new operations and services.
Over the last two quarters, we announced key initiatives.
To deliver additional services.
In January we announced initiating send data reporting in house.
February we announced starting clinical pathology services.
In March we announced the launch of in House audio.
Cardiovascular safety pharmacology capabilities.
Okay.
Each of these.
Three development initiatives were.
We're launched in our fiscal second quarter and have now been validated and have incoming orders and also begin to contribute to our revenue in the fiscal fourth quarter.
Yeah.
In our fiscal third quarter, we commenced three additional startup initiatives, which we've announced that we believe will deliver significant long term revenue and value for additive.
We've recruited leaders to manage these three new initiatives and we are moving to accelerate these startups.
In summary in June.
We announced the establishment of in house medical device histology and pathology services.
Which we previously had outsourced to third parties.
Of note, we recruited nickel at Jackson and expert in medical device pathology to spearhead this new business.
In July we acquired key assets TFS assets for Millipore Sigma by reliance portfolio to start.
Our own in house genetic toxicology business.
Under sales based royalty agreement that did not require any upfront funding from us.
When we acquired standard operating procedures cultures historical control data client list.
Of note, we recruited Doctor Kabbalah Krishna.
Pharmaceutical industry veteran with experience in drug discovery and clinical safety evaluation to lead our entry to genetic toxicology arena.
In support of this new offering.
Expect to lease space in Europe.
Millipore Sigma current facilities in Rockville, Maryland.
Also in July we purchased the physical assets of Tennessee based laboratory service provider that ceased operations. These assets, which include state of the art cell and molecular.
Biology instrumentation.
Dr consumables and chemicals.
Bench work and office furniture will accelerate the completion.
Of a new regulated laboratory operation that we plan to build in support of our broadening bio therapy.
Therapeutics client base.
We acquired these assets for approximately $1.3 million, which we believe is a substantial discount.
To our estimate of fair market value and currently are exploring locations for the operations.
As well as building the scientific and business teams that will execute on it and it has expanded biotherapeutics initiatives.
Of note, we appointed a new Vice President.
Services, Canada Swart will.
He will be responsible for building a regulated biotherapeutics operation.
Schwartz joins us.
With more than three decades of global experience supporting all aspects of clinical.
<unk>, including <unk>.
Recent tenure PAREXEL.
Where he led and influence to be 20 year evolution.
Political sciences, and translational pharmacology as well as developing genomic and individualized medicines.
Sure.
Simultaneously across our organization, we have continued to make broad expansion investments in G&A, including our people our infrastructure.
Systems and services.
So in summary, during our fiscal third quarter and beginning our fiscal fourth quarter.
You made significant investments in our business through acquisitions terminal expansion.
And embedded operational startups, all designed to augment our future growth.
Moreover, we continued to invest in our talent and bench strength infrastructure systems across the entire organization.
The successful equity and debt financings, we completed April 2021 provided us with.
With net proceeds of approximately $49 million $17 million respectively.
Facilitating our ability to make these critical investments and then it is future.
We thank our new shareholders and the team at first Internet Bank of Indiana for their support.
Yes.
Like to note that.
After the quarter ended we did receive notice.
That our PPP loan totaling $4.9 million has been forgiven.
Okay.
Moving to a few of our third quarter fiscal 2021 financial highlights.
And it is revenue grew by approximately 45% year over year.
To $22.9 million driven by internal growth of $2.9 million.
Combined with the $4.3 million of incremental revenue from Crystal ball or bio path during.
During the months of May and June.
Gross profit increased approximately 51% year over year to $7.6 million due to higher revenue.
Our strategic growth investments, we made this quarter drove higher operating expenses.
<unk> incremental acquisition and integration costs related to his to talks about with bio path.
Incremental startup costs for internal investments and new service offerings, and higher recruiting and retention related expenses.
However, our adjusted EBITDA increased approximately 148% to.
$2.2 million from 894000 in the prior year quarter.
Demonstrating the underlying leverage in our business as we scale.
Finally, we are pleased that after a 45% growth in revenue, we were able to achieve a book to bill ratio in the third quarter.
