Inotiv Inc. Q2 2023 Earnings Call
Good afternoon, and welcome to the innovative second quarter fiscal 2023 financial results Conference 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 that this conference is being recorded.
I will now turn the conference over to our host Devin Sullivan of the equity group. Thank you you may begin.
Thank you Diego and thank you everyone for joining us today for <unk> fiscal 'twenty twenty-three second quarter financial results Conference call.
Before we begin I'd like to remind everyone 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 and plans.
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.
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, 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 will also 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 are included in the company's earnings release, which has been posted to the investors section of the company's website www dot in it.
Co Dot Com and is also available in our form 8-K filed with the Securities and Exchange Commission.
Joining us from the company. This afternoon are Bob Leisure, President and Chief Executive Officer, Beth Taylor, Chief Financial Officer, and John <unk>, The company's Chief strategy Officer.
Bob will begin with some opening remarks, after which Beth will present, a summary of the company's financial results and then we'll open the call for questions from our analysts.
It is now my pleasure to turn the call over to Bob Leisure Bob. Please go ahead.
Thank you Devin and good afternoon, everyone.
I appreciate you taking time to join us today.
Our results for the second quarter reflected growth across both of our business segments total revenues increased 8% to <unk>.
151, 5 million from $140 3 million in last year's second quarter with revenues at or DSA, and RMS business segments, increasing 20%, 22% and.
And three 3% respectively.
Last year second quarter.
DSA business is benefiting from the targeted investments we have made and continue to make to expand our service offerings and we are excited about the progress the weird.
And what these enhancements can deliver for our clients our industry and our shareholders.
As we continue to make progress as planned.
Our growing capacity.
We expect improvements in DSA revenue and margins as we continue through the year.
And our armed S business in the second quarter, we did ship some of the H p's inventory after verifying their origin purpose spread although NH P volumes were significantly below historical levels, we realized benefits from the favorable pricing we implemented during the second quarter.
We have also continued to implement various consolidation.
<unk> activities in our RMS operating footprint, which are expected to improve production efficiencies and animal welfare as they come online and are completed.
We returned to a positive adjusted EBITDA in the second quarter, achieving $17 1 million.
Which was below the $25 3 million, we reported in the same period last year.
Represented a significant improvement from the negative 5.5, we reported in the first quarter of fiscal 223.
Adjusted EBITDA included an increase in G&A expenses in the second quarter, a 7.7 million compared to the same period last year.
G&A expenses in Q2 included $6 7 million of legal and third party.
These primarily related to.
Cambodian H P matters, Cumberland, Virginia ongoing investigation.
Third amendment to our credit agreement and defense on pending Securities litigation.
By way of comparison, the legal and third party fees in Q1.
With $3 4 million.
These legal and third party expenses are not being adjusted out of adjusted EBITDA.
Based on current information, we expect legal and third party piece to be lower in the third quarter fiscal 2023.
Let's move on to a discussion of performance over DSA and RMS business segments. I'll, then turn things over to Beth for review of our results.
Our DSA business generated second quarter revenues of 47 million up 22% from revenue of $39 1 billion.
In last year's second quarter ARPA.
Our performance rebounded as expected from what is typically seasonally a seasonably seasonally slow first quarter.
Improvement in our DSA business was primarily driven by increasing revenue within the existing operating structure plus we are beginning to see new customers and increasing sales the genetic toxicology services, we brought online at our facility in Rockville, Maryland.
Our facility Buildout in Rockville is now substantially complete and we are continuing to validate the equipment and assays required to support growth in both the genetic toxicology and bio therapeutics biotherapeutic businesses.
Yeah.
We also have seen increase in quoting activity related to recently expanded areas, our discovery and Histopathology service lines.
The expansion of our Fort Collins facility remains on track and should be operational towards the end of fiscal 2023.
The book to Bill ratio at TSA in the second quarter was 0.95 times.
Our backlog was $145 7 million up from $133.6 million in Q2 2022.
