Q4 2023 Inotiv Inc Earnings Call
[music].
Greetings and welcome to Innotiv's fourth quarter and full year 2023 earnings call. At this time all participants are in a listen only mode.
Greetings and welcome to interchange fourth quarter and full year 2023 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.
If anyone should require operator assistance during a conference, please press star zero on your telephone keypad.
As a reminder, this conference is being recorded. It is now my pleasure to introduce Bob Yedde, Investor Relations.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce Bob yet at Investor Relations. Thank you you may begin.
Great. Thank you very much, Doug. And thank you, everyone, for joining today's call with Innovative's management team. Before we begin, I'd like to remind everyone that some of the statements that manage will make on the call are considered forward-looking statements, including statements about the company's future operating and financial results and plans.
Great. Thank you very much Doug and thank you everyone for joining today's call with the management team.
Before we begin I'd like to remind everyone that some of the statements that manage will make on the call are considered forward looking statements.
Statements about the company's future operating and financial results and plans.
Such statements are subject to risks and uncertainties It could cause actual performance or achievement
But your 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 any undue reliance on these forward statements, and the company does not undertake any obligation to update or revise forward-looking statements.
We are materially different from those projected any such statements represent management's expectations as of today's date.
Should not place any undue reliance on these forward statements and the company does not entertain undertake any obligation to update or revise forward looking statements, whether as a result of new information future events or otherwise.
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.
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.
Management will also discuss certain non-GAAP financial measures in an effort to provide additional information for investors.
definition of these non-GAAP measures and reconciliations, the most comparable GAAP measures are included in the company's earnings release, which has been posted to the investor's section of the company's website, www.initiativeco.com, and is also available in the Form 8K filed with the Securities and Exchange Commission today.
Definition of these non-GAAP measures and reconciliations 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.
W. W. W.
In this case, Oh Dot Com and is also available in the form 8-K filed with Securities and Exchange Commission today.
If you haven't obtained a copy of today's press release yet, you can do so by going to the investors section of the company's website.
You Havent obtained a copy of today's press release, yet you can do so by going to the investors section of the company's website.
Joining us from the company today are Bob Leisure, President and CEO .
Joining us from the company today.
Bob Leisure President and CEO.
Beth Taylor, Chief Financial Officer, and John Seigart, 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 your questions.
Taylor, Chief Financial Officer, John <unk>, our 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 your questions.
With those prepared remarks, it's now my pleasure to turn the call over to Bob Leisure, CEO . Bob, please go ahead.
With those prepared remarks, it's now my pleasure to turn the call over to Bob Leisure CEO. Bob. Please go ahead.
Thank you Bob and good afternoon, everyone.
As we head into the end of the year and the holiday season, on behalf of the InnoCiv team, I want to wish everyone a warm welcome to our Q4 earnings call. I can confidently say that 2023 has been a year of operational success and transformation.
As we head into the end of the year and the holiday season on behalf of the Yadkin team want to wish everyone. A warm welcome to our Q4 earnings call I can confidently say 2023, and it's been a year of operational success and transformation.
The Incentive Team collectively expanded our full-service preclinical CRO service capabilities, offering a growing customer base, nimble solutions, and custom capabilities.
It's a team collectively expanded our full service preclinical CRO service capabilities offering a growing customer base Neville solutions custom capabilities.
In addition, we also executed on a plan to integrate and optimize our research models facilities, which provide stronger foundation for future operational efficiencies and performance.
In addition, we also executed on our plan to integrate and optimize our research models facilities, which provide a stronger foundation for future operational efficiencies and performance of that business.
Since 2018, we believe that the best course of action for generating strong long-term shareholder returns was to transform and build our business with aspirations to become a competitive leader in the industry as a global preclinical CRO. Now in less than six years, through both acquisitions and adding new services organically, we've expanded our discovery and safety assessment or DSA capabilities as well as the RMS business.
Since 2018, we believe that the best course of action for generating strong long term shareholder returns was to transform and build our business with aspirations to become competitive leader and is in the industry as a global preclinical CRO.
Unless it six years through both acquisitions and adding new services organically, we've expanded our discovery and safety assessment or DSA capabilities as well as the RMS business growing the topline from 24 million to $572 million with annual revenues.
growing the top line from $24 million to $572 million with annual revenues.
and annual revenues, which is where it stands today, producing a compound of annual growth rate of nearly 70% in this boundary.
And then you referenced which is where it stands today, reducing a compounded annual growth rate nearly 70% in this time period.
Today, I mis market challenges across the CRO and biotech industries.
Today, I miss market challenges across the CRO and biotech industry.
We continue advancing our businesses, integrating our acquisitions, and right-sizing our operational footprint, all while expanding in a.
Continue advancing our businesses integrating our acquisitions and right sizing our operational footprint.
All while expanding its global service offerings.
We understood that achieving our goals would not happen overnight, and we've been able to maintain focus on our long-term vision.
We understood that achieving our goals will not happen overnight and we've been able to maintain focus on our long term vision.
We've made significant investments in our business to continue to build on our comprehensive suite of products and services, we can offer to our customers across the drug development continuum from early discovery through bringing a new medicine products to market.
We've made significant investments in our business to continue to build on the comprehensive suite of products and services we can offer to our customers across the drug development continuum from early discovery to bringing a new medicine and products to market.
We understand market conditions and external factors are constantly changing and we feel we've been able to pivot as market conditions require.
We understand market conditions and external factors are constantly changing and we feel we've been able to pivot.
Market conditions require.
We continue to be guided by eight pillars building market share and cash flow included.