153 times for our services business.
We ended the period with a backlog of $62 million.
Was up 15% compared to $53.9 million at March 31, 2021 and up 68%.
From $36.9 million at June 32020.
Indicating current strength of our business.
We are pulling several levers to improve.
Term profit building <unk>.
<unk>, making scalable investments.
Reducing outsourcing by bringing key capabilities in house.
Driving cross selling initiatives.
Taking advantage of purchasing opportunities.
Lowering our client acquisition cost as a percent of revenue.
Leveraging existing direct fixed cost and reducing corporate overhead as a percentage of revenue.
In the third quarter adjusted unallocated corporate G&A was approximately $3.1 million.
13.5% of revenue compared to 16, 6% of revenue for the same period last year.
And we believe we will continue to see this figure declined as we continued to grow.
In closing we've been assembling.
Highly complementary assets and an extremely talented team under one roof, all dedicated to providing a white glove service to our clients.
We believe that we can grow faster than the broader CLO market door to our ability to cross sell a newly created and acquired solutions are successfully retaining clients our ability to identify income.
And complete attractive acquisitions.
Our access to the capital markets and our efforts to simple tap.
Talent to complete support and integrate all of our businesses.
We have continued to significantly transform emitted I believe our best is yet to come.
Strive to outperform our CRA appears as service flexibility innovation and attention to the details.
Creating a unique opportunity for us to accelerate our growth.
With that I will turn the call over to Ben Taylor, our Chief financial should recap fiscal 2021 third quarter financial results in more detail.
Please go ahead.
Thanks, Bob Good afternoon.
The first quarter of fiscal 2021, our revenue increased 45% to $22.9 million from $15.8 million in the comparable prior year period, driven by internal growth of $2.9 million and two months of incremental revenue.
Inflation.
Labs, and Boulder bio path totaling $4.3 million.
Service revenue service segment revenue in the third quarter of fiscal 2021 increased 47, 6% to $21.9 million from.
$14.9 million in the comparable prior year period.
Service gross margin increased to 33% the third quarter of fiscal 2021 from.
From 31, 9% comparable prior year period, reflecting the greater utilization of recently expanded capacity.
Product segment revenue increased 6% $968000 in the third quarter of fiscal 2021 from $913000 in the comparable prior year period, reflecting an increase in analytical instruments.
Which was partially offset by a decrease in collecting in vivo sampling system.
Product gross margin increased to 43, 7% in the third quarter of fiscal 2021 from 35, 6%.
Comparable prior year period, driven by expense reductions implemented in the last half of fiscal year, 2020, and improve margins on existing cell.
Operating loss in the third quarter of fiscal 2021 total of $1.7 million compared to an operating loss of 477.
The prior year period, reflecting increased strategic investments and operating expenses to support future revenue growth, including $892000 of incremental acquisition and integration costs.
$4000 of higher noncash stock compensation expense and $359000 of higher startup costs.
This quarter's growth oriented investment in G&A includes recruiting and relocation expenses.
Higher compensation expense, including noncash stock compensation.
And transaction costs related to the acquisitions of <unk> labs in Boulder bio path.
All combined adjusted corporate unallocated G&A much of which was growth oriented totaled approximately 13, 5% of revenue in the third quarter of fiscal 2021 compared to approximately 16, 6% of revenue in the third quarter of fiscal 2000.
I'd also like to point out that this quarter selling expenses were higher compared to prior periods due to our increased book to Bill ratio as we commission when we win new orders prior to the recognition of the corresponding revenue.
Net loss in the third quarter of fiscal 2021 totaled $2.3 million or a negative <unk> 15 cents per diluted share compared to a net loss of $879000 from negative eight cents per diluted share in the comparable prior year period.
Adjusted EBITDA equaled approximately $2.2 million in third quarter of fiscal 2021 compared to $894000 in the comparable prior year period.
The book to Bill ratio for the third quarter of fiscal 2021 was one three times, we continue to build our infrastructure for growth, which included additional headcount transaction and integration costs for the two acquisitions and investments in new service offerings technology.