Turning to the RMS segment revenues rose, 3.3% to $104 5 million from $101 2 million in last year's second quarter.
Revenues at RMS increased nearly $23 million from the first quarter of fiscal 2023.
As a reminder, we closed the <unk> transaction on November 5th 2021, so for comparative purposes. We are for the first time since the acquisition comparing full quarter over quarter operational results.
The increase this quarter was driven by favorable pricing for multiple product lines, including NH piece.
Research models and Tech lab diet, which helped offset lower and HP volumes as well as increased expenses, which we discussed in salt and Q1 fiscal 2023.
Our site optimization plan for the RMS segment remains on track.
Made good progress during our second quarter of 2023.
We completed the plant shutdown to patient, Michigan, Boyertown, Pennsylvania facilities and their consolidation into a newly renovated facilities in Denver.
Consolidation of two additional facilities in Indianapolis.
Other operating facilities is underway and that activity will be completed by the end of the current quarter.
The relocation of our RMS facility in France to the recently updated the operations in the Netherlands is now underway. We expect to have this process completed by the end of this current third quarter.
We have also completed.
Consultation and planning process to relocate our black Thor U K facility to our other existing operations in the U K and currently expect this relocation to be completed in the third quarter fiscal year 2024.
During Q2 fiscal <unk>.
Your 2023, we announced that we will be closing the small RMS facility in.
In St. Louis and relocating its operation into existing facilities in St. Louis and other facilities. This.
This will be completed by the end of this quarter the third quarter.
In connection with these closures and relocations, we are in the process of revising our product distribution plans, including our delivery route warehousing.
And this will allow us to further improve efficiencies all the customer service and enhance margins.
With respect to the <unk> situation as.
As we indicated in previous calls and it too.
If I remember teams Cambodia in early February 2023 to conduct an audit of the two facilities owned and operated by Baddies.
Science development limited.
The audit consistent a review of select animal history, and Health Records guide composition logs water testing results breeding records animal treatment records animal welfare practices.
The audit was conducted on a sample basis for select number vintage piece.
There were zero critical findings.
Did demonstrate commitment to future genetic testing repair teach with an investment in laboratory analytical and support equipment.
Supporting future exports of Nxp's from Cambodia.
We'll continue to work in concert with our suppliers and scientist both inside and outside our organization.
To develop a new long term standard for DNA testing to verify the origins of hps and ensure ourselves and our clients. We will continue to only import and so purpose spread NH beans.
I will remind you, though also any such testing we developed maybe subject to review and acceptance of government agencies, including U S fish and Wildlife service.
Well not be in a position to respond to any questions on any open matters concerning our suppliers, our competitors or any ongoing government investigations.
In the meantime, we are continuing to identify import identify import and sell HP from sources other than.
Cambodia suppliers and we believe that we have an adequate supply of hps to meet our internal DSA client demand to support the ongoing discovery of life changing and life saving therapies.
As it relates to our outlook.
We expect margin and earning improvements from the combined.
Yeah.
Effective.
Of our.
DSA expansions integrations.
Synergies and are most tied optimization initiatives once completed and fully operational.
We believe the additional capacity and services being added should eventually allow for an annualized 50% increase in DSA revenue compared to fiscal year 2022 revenue and DSA gross margins could increase from approximately 30% to mid to high Thirty's.
We also believe once we complete all of our DSA and RMS site optimization integration synergy initiatives, we should produce approximately $20 million of annualized cost savings compared to fiscal year 2022.
We expect to begin realizing more of these benefits early in the fourth quarter of fiscal year 2023.
We are reiterating our full year fiscal 2023 revenue guidance of at least $580 million in revenue.
And as a result of the increased legal and third party fees incurred during Q2, we.
We are updating our guidance for adjusted EBITDA.
To be at least $70 million down from the previous guidance of $75 million.
We continue to expect that we will remain in compliance with our financial covenants for fiscal year 2023.