We continue to be guided by eight pillars building market share and cash flow, including right-sizing our infrastructure, reducing dependency on third-party providers for external services in order to become a full-service provider, making strategic capital investments, growing our sales and market share, building our brand and brand awareness, fostering workplace satisfaction in a positive work environment, obtaining
Right sizing our infrastructure we.
Do think dependency on third party providers for external services in order to become a full service provider.
Making strategic capital investments.
Growing our sales and market share building.
Building, our brand and brand awareness.
Fostering workplace satisfaction and a positive work environment.
Obtaining and maximizing supply chain synergies.
And the best thing to be a leader and animal welfare.
On this last point since our expansion to the research model business.
We have prioritized improvements in animal care and welfare by enlarging our veterinary team.
We have prioritized improvements in animal care and welfare by enlarging our veterinary team and consolidating facilities, which allows us to make significant infrastructure improvements and the remaining facilities.
Ultimately, we believe these efforts will allow us to increase our margins and remain competitive with regards to new business development while continuing our key strategic objective of enhancing animal welfare.
We believe these efforts will allow us to increase our margins and remain competitive with regards to new business development, while continuing our key strategic objectives of enhancing animal welfare.
Through our journey in 2023, we were also very proud to announce that and it is what's the recipient.
Through our journey in 2023, we were also very proud to announce that Innative was the recipient.
of EnterGage's Top Workplaces USA Award, and we have been very focused on recruiting and retaining people this year.
Of.
Inter cages top workplaces USA award and we have been very focused on recruiting and retaining people. This year. Additionally in terms of awards. We were recently recognized a named to the Deloitte 2023 technology fast 500 list recognizing the fastest growing companies between 2019.
Additionally, in terms of awards, we were recently recognized and named to Deloitte's 2023 technology FAST 500 list, recognizing the fastest growing companies between 2019 and 2020.
In 2022.
Before we dive into our operational review, let's quickly get to the highlights of our financial results.
Before we dive into our operational review, let's quickly get to the highlights of our financial results, which Beth will go into more detail on in a moment.
Jeff will go into more detail shortly.
We ended fiscal 2023 with revenues of $572.4 million, up 4.5% versus 2022. With increasing DSM,
We ended fiscal 2023 with revenues of $572 4 million up 4.5% versus 2022.
With.
Increasing DSA revenues and margin dollars.
included revenue for our DSA business through $6 million or 13.6% in Q4 2023 over 2022.
Revenue for our PSA business 6 million or 13, 6% in Q4 two.
2023 over 2022.
12% overall in fiscal 2023 versus fiscal 2021.
12% overall in fiscal 2023 versus.
2022.
Operating income for DSA improved $7.4 million in Q4 2023 versus Q4.
Operating income for DSA improved $7 4 million in Q4 2023 versus Q4 2022.
We have begun to see research models and services expenses go down as a sign of optimism they shouldn't initiatives get completed.
We have begun to see research models and services expenses go down as our site optimization initiatives get completed.
The DSA.
Business Gross Book-to-Bill for the year was 1.11, and 0.9...
Business gross book to Bill for the year was 111.
And 0.91 for Q4 and a net book to Bill was point <unk> 92.
And the net book-to-bill was 0.92 for the year and 0.65 for Q4.
Two for the year and 0.65 for Q4.
The lower net book to bill in the latest quarter was primarily due to high cancellations in Q4.
The lower net book to Bill in the latest quarter was primarily due to high cancellations in Q4.
We saw increased conversion rates from 30% in Q4 of 'twenty two to.
We saw increased conversion rates from 30% in Q4 of 22 to 33% in Q4 2023.
The 33% in Q4 2023.
In the fourth quarter, the number of NH piece, we imported increased versus the other quarters. This year and we've had our first shipments from one of our newly qualified farms.
In the fourth quarter, the number of NHPs we imported increased.
versus the other quarters this year, and we've had our first shipments from one of our newly qualified farms.
fourth quarter was the first quarter in fiscal 2023 that we imported approximately the same number of NHPs as we sold.
Fourth quarter.
<unk> first quarter fiscal 2023 that we reported approximately the same number of NH piece as we sold.
The average selling price of the NHP in Q4 increased approximately 5%.
The average selling price of the H P. In Q4 increased approximately 5%.
Which is the lowest quarterly increase we have seen in the last three quarters.
which is the lowest quarterly increase we have seen in the last three quarters.
Cash balance this quarter also improved and we finished the year with $35 5 million in cash and nothing drawn on our revolver of $15 million.
Cash balance this quarter also improved, and we finished the year with $35.5 million in cash and nothing drawn on a revolver of $15 million.
This is a meaningful improvement compared to $18 5 million in cash and 15 million drawn on the revolver at September 32022.
This is a meaningful improvement compared to $18.5 million in cash and $15 million drawn on the revolver at September 30th, 2009.
We are now well into the Q1 fiscal year 2024.
We are now well into the Q1 fiscal year 2024 quarter.
For quarter.
And over the last four months.
We have seen positive trends for requests for quotes and awards so far for Q1 of this.
We have seen positive trends for request for quotes and awards so far.
Q1 fiscal 2024, plus the reduction and cancellations this quarter compared to Q4 of 2023.
Plus a reduction in cancellations this quarter compared to Q4 of 2023.
Some of the increases in quotes and awards year over year are related to the new services, we have introduced.
Some of the increases in quotes and awards year over year are related to the new services we have introduced and some rebound in our discovery and translational science business. We are pleased.
And some rebound in our discovery and translational science business.
We are pleased with our process of selling some of the assets we've identified for sale.
continue to validate new facilities and equipment in businesses who recently expanded or built.
We continue to validate new facilities and equipment and the businesses, we recently expanded or built.