<unk> and system.
Our backlog at the end of the third quarter of fiscal 2021 was $62 million up from $53.9 million on March 31, 2021, and up from $36.9 million on June 32020.
Briefly reviewing our first nine months of fiscal 2021 results total revenue increased 33, 2% to 59.5.
$5 million, driven by $2.5 million of internal growth and two months of incremental revenue contribution from his total slab and boulder bio path totaling $4 trillion.
Compared to the prior year period, the first nine months.
Fiscal 2021 gross margin expanded 236 basis points to 33, 3%.
Net loss guidance from approximately $2.9 million to $3.4 million or negative <unk> 27 cents per diluted share and adjusted EBITDA increased 92, 2% to $5 million.
Cash flow from operations during the first nine months of fiscal 2021 totaled $8 million, which primarily reflect the add back of depreciation and amortization of $4.1 million and noncash stock compensation expense of $1 million and ink.
Kris and customer advances for $7.5 million and an increase in accounts payable and accrued expenses of $2.8 million, which was partially offset by an increase in accounts receivable of $4 million.
Capex for the first nine months of fiscal 2021 totaled $8.4 million, which includes the purchase of the building for our St. Louis operations of $4.7 million.
Our balance sheet at June 32021 included cash and cash equivalents of $24.7 million.
And long term debt of $28.7 million.
Total debt was $43.5 million, which included a $4.9 million balance of our PPP loan, which has been forgiven subsequent to year end.
Overall, we are very pleased with the direction. Our business is heading in we felt confident in continuing to invest in our future.
This concludes our prepared remarks, so with that I will turn it over to our operator Donna to open up the call for questions.
Thank you the floor is now open for questions.
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Our first question is coming from Carl Bowser of Colliers Securities. Please go ahead.
Great Hi, everyone, great updates and congrats on the phenomenal results again.
Maybe I'll start with margin contribution from.
Boulder in history.
Acquisitions, I know you spell out the.
The sales contributions from both of them for the two months, which were well above our estimates, but can you talk about the margin contribution and how we might target.
EBITDA margins over the coming quarters as well.
Hey, Kyle this is Bob.
Yes, we gave the sales.
$25 eight I believe.
We generally don't give margin contributions by site since we just acquired sites are obviously well aware of it.
What we what we expected.
The margin contribution to EBITDA contributions from both.
Bottom line is about 32%.
So I think the sales and that and the contributions exceeded.
Our original expectations.
And we're very pleased with that.
Yeah.
Great.
I appreciate that and.
I appreciate the breakout of unallocated G&A and in the press release.
It looks like it bumped up a little bit from the acquisitions recruiting relocation et cetera.
Can you kind of speak about G&A.
On a macro level, how you're thinking about it where you think it can go.
And how much leverage we could get there with scale.
But I think as I've said in the past I believe our unallocated.
Corporate G&A will come down to 6% to 7%.
From a recurring standpoint, we do have a lot going on in our G&A right now as we are very active had been very active raising capital.
Been very active in the M&A market.
Which.
To generate some additional fees consulting fees M&A activity fees.
And then we have also started new businesses and we've recruited leaders for those businesses. So I believe at this time, we have tried to in our release separate out our centers.
Service segment business and separate out somebody.
What are the startup cost and what are the M&A integration cost. So you can do a little bit better job, probably picking out what's recurring and what's not reoccurring in the unallocated corporate G&A.
But at this time.
We think this is a great opportunity for us to grow.
We believe we could grow faster than what happened.
To do that we're going to need to buy capacity and build capacity and build services and that's what we're focused on doing.
Got it definitely and.
Maybe you could talk a little bit about.
What you are targeting for an organic growth rate and.
If we layer in inorganic growth from M&A.
What sort of incremental amount could we get on top of that I know the underlying biotech market in terms of R&D spend is.
Typically around 20% just kind of curious.
How that's looking and what Youre targeting.
In terms of our organic growth and inorganic growth yes.
Okay.
Well I think the last three years, we've been in excess of.
35%.
I don't we've not really given any go forward information.