We continue expected capital expenditures should moderate from 2020 to be no more than 5% of sales during fiscal year 2023.
As a reminder, this guidance is based on assumptions that we continue shipping H P from Ken Bann Cambodian portions that had been recently confirmed to be purpose spread from our existing inventory for the remainder remainder of fiscal year 2023.
In closing I want to emphasize again, how pleased I am with the progress being made to optimize our operations are continuing response to these Pete situation.
And the performance of our employees, despite lingering headwinds our RMS business I'm convinced that we are headed in the right direction be investments innovation hard work, we remain committed to maintaining our leadership role in helping our clients discover and develop life changing therapy.
With that I'll turn it over to Beth Taylor Chief Financial Officer. Please go ahead with the financial overview.
Thank you Bob and good afternoon, everyone.
Total revenue for the 2023 second quarter, 8% to $151.5 million.
$143 million in last year's second quarter, driven by a 22% or $7 9 million dollar revenue increase and our DSA segment.
3.3% or $3 3 million revenue increase in our RMS segment.
Higher DSA segment revenue was primarily driven by increasing revenue within the current operating structure and continued increases I've heard genetic toxicology services at our nuclear facility in Rockville, Maryland.
Increase in revenue was.
Due primarily to favorable pricing across several of our animal model.
Lee NH piece, but also including Pac Van Dyke.
The favorable pricing helped to partially offset the negative impact of lower volumes of our N H P. Powell.
Total gross profit improved slightly to $44 $9 million or 29, 6% of total revenue.
I'm $44 $7 million or 31, 9% of total revenue in last year's second quarter.
<unk> profit hard yesterday.
Cause $15 $1 million or 32, 1% of segment revenue from $12 $3 million or 31, 5% of segment revenue in last year's second quarter. The 600 basis point increase in margin was driven by higher sales within our current operating structure.
RMS segment gross profit in the second quarter of fiscal 2023 was $29 $8 million or 28, 5% of total revenue compared to $32 $4 million or 32% of revenues last year.
The decrease in margin in the current quarter was driven by several factors.
Product mix.
Inflation and the absorption of duplicate cost as we implement our site optimization plan I've noted, we expect to begin seeing it.
I mean, it's.
The positive cost and margin expansion in early Q4 fiscal year 2023 cause margin decrease was partially offset by favorable pricing for certain of our product line and some initial benefit from the closures of our Cumberland and Dublin facility.
General and administrative expenses, rather to 29 million in the second quarter of fiscal 2023, and $21 3 million in last year's second quarter G&A expenses for the second quarter reflected $6 $7 million in legal and third party fees.
Merrily related to Cambodian N H P matters.
The conference on Virginia ongoing investigation.
Third amendment to our credit agreement and defense on pending Securities litigation based on current information, we expect legal and third party fees to be lower in the third quarter of fiscal 2023.
Operating loss for the quarter was two $1 million down from $7.9 million of operating income in last year's second quarter, reflecting both the $7.7 million higher G&A expenses, and a $2 million increase in amortization.
Amortization expense.
Interest expense increased to $10 $5 million up from $7 5 million in last year's second quarter, reflecting our higher debt balance for borrowing obtained for the acquisitions and capital investment and higher interest rates.
Consolidated net loss attributable to common shareholders in the second quarter of fiscal 2023 totaled $10 million or a negative 0.39 per share this compared to consolidated net loss attributable to common shareholders of $6 $1 million or not.
<unk> 24 cents per diluted share in the second quarter of 2022.
Adjusted EBITDA was $17 $1 million or 11, 3% of total revenue as compared to adjusted EBITDA of $25 3 million or 18% of total revenue in last year's second quarter, and a negative $5 5 million in Q1 at fiscal year 2023.
DSA backlog was $145 7 million compared to $133 6 million at March 31, 2022.
Net cash provided by operations was five 4 million compared to cash provided from operations of 4 million in the same period last year.
