Q2 2024 Inotiv Inc Earnings Call

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Speaker Change: Good afternoon, ladies and gentlemen, and welcome to the <unk> second quarter 2024 earnings Conference call.

Speaker Change: At this time all lines are in a listen only mode.

Speaker Change: Following the presentation, we will conduct a question and answer session.

Speaker Change: At any time during this call you require immediate assistance. Please press star zero for the operator. This call is being recorded on Wednesday May 15, 2024, I would now like to turn the conference over to Bob <unk>. Please go ahead.

unknown: Good afternoon, ladies and gentlemen, and welcome to the Inotiv second quarter 2024 earnings conference call. At this time, all lines are in a lesson only mode.

unknown: Following the presentation, we'll conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Wednesday, May 15th, 2024. I would now like to turn the conference over to Bob Yedid. Please go ahead.

Bob Yedid: Thank you, Julie. And good afternoon, everyone.

Bob: Thank you Julie and good afternoon, everyone. Thank you for joining today's quarterly call with an experienced management team.

Bob Yedid: Thank you for joining today's quarterly call with Innocence Management. Before we begin, I'd like to remind everyone that some of the statements that Matt 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.

Bob: Before we begin I'd like to remind.

Bob: Everyone that some of the statements that may ask we will make on this call are considered forward looking statements, including statements about the company's future operating and financial results and plans.

Bob: 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.

Bob: Today's date you should.

Bob Yedid: You should not place undue reliance on these forward-looking statements, and the company does not undertake any obligation to update or revise forward-looking statements, whether as a result of new information, future events, or otherwise. Please refer to the company's FCC 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. Definition of these nine gap measures and reconciliation.

Bob: Should not rely you should not place undue reliance on these forward looking statements and the company does not undertake any obligation to update or revise forward looking statements whether as a result of new information.

Bob: Future events or otherwise.

Bob: We used to refer to the company's SEC filings for further guidance on this matter.

Bob: Management will also discuss certain non-GAAP financial measures in an effort to provide additional information for investors.

Bob: 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.

Bob: Www dot in it too.

Bob: <unk> Dot Com and is also available in the form 8-K filed with Securities and Exchange Commission today.

Bob: Having obtained a copy of today's press release yet.

Bob: Can do so by going to the investors section of the company's website.

Bob Yedid: The most comparable gap measures are included in the company's earnings release, which has been posted to the investor section of the company's website, www.inotiv.com. It's also available in the form 8K, filed with the 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. Joining us today from the company this afternoon are Bob Leasure, President and Chief Executive Officer, and Beth Taylor, Chief Financial Officer.

Speaker Change: Joining us today from the company. This afternoon are Bob Leisure, President and Chief Executive Officer, and Beth Taylor Chief Financial Officer.

Speaker Change: John <unk> Chief strategy Officer will join us for the Q&A session.

Speaker Change: Bob will begin with some opening remarks, after which he which Beth will present, a summary of the company's financial results for the second quarter fiscal 2024, and the six months ended March 31, 2024, and then we will open the call for your questions with that it's now my pleasure.

Bob Yedid: John Sagartz, Chief Strategy Officer, will join us for the Q&A session. Bob will begin with some opening remarks, after which Beth will present a summary of the company's financial results for the second quarter of fiscal 2024 and the six months ended March 31, 2024. And then we'll open the call for your questions. With that, it's now my pleasure to turn the call over to Bob Leasure, CEO. Bob, please go ahead.

Robert W. Leasure: Turn the call over to Bob Leisure CEO, Bob. Please go ahead.

Robert W. Leasure: Thank you, Bob, and good afternoon to everyone. Thank you for joining us on today's call. Let's quickly run through the broad strokes of this quarter's results as we continue to operate in a mixed industry environment. Total revenue came in at $119 million for Q2 of fiscal 2024, which is down 21.5% year-over-year. Segment top-line results consisted of DSA revenues of $46.6 million, which was only down $400,000 or less than 1% versus the comparable period a year ago.