But.
I think that that.
That is what I think.
We're on a run rate to do about that this year again.
And.
I think continuing that work.
Okay.
It's something that we are.
Correct thing to do.
So.
I don't think we'd give really any go forward guidance I can't really.
The inorganic growth because that would be projecting the acquisitions in.
And I don't think we can give any guidance on our strategy other than that we're going to remain active.
No.
That makes sense and maybe just on the M&A strategy again in general terms, maybe you could just talk about how you're prioritizing targets. How many do you typically examined any given time.
And.
If you find a company with similar corporate culture are you prioritizing that over maybe expanding the geographic footprint just kind of wondering how youre prioritizing M&A in general.
Okay, the corporate culture, providing.
Providing that Simeon.
Mindset that we have providing service to our clients and corporate cultures very critical.
Or you know how.
How could we achieve.
Our goals with that acquisition.
We want that acquisition to make sure that they very much believe in our strategy.
Yeah I'll note by the worst.
And a couple that we did.
Okay.
The seller took a took stock back in our company. So obviously, they're a big believer in what we're doing and we'd like to see them bedroom or come in the future also.
Hi.
So.
At any one time.
We're looking at multiple things talking to multiple people.
Uh huh.
But to give a certain number I hate to do that.
No.
I would tell you that we've got as you can see we've developed quite a team.
To be able to do multiple things at once and.
It's great to have these team members on board to be able to stretch ourselves a little further to look at more things to do more things start up more things.
All simultaneously.
There is no longer a one or two man show. This is a fairly deep team of talented people, we really committed to.
Looking at how we can grow as well as continue to take care of what we.
We have acquired and what we've put together.
So right.
Right now I know that we're working.
That's a pretty quick pace I don't know if that's always sustainable, but I'm really pleased with the group we have committed that they've made and what they've been able to accomplish.
Certainly a lot going on and I'm wondering when do you find time to sleep over there.
To bill ratio of 1.5 again.
You know.
How sustainable is that it was artificially high because of the Boulder and <unk> acquisitions, maybe not getting up to 100% had just kind of curious how we should think about that going forward.
With the.
The.
The Boulder operations the work.
So different comes and goes pretty quickly.
So we don't have it it's usually.
That doesn't have as big a backlog of some remaining operation.
So most of the book to Bill came in came in the arena.
Without bore Hum.
So if you if you were to back out bolder and you look at the book to Bill. So I think it was.
It was closer to one seven.
It wasn't I would've never projected that we could've done one five on that kind of growth.
We had in sales.
So is it sustainable at.
I don't know I wouldn't have a projected the year that we have an amount that we have.
It is.
Very strong.
But we never know what we're going to wake up tomorrow, so that right.
Right now obviously, we're very pleased and I think.
We along with the rest of industry is seeing an increasing backlog, which means workers being scheduled out much further.
Got it and I appreciate that and then maybe just last question.
And how is the build out of the St. Louis facility, Glenn I forgot if you gave a timeline on this thank you.
Well, what I mentioned in the call is that it's scheduled for completion.
And the first part of calendar 'twenty, two or the second quarter fiscal 'twenty. Two so we're targeting January February they have gone up in operation.
What it did not make sure what we're looking to do right now is can we.
<unk> open up a phase of it.
<unk> in October and we're trying to break it down in phases. So maybe can achieve.
Some capacity growth.
Before January of next year.
I think the demand is there and so we're doing what we can.
To accelerate that so if we can get in and start using some of the facility in October we will but it won't be.
Completed really if we can stay on track until January of next year and.
I'm very pleased with the contractors right now they've.
<unk> been able to stay on track I know, that's not always easy at todays construction market.
Okay, Great no that's great.
Perfect well, thank you for the update and congrats on the results again.
Thank you.
Thank you once again, ladies and gentlemen that is star one to register a question at this time. Our next question is coming from Dave Windley of Jefferies. Please go ahead.
Hi, good afternoon. Thanks for taking my questions Bob is related to a couple of your answers already but.
I was wondering how much capacity you have in your existing footprint. Your last answer you were talking about.