We would like to see growth in our DSA backlog that are comfortable with our current DSA backlog and increasing diversity.
We would like to see growth in our DSA backlog, but are comfortable with our current PSA backlog an increase in conversion rates.
So we would expect DSA sales in Q1 2024 to show growth over Q1 2023.
So we would expect DSA sales in Q1 2024 show growth over Q1 2023.
For example.
September 30, 2022, we had a backlog of $147 million, compared to $132 million backlog at September 30, 2022.
September 32022, we had a backlog of $147 million compared to 132 million backlog at September 32023.
Q1 fiscal 2023, we converted 28% of that backlog into sales.
In Q1 fiscal 2023, we converted 28% of that book backlog into sales.
Q1 fiscal 2024, we'd expect our conversion rate to be in the low to mid 30s.
In Q1 fiscal 2024, we'd expect to convert our conversion rate to be in the low to mid thirties.
As noted earlier, we pivoted our strategy in 2023 to reduce focus on M&A activity and increase focus on execution.
As earlier as noted earlier, we pivoted our strategy in 2023 to reduce focus on M&A activity and increased focus on execution.
We recognized that there was uncertainty surrounding the third party sales of NH piece. So we've focused on aggressively improving margins from a small research bottles diet.
We recognized that there was uncertainty surrounding the third-party sales of NHPs, so we focused on aggressively improving margins from our small research models, diet, and discovery.
In discovery and safety assessment businesses.
while at the same time working to maintain our NHP business margins during 2020.
At the same time working to maintain our industry business margins during 2023.
Our focus in 2023 helped us to read.
Our focus in 2023 helped us to restructure and integrate many of our equity.
Structure and integrate many of our acquisitions and startup initiatives to enhance margins and decrease expenses going into 2020 core which also reduces our dependency on any P margins from third party sales for 2024.
start-up initiatives to enhance margins and decrease expenses going into 2024, which also reduces our dependency on NHP margins from third-party sales for 2024.
The majority of entities arm S site optimization plans have been completed.
The majority of Enitiz ARM-S SPITE optimization plans have been completed.
In total our plans included the closure of 11 sites along with investments in existing sites.
In total, our plans included the closure of 11 sites, along with investments in existing
And we have successfully concluded 10 site closures to date.
We have successfully concluded 10 site closures to date.
We have brought on additional capacity is multiple discovery and safety assessment sites, adding complementary service offerings and we believe these investments will expand our range of services generate higher revenue growth increase margins and improve our ability to recruit and retain Dale talent.
We have brought on additional capacity at multiple discovery and safety assessment sites and in complimentary service offerings, and we believe these investments will be able to be used in the future. Thank you. Thank you.
generate higher revenue growth, increase margins, and improve our ability to recruit and retain talent.
These include the finishing of our new facility build out in Rockville, Maryland.
new facility built up in Rockville, Maryland, and we have now also completed much of the validation process for assays in the.
We have now also completed much of the validation process for assays and equipment.
We completed site improvements and expansion projects in Boulder, Colorado for our discovery, operations, and further integration and operation improvements to that.
We completed site improvements and expansion projects in Boulder, Colorado for discovery operations, and further integration and operation improvements to that.
The expansion activities at Fort Collins, Colorado were completed by the end of October 2023, and the expanded site is completing the validation of the facility and equipment planes to be operational early.
The expansion activities at Fort Collins, Colorado were completed by the end of October 2023, and the expanded site is completing the validation.
facility and equipment and plans to be operational early in the second quarter of fiscal 2022.
Quarter of fiscal 2024.
We expanded our project management.
expanded our project management, safety pharmacology operations, reporting capabilities, and histoprotein
T pharmacology operations reporting capabilities, and histopathology capacity and teams.
also initiated the expansion of our internal archery carving space.
We have also initiated the expansion of our internal archerd carving state capabilities.
We have aggressively moved to reduce the number of software platforms while upgrading our hardware and software. We continue to improve.
We have aggressively moved to reduce the number of software platforms, while upgrading our hardware and software.
We continue to improve recruit and build and develop our team.
Through today, we have sold two of the six closed locations we own with four left to sell we also closed on the sale of our Israeli businesses.
Through today, we have sold two of the six closed locations we owned, with four left to sell. We also-
and now own our previously leased feed mill facility in Wisconsin. As a result, we are much better than we were before.
And now own our previously leased feed mill facility in Wisconsin.
As a result, we are much better than we were 12 months ago.
We still have much more to build upon in 2024.
Moving forward, projects which we have announced for 2024 include continuing site infrastructure and
Moving forward projects, which we have announced for 2024 include.
<unk> site infrastructure and animal welfare improvements.
Continuing that.
We are continuing to evaluate and improve our RMS transportation system and network based on our new site footprint, which should allow us to further reduce expenses and improve the client experience.
We can improve our RMS transportation system and network based on a new site.
Which should allow us to further reduce expenses improve the client experience.
Further expand our N P supply base and customer base.
Completing final site consolidations and expansion plans in U K.
completing final site consolidations and expansion plans in the UK.
validation and growth of our new services and added capacity for the future.
Validation and growth of our new services and added capacity for different services.
focus on expanding our customer base or continuing to improve and provide exceptional client experience.
Focus on expanding our customer base, while continuing to improve and provide exceptional client experience.
And lastly, as we validate new sources, we plan to further reduce outsourcing costs and increase the speed of discovery and development processes for customers.
And lastly, as we validate new sources, we plan to further reduce outsourcing costs and increase the speed of discovery and development processes for customers.
In 2023, DSA sales grew 12% over 2022, driven by new services and growth in safety assessment business, primarily related to price increases and partially offset by a decrease in our discovery service revenue in 2023 versus 2022.