Increase in cash provided by operations was primarily driven by improved net working capital compared to the same period last year.
Capex in the second quarter was $8 $5 million or five 6% of total revenue and reflected investments in completing our D. S. A capacity expansion.
Boulder, Colorado, Rockville, Maryland, and Fort Collins, Colorado.
Enhancements in laboratory technology and improvements for animal welfare.
For the first six months of fiscal year 2023 capital expenditures totaled $16 $8 million. We continue to expect that our fiscal 2023, capex will not exceed 5% projected right now.
Our balance sheet as of March 31 included $24 $6 million in cash and cash equivalents up from four mill.
4 million from December 31, 2022, and.
And we maintained a zero dollar borrowing on our $15 million revolving credit facility.
Total debt net of debt issuance costs as of March 31, 2023, with $374 $1 million compared to $373 $2 million at December 31, 2022.
The company extended by one year, the maturity of a $3.7 million unsecured salary payable pursuant to the stock purchase agreement with Orient Bio Inc. The table, which was originally due on June 27th 2023 is now due to July 27th 2024.
We were in compliance with our debt covenants as of March 31, 2023, and continue to expect that we will remain in compliance for fiscal year 2023.
We remain pleased with our financial performance and the progress that we are seeing and higher revenue from the additional capacity investments in our DSA segment, and we remain optimistic as we continue to grow and capture a significant portion of the opportunities in our market.
And with that financial overview, we will turn the call over to our operator Diego for questions.
Thank you.
And ladies and gentlemen at this time, we will conduct a question and answer session.
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Our first question comes from Matt Hewitt with Craig Hallum. Please state your question.
Good afternoon, and thank you for taking the questions maybe first off regarding the N. H P situation I realize you can't answer many questions, but the one I'm curious about once you have the test in place how quickly can you get things geared up for much you know importing I'm not sure what the.
The exact quarantine period is but how quickly once that test is in place can you kind of get things turned around where you are starting to record revenues from from that market.
But we.
We've made great progress in our testing platform for being able to import I think the bottleneck maybe when you are.
S fish and wildlife.
Well again consider allowing imports from Cambodia, and if they'll consider along of course from Cambodia.
There could be a longer lead time that is unknown to us.
But once we have that I think it would we could.
We can move very quickly.
We have relationships there.
And each piece of available to to bring it there's transportation available.
Horton team space available.
But there's this there's a normal lung tame alert normal quarantine time, and I don't think that there needs to be there wont be alerts from time to time between the time somebody says you may move forward and we can begin importing.
Ever since November 16th we have let's say, we are really focused on two goals for us one is to be ready to import Cambodian in hps, when and if they do allow us to import H piece, yeah, just to make sure. We have a business model, which is not dependent on imported H piece from Cambodia, and we've made great progress.
So both of those will be ready for either event.
That's great. Thank you and then regarding the general business environment.
We see a lot of questions about the health of small pharma and biotech companies, but maybe what are you seeing from customers. They know the last couple of quarters cancellations were maybe a little bit elevated relative to historical levels, but has that come down what are you hearing from customers. Thank you.
Well I think our customers have been and will continue to be.
Very cautious and spending their money.
As a result, they may choose to continue to cancel orders as they look and see what is best for them.
Overall last quarter.
We grew our.
Our rewards were up 20% over the prior quarter.
We had a book to bill close to one to one but our sales were up 20%, our new orders were up 20%.
So.
Again.
Where are we.
We are.
We're a very small business compared.
Compared to the size of our industry.
When we're looking at trying to increase 10 2030, whatever it is we're trying to increase its a small percent of the market share and what we're trying to do is increase continue to increase our market share during this time.
But I.
I don't think we have to be limited to go with the macro weakness. So as result to change that we've added sales we've added marketing.
And we've added new services and those bringing in new customers those new customers twice once a wrist and then again they expand to multiple services. So I'm pleased with what we're seeing.
And I'm not underestimating the need to.