Opening part of the St. Louis early but.
What have you.
The answer it with St Louis and morale.
I have a preference, but I'm wondering how much revenue you could add in your and your network.
Without acquisition.
Okay.
Again, another question stay away from revenue to try to articulate. This if you look at last quarter I think we were 22.
Boulder. So if we if we had a full quarter of Boulder operations, we would have probably been close to $25 million on it.
Annualized basis, so we were about $100 million run rate.
I do believe that with some of the moves we've made.
And the last.
Quarter that we've opened up capacity in some areas.
So I think we could we could see some additional.
Capacity.
Right now.
Hopefully in Gaithersburg and in St. Louis maybe Fort Collins.
West Lafayette.
So.
Don.
I think that we're continuing to look at ways to to to expand but I'm hopeful that we're going to see that we have some opportunities.
To see some growth this quarter and some of those some of those areas with which things that we're currently doing in bringing on board.
So I wouldn't say it's.
It's not sitting at 20 or 30% of open capacity today, but that our goal is to just continue to open up that 25% to 30% with what we're doing with our facilities.
And the things that we're leasing and the equipment that we've recently purchased.
Okay.
I would say that it's possible that we could see we could see.
A little bit of increased capacity this quarter from last quarter.
Understood so it sounds like.
The the book to Bill that you mentioned it was very high very attractive.
It sounds like and you mentioned in the last answer that.
Clients are booking further out into the future.
So if.
If I take your capacity comments and those comments together it does sound like.
We're working to open capacity to be able to satisfy some of that demand as soon as possible, but some of the bookings are simply scheduling further out into the future or is that is that a fair way to characterize it.
I think that is.
At this point, yes.
And then what about sorry go ahead sorry.
No go ahead.
I was just going to ask what about the labor side of the equation to satisfy the demand are you able to find.
The scientific talent and staff people that you need in the labs and so forth.
Staff that capacity as you're as you're bringing it on what's the labor market looks like for you.
Well, we've had a lot of people in the last quarter, we brought onboard.
I think we're up to about 560 people.
Which is significantly up and.
Again to add capacity, we brought on another record.
Our recruiter or two.
To continue to add that capacity and been very pleased with.
We've been able to maintain a low turnover rate.
But constantly having we do have several open positions right now.
And we're constantly striving to fill those things.
Not any different than anybody else in today's market.
It's a it's a challenge to recruit Fortunately I think we have got.
A good company and a place that people want to come to work and I hope that we can we can.
<unk> continued to improve our culture income.
Make it a better place to work I think we can always do better.
So it is a challenge I think we've done a good job so far but.
We're going to have to keep it up at that.
Pressure to add people stuck in there.
Not going to go away for us.
Got it and my last question for me.
I'd like to see a risk of our workforce and another 10% over the next three or four months.
Seems like a good problem to have.
Last our last question for me would be.
Around demand.
Demand across our demand by service area are you seeing.
Disproportionately strong demand in in Warner a couple.
Of your service lines or is it pretty pretty strong pretty balanced and strong across everything.
I think we've stayed fairly strong across everything at the moment one of the things that we've been able to.
Do a better job and so I think we get more programs now than we have in the past as we've added these additional services.
Yeah.
It services for discovery through IND, enabling programs.
Now get a much larger programs.
And I think that's also driving up our book to Bill as these programs.
It involves all services and we're doing it but I think a much better job.
Starting to communicate internally and communicate with our clients. We can do all the services in house.
Got it that's very interesting. Thank you thanks for your answers.
Thank you Dave.
Thank you this brings us to the end of our question and answer session I would like to turn the floor back over to Mr. Leisure for closing comments.
Alright, well, thank you for participating our call. This afternoon and please reach out to our Investor relations firm the equity group you're interested in scheduling a follow up call.
We look forward to reporting back to you in December when we release, our fourth quarter fiscal 2021 financial results.
He has a good day, thank you very much.
Ladies and gentlemen, thank you for your participation. This concludes today's event you may disconnect. Your lines at this time and have a wonderful day.
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