In 2023, DSA sales grew 12% over 2022, driven by new services and growth in safety assessment business.
partially offset by a decrease in our discovery service revenue in 2023 versus 2022. With the investments.
With the investments we have made in the DSA business. We believe we will have the physical capacity to ultimately expand our sales by an additional 40%.
We believe we will have the physical capacity to ultimately expand our sales by an additional 40% over the $185 million in revenue.
$185 million revenue recognized in 2023.
We think growing DSA sales another 10 to 12% in 2024 is achievable. This would represent DSA sales of at least $200 million.
We think growing DSA sales are there 10% to 12% in 2024 is achievable. This.
This would represent DSA sales of at least 200 million.
also drive operating leverage and enable us to improve upon the DSA margins we saw in 2023.
This would also drive operating leverage and enable us to improve upon the DSA margins we saw in 2023.
Overall, we are pleased with the annual progress from $165 million in revenues in 2022.
Overall, we are pleased with the annual progress from $165 million and revenues for 2022 to.
185 million in DSA revenues in 2000.
$185 million of DSA revenues in 2023.
As I mentioned earlier for the past few months, we have seen an increase in discovery quotes and awards.
And are optimistic we may see a reversal of the decrease in discovery sales going into fiscal 2024, and actually see growth in these services.
sales going into fiscal 2024 and actually see growth in these services.
Our DSA margins in Q4 were significant and demonstrate the leverage we have in our business model as revenues grow.
Our DSA margins in Q4 were significant and demonstrate the leverage we have in our business model as revenues grow.
Q4 also shows the TSA business.
Currently achieve a run rate of approximately $200 million.
currently achieve a run rate of approximately 200 million and fails with.
Sales with significantly improved margins.
While the DSA business is still developing and growing, we think we are directionally headed.
The DSA business is still developing and growing we think we are directionally headed in.
In a positive direction.
The fiscal 2024, we will continue to expand our DSA sales team dedicating resources to expanding our market share.
Fiscal 2024, we will continue to expand our DSA sales team, dedicating resources to expanding our market share.
With recent expansion.
services that we have added. We are now expanding our customer base by increasing our sales efforts in the chemical and crop protection markets.
Services that we have added we are now expanding our customer base by increasing our sales efforts and the chemical in crop protection markets.
recently adding medical device salesperson, increasing our discovery and translational service sales team, and continue building our drug development and safety assessment.
Recently, adding medical device sales person, increasing our discovery and translational services sales team and continue building our drug development in safety assessment sales teams.
And our RMS segment, we grew modestly in 2023 industry challenges with NH P imports and the focus of our site optimization efforts, which were mainly centered around our small research model facilities, our diet business and the related transportation systems.
In our RMS segment, we grew modestly in 2023 amidst industry challenges with NHP imports and the focus on our site optimization efforts, which were mainly centered around our small research model facilities, our diet business, and the relationship with the environment.
As outlined in prior discussions we believe we will ultimately achieve approximately $20 million of expense reduction mainly coming from the RMS business.
As outlined in prior discussions, we believe we will ultimately achieve approximately 20 million of expense reduction, mainly coming from the RMF.
We realized roughly 5 million of that target this year, and we expect the remainder to be achieved during 2020.
We realized roughly $5 million of that target this year and we expect the remainder to be achieved during 2024.
Moving into fiscal 2024, we believe we will be a much more operation efficient.
Be able to increase our focus on growing our Rms business.
We don't currently have it.
any updates from U.S. Fish and Wildlife related to future imports of Campanian NHPs, and we remain focused on expanding and validating our supplier network.
Any updates from U S fish and wildlife related to future imports of <unk> and Hps.
We remain focused on expanding in validating our supplier network.
The important purpose spread H P.
We continue to have sufficient H P supply to meet our internal DSA requirements.
continue to have sufficient HP supply to meet our internal DSA requirements.
For 2023 the.
In 2023, the volume of NHPs we sold to third parties was down 37% from fiscal 2020.
Volume Hps, we sold to third parties was down 37%.
From fiscal 2022.
And specifically Q4 of 2023 was down the volume was down 60% from Q4 of 2022.
Specifically Q4 of 2023 was down, the volume was down 60% from Q4 of 2022. We expect Q1 volumes in fiscal 2024.
We expect Q1 volumes in fiscal 2024.
To be less than.
In Q1.
Fiscal 2023.
even with increased pricing in 2023 and the fact that we acquired some of our NHP businesses during the pandemic.
Even with increased pricing in 2023, and the fact that we acquired some of our HP business during the fiscal 'twenty two.
Overall, NHP sales dollars for 2023 were approximately 5% lower than 2022.
Overall H P sales dollars for 2023 were approximately 5% lower in 2022.
For 2024.
We will again seek to maintain overall sales and margins as we did in 2023.
We will again seek to maintain overall sales and margins as we did in 2012.
Due to uncertainties in H T market initially our guidance projects reduced in HPV sales and margins for 2024.
due to uncertainties in the NHP market, initially, our guidance projects reduced NHP sales and margins for 2020.
And with that, I'd like to turn the call over to Beth to review INITIUS financial results in detail, as well as provide the outlook for 2020.
And with that I'd like to turn the call over to Beth to review <unk> financial results in detail as well as provide the outlook for 2024.
Thank you, Bob. Our fiscal year ended September 30 2023 revenues totaled $572.4 million, a 4.5% increase from the $547.7 million recorded during fiscal year 2022.
Thank you Bob.
For fiscal year ended September 32023 revenues totaled 572 $4 million or five 5% increase from the $547.7 million recorded during fiscal year 2022.