To be aggressive and increasing our market share, but I do think our customers will continue to be very cautious.
And for.
We're now expecting just to give them to us without hard work.
Yeah.
Understood maybe one last one then I'll hop back into queue as far as the staffing is concerned as you continue to roll out some of these new services consolidate some of your sites in different locations are you do you feel like you're at the right level from a head count perspective, and you know what are your expectations from a high.
Bring perspective over the course of the year.
I think we're we're we're in much better shape last year, we had higher.
150 people and we on boarded a lot of people.
We're fine tuning our organization all the time I don't think we've increased our head count probably since the end of the fiscal year last year and I think we can see a lot of our growth.
Without a significant increase in head count going forward.
I think we've done a good job of bringing people on board training and they're helping us develop the assays validate the equipment.
This is good and I think we're making good progress and if you're one of the things notable in last quarter.
As we increased our sales.
Maybe $28 million.
If you back out the increase in legal fees, we probably sold 25 26, and then go to the bottom line almost 90 cents.
I'll go to the bottom line.
Because we had already brought in some of those people were prepared for that so I think it was you know it was it was a great performance by our people and I think that we've got a great team in place and I don't see a need to you know soon.
Quickly on Tonight for the growth that we're projecting.
That's very helpful. Thank you.
I think in a reminder to the audience, particularly up for a question press star one on your telephone keypad.
Remove yourself from the queue press star two on your telephone keypad.
Our next question comes from Dave Windley with Jefferies. Please state your question.
Okay. Good.
Hi.
Dave Good afternoon, I'm not hearing the confirmation tone. So I wasn't sure if I was in the queue. Thanks for taking my questions.
I was wondering if you could.
Overall or in maybe in RMS more specifically break down for us. The differences are the contributors in terms of volume and price I know that the growth was relatively smaller there, but I guess I'm just trying to understand the moving parts, probably volume down and price up but if you could put numbers on that that'd be great.
<unk>.
Okay.
Trading to Vista can actually the volume in Hps, who sold.
In this quarter and the quarters Q2.
What was it.
Actually less than the numbers.
The amount of any speeds, we sold in Q1.
And significantly less than the numbers, we sold in Q2 of last year.
Okay.
So I think that would indicate.
Fairly significant.
Changing in our business.
Business model right right and so appreciate that on I think you had talked.
Last quarter that included in some of your strategies to try to mitigate the limited availability of NH piece, you were taking price or the price.
<unk> had an increase in NH P. But you were also going to take some price in small animal I think Bob I heard you mentioned that but I didn't hear Beth mentioned that I wanted to make sure I heard that right and how is the small animal price increase sticking.
We did increase the small enterprise since January .
It is sticky.
M M.
And.
And our volumes remain.
I would say in terms of numbers.
Flat.
We've been able to see some increase in there in our tech lab.
Sales and.
But overall fairly fairly flat in terms of volumes and pricing are doing fine.
You know when we're we're also you can imagine.
We are holding this volumes are we are significantly reducing our footprint and the number of facilities, we have which means and number of people. We have transportation. We have so that's really our focus right now where we're now starting to also.
Right now come back and focus on how do we have these changes made and we have the capacity.
How can go ahead and start increasing our sales volume and they were coming back in and start focusing on that also.
Those prices are held in it and then the NXP prices. We we did implement starting in January and they continued to increase through the quarter. So our average prices that were selling for January .
And then increase again in February and increased again in March.
So.
As to some of our expenses.
And third party expenses.
Right so.
In the you mentioned the new business opportunities.
Invested in your building now it sounds like you're getting some traction mentioned the genetic talks a couple of times.
How much of the bookings in the quarter.
Our representative of your biotherapeutics and genetic toxicology and those those new businesses to the DSA segment can you quantify that.
Yes, I mean, I wouldn't I wouldn't shape.
So we had a 20% increase it is I wouldn't say, it's all because of that.
We probably started booking those things and.