RMS revenue for 2023 increased 1.3% to $387.3 million from $382.4 million in 2022.
RMS revenue for 2023 increased one 3% to $387.3 million.
282 $4 million in 2022.
In RMS, we continue to operate in an extremely dynamic pricing environment for larger research models, in particular the NHP.
And our math, we continue to operate in an extremely dynamic pricing environment for larger research model in particular, the N H P.
DSA revenue increased 12% to $185.1 million in fiscal year 2023, as compared to $165.3 million in fiscal year 2022.
DSA revenue increased 12% to $185.1 million in fiscal year 2023, as compared to $165 3 million in fiscal year 2022.
The increase in DSA revenue was primarily driven by additional fiscal year 2023 revenue generated from integrated laboratory systems that was acquired in January 2022, plus new services related to genetic toxicology and favorable pricing in general toxicology services.
The increase in DSA revenue was.
Really driven by additional fiscal year 2023 revenues generated from integrated laboratory system that was acquired in January 2022, plus news services related to genetic toxicology and favorable pricing in general toxicology services.
These increases in GSA service revenues were partially offset by decreases in our discovery services, primarily related to the decline in overall biotech funding in the market.
These increases in DSA service revenues were partially offset by decreases in our discovery services, primarily related to the decline in overall biotech funding in the market.
For the 2023 fourth quarter, total revenue decreased 6.5% to $140.7 million.
And then 2023 fourth quarter total revenue decreased six 5% to $147 million.
from the $150.5 million recorded during the prior year period.
From the $155 million recorded during the prior year period D.
DSA revenues increased by 13.6%.
D S. A revenues increased by 13, 6% to $50.2 million when compared to the prior year period, a $44.2 million.
to $50.2 million when compared to the prior year period of $44.2 million. As previously mentioned, the higher revenues experienced in our DSA segment were primarily driven by new services related to genetic toxicology and favorable pricing in general toxicology services, which were partially offset by declines in discovery services, which were impacted by lower biotech funding.
As previously mentioned the higher revenues experienced in our <unk>.
So you say that are primarily driven by new services related to genetic toxicology and favorable pricing in general toxicology services, which were partially offset by declines in discovery services, which were impacted by lower biotech funding.
RMS revenue for the fiscal fourth quarter was down 14.9% to $90.5 million year-over-year, mainly due to a reduced volume of NHP sales, somewhat offset by favorable pricing over several products, particularly NHP.
RMS revenue for the fiscal fourth quarter was down 14, 9% to $95 million year over year, mainly due to a reduced volume and H P cells.
What offset by favorable pricing over several products.
Take care literally in H P.
Consolidated net loss attributable to common shareholders in the fourth quarter of fiscal 2023 totaled 9.7 million dollars or a 38 cent loss for diluted share this compared to consolidated net loss attributable to common shareholders of 244.2 million dollars or a nine dollar and fifty four percent loss per
Consolidated net loss attributable to common shareholders in the fourth quarter of fiscal 2023 totaled $9 $7 million or a 38 cents loss per diluted share this compared to consolidated net loss attributable to common shareholders of 244 point.
$2 million or $9 54 per cent loss for.
Diluted share in the fourth quarter of 2022.
saluted chair in the fourth quarter of 2022.
For the quarter adjusted EBITDA improved to $23.7 million or 16.8% of total revenues from $18.3 million or 12.1% of total revenues in last year's fourth quarter.
Third quarter, adjusted EBITDA improved to $23.7 million or 16, 8% of total revenues from $18 $3 million or 12, 1% of total revenue in last year's fourth quarter.
Operating income for the fourth quarter was $2.5 million compared to a loss of $242.5 million from last year's fourth quarter, which included $236 million of goodwill impairment loss.
Operating income for the fourth quarter was $2.5 million compared to a loss of $242 $5 million from last year's fourth quarter, which included $236 million of goodwill in Panama.
Additionally, the current quarter had lowered GNA, amortization, and other operating expense compared to Q4 of 2022. The decrease in GNA and other operating expenses was driven primarily by decreased acquisition, integration, and restructuring expenses and a decrease in other third-party expenses.
Additionally, the current quarter had lower G&A amortization and other operating expense compared to Q4 2022, the decrease in G&A and other operating expenses was driven primarily by decreased acquisition integration and restructuring expenses and a decrease in other third party.
Expenses.
non-GAAP operating income for our DSA segment in the fourth quarter increased to $12 $6 million or 25, 1% of segment revenues.
$5 million or 11, 4% of segment revenue in last year's fourth quarter.
DSA non-GAAP operating income in Q4 2023 was favorably impacted by the increase in DSA revenue over a relatively fixed cost operating structure, recognition of cancellation fees, and reduced assets.
So he is a non-GAAP operating income in Q4 2023 was favorably impacted by the increase in DSA revenue over a relatively fixed cost operating structure recognition of cancellation fees.
And reduced outsourcing costs, we have seen an increase in awards for discovery services in Q4, and continuing into the current quarter as our new services start to come online we expect to generate further demand from both new and current customers alike, ultimately with a broader range of services and the capacity that we have.
We have seen an increase in awards for discovery services in Q4 and continuing into the current quarter. As our new services start to come online, we expect to generate further demand from both new and current customers alike.
Ultimately, with the broader range of services and the capacity that we have added, we believe we will be able to boost our DSA margins from the mid-30% range in 2024, with long-term targets going consistently into the upper 30% range.
We believe we will be able to boost our DSA margins from the mid 30% range in 2024 with long term targets going consistently into the upper 30% range.
And that book to Bill ratio for DSA in the fourth quarter was 26, five and the net book to Bill ratio for the year, let's call. It nine to the lower net book to Bill in the quarter was primarily due to high cancellations in Q4.
TSA backlog was $132.1 million at September 32023, compared to $147 $2 million at September 32022. Additionally, our conversion rate, which is our ability to convert our backlog yourselves has continued to improve.
Our Q4 2022.
non-GAAP operating income for RMS segment in the fourth quarter of fiscal 2023 was $24 million or 26, 5% of total revenues compared to $28 $2 million or 26, 6% of revenues in last year's period, a decrease in arm.
Revenue noted above was offset by a decrease in cost.
<unk> services, which is driven by a decrease in in H D volumes Angie.
And decreased costs as a result of site optimization.
Furthermore, there was a decrease in RMS amortization expense.
Interest expense in Q4, 2023 increased to $11 $3 million up from $8 $9 million in last year's fourth quarter, reflecting our higher debt balance for borrowing obtained for capital investment and the higher interest rate.
Net cash provided by operations for the fourth quarter was $18 8 million compared to cash provided by operations of $10 million in the same period last year.
Net cash provided by operations for fiscal year, 2023 was $27 $9 million compared to cash used in operations of $5 $2 million for fiscal 2022.
The increase in cash provided by operations was primarily driven by improved networking capital compared to the same period last year.
Capital expenditures in the fourth quarter or $6 $2 million or four 4% of total revenue and reflected investments in completing our D. S. A capacity expansion in Rockville, Maryland, and Fort Collins, Colorado enhancements and laboratory technology and improvements in animals.
There are.
For fiscal year, 2023 capital expenditures totaled $27 $5 million or four 8% of total revenue.
Our balance sheet as of September 32023 included $35 $5 million in cash and cash equivalents as compared to $22 2 million at June 32023.
Total debt net of issuance costs as of September 32023 was $377 $7 million compared to $375 $6 million at June 32023. The balance sheet also include assets held for sale at $1.4 million.
As of September 32023.
Fiscal 2024 revenues are expected to be in the range of $580 million to $590 million, we expect gains in DSA sales and flat to decreasing RMS sales based on the possible reduction and then N H P.
Adjusted EBITDA guidance is expected to be in the range of $75 million to $80 million. The increase in adjusted EBITDA over fiscal 2023 is expected to be driven by increased margins from the DSA segment and cost reductions we initiated in fiscal 2023 and the projected reduction in feature.
H P margins.
We expect to continue to remain in compliance with our financial covenants for the fiscal year, we expect capital expenditures to be approximately 4.5% of revenue in fiscal 2024 as compared to an annual average of 10, 3% over the last five years as we expanded sites increased service capacity.
We are pleased with our financial performance this quarter and with the progress that was made to complete the capacity expansion for the DSA segment in order to increase revenue and improve margins and the significant progress made on the site optimization plans for the RMS segment in order to achieve cost savings with the D. A.
I'll say expansions in RMS site consolidation effort, mostly behind us and the additional talent that we have added to our sales team. We remain optimistic as we work to grow and capture a significant portion of the opportunities in our market.
And with that financial overview ill turn the call over to our operator for questions.
Okay.
Yeah.
Thank you ladies and gentlemen at this time, we'll be conducting a question and answer session.
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Our first question comes from the line of Tim Daly with Wells Fargo. Please proceed with your question.
Great. Thanks, so yeah.
I think it's just a good place to start off I know I'm getting a bunch of inbounds on that so as you know the guidance for or I'm, asking 24, I know you guys are thinking you know initially.
The volumes will be down, but could you just help us understand the price volume dynamic. There. So you know roughly flat slightly down revenue does that down 20% on volumes.
It's mostly a price you know order of magnitude would be really helpful. Here.
Thank you.
A couple of things one I think I indicated we thought our Q1 volumes would be down versus Q1 of last year overall.
Year over year, I'm, not I'm not sure that we will see a decrease in volumes over the 12 month period.
I think what we could see and what we're expecting to see his age.
A reduction in price so the the guidance.
We're providing is probably more based on a price reduction.
It is a volume reduction.
We saw a pretty good price increases last year I think the pricing.
Kris will take us.
Slow down.
And I think that we will begin to see additional imports coming into the market next year as I indicated we had a new supplier we have a couple of new suppliers coming on board.
I think we will have some increase in volumes, but I also think others will have increase of volumes, which could start to see decreasing in pricing and margins.
So I think that's where what we are anticipating.
It's it's it's probably not happened yet, but that's kind of what we're looking for.
In Q2, when our fiscal Q2 would be through the rest of the year. So.
It's it's it's not a predictable market.
It's not a real sophisticated market.
But.
It's our best guess at this moment and we want to be cautious going into the into the year.
Alright, I appreciate that and then my second question here is on discovery, specifically just drilling into that so it's.
A bit more common a positive tone on the discovery outboard than kind of most in the general kind of feel were getting out of the industry. So I know you guys have taken some idiosyncratic steps to help yourself and discovery, but but could you help us frame how much was discovery down this year.
Overall.
Maybe it's kind of what did that get worse or better in terms of the earlier declines in the fourth quarter.
Any additional help there would be really helpful and thanks, everybody appreciate the time.
Okay. So for the year, our discovery Sue.
Sales were down about 10% from the prior year, so where we anticipated to see some growth. It was actually down. So we were probably down nine or $10 million in sales in discovery from where we expected a year ago.
So one of the Big one is one of the misses we had for last year. In addition to them to some of our legal piece that we've talked about previously.
So we've kind of looked at this closely and because we also built up some capacity.
The worst quarter I think was the our quarter ended June 30, which would be our third quarter.
It was down the furthest and we so we didn't we didn't know somebody could've been related to Silicon Valley Bank, because we have over 10% of our customer base.