You know the December January February March and its just ramping up the quoting activity is ramping up.
And the progress I'm seeing this quarter is continuing to build out.
So.
But if you say yes.
Where did the 700 or $8 million in DSA bookings increase come from.
It would have to be.
Less than 20% probably.
And that service.
I'm, sorry, less than 20% of less than 20% of the increase.
Our bookings from Q1 to Q2, okay. Okay. Okay understood.
Why this is so important as it has been important in all of our acquisitions.
This is really the old bio relax customer base that we know that we have.
We're bringing onboard which they've been waiting for it and the exciting thing for US is just brings new customers that we have not heard theyre looking for the service.
We can offer right now is really a great lead time.
Since we're just starting up and I think that's that's helpful with great quality, great people that the customer base knows because they have experienced with them.
And when we bring on this new customer is supposed to start working with US then they start looking at our other services and that generally helps us across the board, but that's why we're looking forward to this and seeing how this develops and same thing with safety pharmacology and some of the other things that we're bringing our board has also significantly reduces our outsourcing helps us control speed to market and the server.
Aspect for our customers.
Great. Thanks for the answers I'll drop back in the queue.
Thank you Jay.
Our next question comes from Frank <unk> with Lake Street Capital markets. Please state your question.
Thanks for taking the questions was hoping to start with one on the plus minus around the net bookings in the quarter could you just walk through how the demand has been how gross bookings have trended and then I know cancellations have came up in the past. So maybe if you could touch on cancellations.
If there's anything.
To note a change in that area plus minus.
Yeah.
Most of my CFO .
Cancellations I would say in Q2 will probably less than Q1.
It could be significantly less actually but I don't want to I'm not going to sit here and assume that.
Cancellations won't exist in the future and that that trend will continue.
I think people are going to be very cautious of how they spend their money.
Need to be very aware of that and not underestimate.
But what that impact may have which is why we need to be very aggressive in our in our sales and marketing efforts right now.
And make sure we have a high degree of customer satisfaction recurring customer base.
So.
I think.
Well, we'll hope that continues but I'm not going to sit here and expect to continue I think we.
We're in the midst of it.
Making sure that people are very careful with their dollars.
So we will continue to work with them.
The times they wanted to delay projects, we work with them. There. So we try to be a company that people can work with.
Okay fair enough.
Second one for me on the.
Our income statement was hoping you could kind of bridge us to how you're thinking about that well I guess beyond the income statement the free cash flow profile for the back half of the year and what I'm really looking to get out of just that do we expect to generate cash through year end and can we continue to continue on the trend of putting a little bit more cushion between where we are in.
Were those covenant calculations are.
Yes, I mean remember for our covenant calculations, we have.
A lot of add backs that may not be an adjusted EBITDA. So some of the legal fees I outlined for example are add backs for covenant purposes.
So I think that.
Right now we're in good shape.
I'm looking forward to you know from the guidance that we've given you can you can tell we.
A fairly positive outlook for Q3 and Q4, we do think that will generate significant cash and as these projects the.
As the fed optimization projects and some of these growth projects wind down I think that will also help generate additional cash.
So we've been in this process so decided on solution growth for two years.
The integration.
And it's part of what needed to be done to really.
Improved margins related to our sample welfare address the things that we wanted to address so I'd be excited to see those come to an end whereabouts.
Per cent done I'll also add that.
Six months ago, even three months ago I think.
People were concerned that we were just doing too much at once.
Too many variables to many of these moving parts.
So I think that hopefully everybody should get some confidence. The fact that we have actually brought these things and according to plan on time, if not ahead of time.
And we're now down to the to the end of somebody Central we can really now focused on optimizing what we have left.
And.
Delighting the customer so I look forward to the next couple of months and yes, I do think it should be very positive.
Okay perfect. Thanks for taking the questions.
Our next question comes from Dave Windley with Jefferies. Please state your question.