Is which we went back and evaluated at the time that that clubs occurred.
He said that discovery base was doing business with Silicon Valley Bank.
That did impact the quarter ended June 30th.
We saw that begin to rebound in July.
This year end.
Again, the question is with it some of that rebound because the Silicon Valley Bank.
It was getting solved and people were getting access to the cash.
Could there be maintained.
To the last four or five months, we've been able to see that.
Our quoting and our awards.
It's been up.
And excessive now of course, we're going over a comp last year, that's a little bit lower but they've been they've been up double digits from where they were a year ago more than making up to 10% decline.
So that it's you know that's going through this week and.
And as you know are two last week I should say its latest that I have available.
It's good to see.
I hope, we can see that trend continue.
So we've put some effort we put some effort towards that.
It's starting to pay off and maybe the market is beginning to recover but we'll wait and see what happens over the next two next quarter, but so far it's been a positive 10 to 12 months and it is.
<unk> is in excess of the decrease we saw last year.
Great. Thank you appreciate it.
Our next question comes from the line of Frank You can with Lake Street Capital markets. Please proceed with your question.
Perfect maybe I'll start with one on the book to Bill I heard the comment around a higher cancellations in line with the trend that's been occurring over the last couple of quarters can you maybe bring us a little bit deeper into where some of those cancellations reside if it's a specific customer profile and then talk a little bit more about the backlog.
If you've looked into that in depth I understand if theres any uh huh heightened cancellation risk within that backlog and the expectations for <unk>.
Cancellation is we look at fiscal year 2024.
Yes right.
That we.
We did have a couple of large jobs that canceled.
Our fiscal Q4, which drove those cancellations.
Up to you know significant 10 $59.
Our backlog is back into those numbers with what we provided.
The $15 million, it's pretty significant.
And some of those are pretty big and it also generated some cancellation charges.
Which benefited our quarter.
So yes.
Yeah.
It was a good quarter and we actually have changed some of our internal processes how we.
Or we can take look attractive.
Today, though too this quarter, that's down significantly we're not you know.
We're down over half of that in a matter of fact it could be.
Closer to 25% of that great.
We're seeing.
It's a significant drop off not saying that that will be the way the quarter ends.
You know looking out we were not aware of anything but we have we have cancellations, but we're not aware of anything significant like we had last quarter.
And right now.
We're not seeing the high cancellations.
Say, we are at times, having people call in and delaying so something that was going to start.
December they may want us to start to move the start date into February or February up to June and some of those things and caused some pressure on our on our quarters, but we're not seeing cancellations near like we saw.
I'd say for the last four or five quarters.
So that's encouraging we also don't have the backlog going out two years like we did a year ago, we made that we'd be looking at backlogs that go out six to 12 months 12 to 24 months.
So some of that has a little bit to do with it.
And as I say, they don't cancel but they may delay.
So, we'll see where that goes but right now this quarter is looking.
Fairly positive for a book to Bill.
Compared to compared to prior quarters.
Okay. That's helpful. And then maybe just for my second I wanted to circle back to the N H P.
Dynamic I heard the comments around a new supplier coming on board and the expectations for more in 2024 can you help level set us on where we are from a quantity basis. So I was a little surprised to hear that prices may be coming down when I figured we would still be in a very supply constrained environment, but maybe some of these suppliers are bringing on more volume than they anticipated.
Paid it so I don't know if there's anything quantifiable you can provide just how significant some of these new suppliers can be and what kind of supply we could see in 2024 versus previous years.
Yeah. This is again just our opinion I don't have anything quantifiable I can't tell you all do.
World market.
There are additional farms that are.
You know that are increasing and have been for the last several years, increasing their breathing and their availability of NH piece. So I think the population on the world market may be increasing and if you look at over the last year, it's been a year since you asked.
Since the Cambodian where should Oh imports were taken out of the U S market, but there's still going everywhere else in the world. So there's still available on the world market.
They're just not available to the U S.
And many people are still importing or use in Cambodia. We just started we are not.
At this time.
So.
We're just looking out and saying, Okay. We think that we have.
Some people have found supply.
A year or two just they found ways around it and we're expecting that some of the.
Pricing went up last year may not be able to sleep may not stay at that level.
So we'll see how that how that evolves in Q2 and Q, our fiscal Q2 and Q3.
But yes, we have additional suppliers.
We feel like our volume.
Good.
Said earlier, we may be able to achieve the same volume we did last year, but I'm just not sure that the margins will stay the same on the world market. I'll also say that I think some of the pricing will begin to come down.
Yes. It is that capacity is out there and then there's still the unknown what will happen with China and then you know what could eventually happen with Cambodia.
With those things being out there we felt at this point and if those if that capacity comes on the market it would but.
Price pressure with those issues being out there over the next 12 months or kind of the opposite trends. We saw 12 months ago and we felt at this time, we should we should be fairly cautious we don't have anything for sure. We don't have anything that we can definitely point to from a quantitative standpoint, but at this point.
You know we wanted we want to be cautious.
About about what we're seeing how that Martin Cooper now.
Got it okay. That's good color thanks for taking the questions I'll stop there.
Thanks, Greg.
Washington comes from the line of Matt Hewitt with Craig Hallum. Please proceed with your question.
Good afternoon, and I guess congratulations on.
Pushing through here over the past year I know it was not an easy environment. Maybe the first question regarding gross margin and EBITDA margin, how should we be thinking about the progression over the course of this year. It sounds like Q1 is going to be off to a strong start and then maybe we start to see some pricing pressure weighing on those margins says here.
Progresses or can volumes help offset that so that you could maybe even see them flat to up a little bit as the year progresses on those two lines. Thanks.
Our first start with Q1, I think Q1 typically has.
<unk> been our slowest quarter of the year last year I think we're coming off of a base of Q1 was only 122 and as you know.
That time, we it was down because we stopped selling the hps and then this year I think the HPV bond would be less than last year that being said I think we will well exceed the one the $1 22, because some of the industry pricing still staying strong this quarter.
I think we will see again continued.
Reduction of expenses in our mass business and I think we continue to see.
Hopefully some improved margins from our DSA business.
Our sales growth.
DSA business, but typically is our.
Our slowest.
Our lowest quarter.
So.
You know.
I'm not looking for anything really great out of Q1, but.
Sure exceed last year.
Which put a lot of pressure on us for the rest of the year. It put a lot of pressure on our trailing 12.
Eliminate that as far as the rest of the year.
Again, a lot of it will depend on where the <unk> margins.
Come out and.
And what.
You know what the other people do in terms of imports.
But I don't see it changing a whole lot from last year I think it still.
Eventually we were still going to be back in it.
$20 million plus EBITDA range I think we still if you look backwards the $23 million government. If we have a choice remains so nevertheless, eight quarters. So if you take out the Q1.
And I think.
I don't know that we'll see that in Q1, but I think if you look at the average going beyond that I think will continue to be really strong.
Strong for us.
And I do hope, we'll see some of the margins improve from the other businesses, but you know Danish P is less predictable at this time.
Got it and maybe one additional question regarding bringing the transportation in house Hum.
How complex of a process is that in and how well how much will that help margins. Once you get that fully integrated thank you.
Oh that was released we made I think last week and this is something that.
We think it's important to service.
And they will also be another way to currently.
That's the.
The important to services our drivers are the face of our of our business. Many times they interact with our customers to deliver the product that they get feedback and we would like to direct you to them.
Driver a closer relationship between our drivers our customer service Center salespeople.
And and <unk> and our customers and to enhance the service and the feedback. So we know what we can do to do better and to become closer to that experience.
Second of all.
I do think that there is oh.
Some duplication of costs between the two companies and the.
Supplier, we were using was.
Doing a nice job of course that doesn't make it to say that but I think there was some duplication of cost that we could eliminate.
As we do this transition and I'm very pleased that they are willing to help us work with us to transition. This service back to us in house, but things such as insurance and audit professional fees and some of the quality.
Call it some of the things that.
There's some duplicate costs will probably come out ultimately.
I'd say this.
A few million dollars to $2 million more as we get that implemented.
Very very pleased with their ability to work with US we went to all of their sites on Friday.
We have 11 distribution facilities.
It was our people went to all of it.
Interview the people we have viewed the drivers.
They have a lot of very good people.
Within 48 hours, where the majority of their team has already.
Already applied for jobs with us and we're moving forward and quickly and hope to be able to transition those people with over the next two weeks.
So very pleased working with how this is working out and with their cooperation.
I think we'd like to make this as seamless as possible.
As we go through this process and really again, what I appreciate people being cared for.
Understanding.
This is the direction, we want to go and willing to work with us to make sure that this can happen.
Seamlessly and take care of all the people and the suppliers along the way.
Got it alright, thank you.
Our next question comes from the line of Dave Windley with Jefferies. Please proceed with your question.
Okay.
Taking my questions.
Mr. Windley your line is cutting in and out we can't hear you.
Alright.
A little better.
A little.
Okay.
Right.
Okay.
For the full year 2023.
How much was it up.
Oh I missed that.
You were asking something about.
2023.
Yeah, I apologize I'm sorry.
Yeah.
Uh huh.
Are you asking what the average price was increase over 2023.
I'm sorry.
Trying to.
We're we're losing you Mr. When Mr Windley.
Yeah.
David what was the question what is the average price increase we saw in 2023 for any trees.
Yeah.
Can't hearing.
Doug can you hear me.
No I can't hear him either.
Let's Doug maybe we can just repo for questions. If there's any other questions on the line.
And maybe David.
Remap, but you no doubt dial back in.
Ladies and gentlemen, as a reminder, it is star one to ask a question.
No I think we should just.
We should just wrap up and then turn it over to Bob leisure.
Mr. Lee you go to.
Call is yours to a conclusion.
Okay.
Okay, well, thank you everyone for joining today's call.
I'm going to just quickly did Dave called back in.
No okay.
We believe we've laid out critical groundwork for success going into 2024, as we continued to effectively execute across our planned initiatives. We hope to see a continued increase in awards for discovery services and reduction in cancellations for the new year as well as closing on contracts related to the.
Final asset sales as part of our optimization plan.
It competes we will continue our efforts to qualify new MSP sources and seek to reduce costs in the small animal and pet.
Businesses. We will also continue efforts to expand our quotes and awards in the DSA business, where we've added capacity.
Validate the new facilities and equipment, let's take efficiencies across SG&A.
We've improved the operating model significantly and the ability to leverage our current scale and a broad range of products and services.
Completing a squeeze.
As competing.
As a leading midsized preclinical CRO. We currently operate 24 sites across U S and Europe, serving over 3000 customers.
We support these efforts with over 2000 professionals worldwide, including industry recognized experts across.
Good range scientific disciplines is our aspiration to grow our reputation and become a leading CRM provider of choice.
That's the majority of our capital investment program has largely been completed we believe we are well positioned to achieve this through increased sales volume driven by greater cross selling to our existing customers. In addition to our enhanced commercial teams capturing new customer relationships.
You once again for your support as it enters this new stage of growth possibilities with good afternoon, we look forward to speaking with everyone on our next call. Thank you.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect your lines at this time.
And have a wonderful day.