Hi, I was just trying to drop out and not not hog. The mic in case. There are other people that wanted to ask questions I guess the list it wasn't that long so.
I did want to come back and ask if you could.
Quantify the duplicative operating cost that I presume will I think you've described a lot of those winding out of the business maybe the end of this quarter and through the second half of the year.
Is it possible to quantify all those.
Yeah.
I have not quantified those it's hard to talk to there are a lot of hidden cost and that trans okay.
Duplicate.
Severance.
Bringing on new people training.
And so we've not tried to I don't I don't think I could do very good job of quantifying that for you. We did I think I did this time try to give an idea of the kind of cost we expect coming out now as a result of this.
And I think that is significant and I believe that.
People have seen our guidance and are concerned about how do we achieve that guidance.
And I think that.
To give a little more color to tell them, what kind of costs were coming out.
What we're expecting sales increase in the kind of March improvements, we're seeing we're important to be able to share why these investments have been so important to us.
So related to that last part Bob So EBITDA guidance was 75 now 70.
Is the change strictly $5 million and increased legal and third party.
Or is.
Is that number bigger than that netted down by something else.
No. It's it really is specifically related to we've incurred.
Close to $9 million and legal and third party expenses to address some of these what we call.
All overhangs that are out there.
You know based on what we know today I think we've done a lot to it to address some of those things.
So.
So hopefully we will see that go down in the future, but that is higher than we expected. When we gave guidance and that's the change for guidance everything else is pretty much as we expected okay and to clarify 9 million is the year to date amount.
Not the full year guidance amount.
No no I was adding what was a Q1 close to what we've seen so far in Q2 to talk about with the with the legal and third party expenses again, okay. So that just through the first half okay.
So that was higher than we said, but again for us.
So I think previously you had said that you know some of that could be backed out for COVID-19.
Right.
So that is it's not we have not put that in your adjusted EBITDA.
So last question for me and maybe too close to the fire on NH piece, but.
The two part or I guess it would be.
In light of.
You know the the the kind of alleged.
Uh huh.
Wildcatting are the animals by Fannie.
And.
That activity happening during periods when when audits would have been able to have been completed by predecessors to you you know so so you know acquired entities.
How do you think about stiffening, improving the audit procedures to.
Better detect.
Or said differently, how do you assure yourself that that the animals are purpose spread.
When.
It's a D O James allegations are correct.
Those that you know that slipped by previous audits.
How do you how do you get comfortable with that.
Well, what I I do not know what the what the Doj is.
Exactly to prove what is purpose spread in one wildcard and did not sure sure though that with us.
So.
I can tell you going forward and what any there over the last six to nine months.
If we are going to import from anywhere and we're not importing anywhere from Cambodia, where north and we did stop that immediately on November 16th.
We've now taken from there we bought it and there we've worked with them we've talked about how we would go forward and that's that's what we're focused on as far as.
Anywhere else in the world that we're importing from wherever veterinarians go out before anything comes over.
If we've been auditing several firms are in touch with many people learned quite a bit.
About the other bonds and.
We've done quite a bit.
Of work.
In multiple locations.
To determine what comfortable what farms, who may be comfortable working with.
So.
Yeah, I think I think that's the best we can do right now and we're really focusing on what we're doing going forward.
Got it I appreciate the answers thanks, a lot have a good evening.
Thank you.
Thank you and there are no further questions at this time I'll hand, the floor back over to Bob leisure for closing remarks.
Alright, Thank you very much for your time and attention and.
Just do remain we're making excellent headway in transforming our organization.
We have a number of industrial conferences coming up again later this month and look forward to engaging with investors at a benchmark virtual health care conference on May 23rd Craig Hallum Conference on May 31st in Minneapolis Jefferies Healthcare Conference in New York City June 6th and seventh.
We look forward to any follow up questions or calls anybody have any.
And I hope it is a good day, thank you very much.
Thank you and that concludes today's call all parties may disconnect.
Have a great evening.