Robert W. Leasure: Thank you Bob and good afternoon, everyone. Thank you for joining today's call.

Robert W. Leasure: Revenue from RMS, including NHP sales, diets, bedding, and small animal models, was down $72.4 million in Q2, a decrease of $32 million or 31% from the prior year period. $26.2 million of the $32.1 million decrease was driven by substantially lower NHP revenue. In addition, we have a decrease in revenue of $3.1 million from the sale of our Israel business in August of 2023. Revenues this past quarter were well below our expectations.

Robert W. Leasure: Let's quickly run through the broad strokes of this quarters results as we continue to operate in a mixed industry environment.

Robert W. Leasure: Total revenue came in at 119 million for Q2 of fiscal 2024, which is down 21, 5% year over year.

Robert W. Leasure: Segment topline results consisted the DSA revenues of $46 6 million, which was only down 400000 or less than 1% versus the comparable period a year ago.

Robert W. Leasure: Revenue from RMS included NH P sale side studying small animal models was down $72 4 million in Q2, a decrease of $32 million or 31%.

Robert W. Leasure: From the prior year period.

Robert W. Leasure: $6 $2 million of the $32 1 million decrease was driven by substantially lower and HP revenue in.

Robert W. Leasure: In addition, we have decrease in revenue of $3 1 million from the sale of our Israel business in August 2023.

Robert W. Leasure: Revenues this past quarter were well below our expectations.

Robert W. Leasure: The lower revenue came as a result of many of the potential risks we discussed in our last quarterly call coming to fruition, primarily weak demand for NHPs and slower DSA discovery-related sales, which were somewhat offset by the growth in our new safety assessment services. 2023 was a challenging funding environment for the biopharma industry, and we saw companies reprioritize their use of capital, resulting in product reprioritizations and some cancellations as companies rationalized their R&D spending.

Robert W. Leasure: The lower revenue came at a result of many of the potential risks we discussed.

Robert W. Leasure: Our last quarterly call coming to fruition, primarily weak demand for hps and slower DSA discovery related sales, which were somewhat offset by the growth in our new safety assessment services.

Robert W. Leasure: 2023 was a challenging funding environment for the Biopharma industry, and we saw companies re prioritize their use of capital resulting in product.

Robert W. Leasure: Organizations, and some cancellations as companies rationalize their R&D spending.

Robert W. Leasure: In addition, as we have discussed in the past the industry faced challenges the volatility resulting from the U S. Attorney's office criminally charging a Cambodian government official allege charges of conspiracy legally import in hps and the U S.

Robert W. Leasure: In addition, as we have discussed in the past, the industry faced challenges and volatility resulting from the U.S. Attorney's Office criminally charging a Cambodian government official on alleged charges of conspiracy to illegally import NHPs into the U.S., and our considered decision to suspend Cambodian imports and the subsequent effective industry ban on the importation of Cambodian NHPs into the U.S. in late 2022.

Robert W. Leasure: And are considered decision to suspend Cambodian imports and the subsequent effective industry ban on the amputation of Cambodian Hp's until the U S. In late 2022.

Robert W. Leasure: This ultimately resulted in lower NHP availability in the U.S. and heightened concern among customers regarding their ability to access NHPs to develop their pipeline products, which together drove increased NHP pricing in 2023. The uncertainty and available supply to the U.S. also resulted in some discovery and preclinical studies moving outside the U.S., which further impacted drug discovery and development and overall demand for NHPs in the U.S. We indicated in our prior quarterly call that we expected this year could be choppy as it relates to NHP sales.

Robert W. Leasure: This ultimately resulted in lower <unk> availability in the U S and heightened concern among customers regarding their ability to access and hps to develop their pipeline products, which together drove increase in HP pricing in 2023.

Robert W. Leasure: The uncertainty and available supply to the U S. Also resulted in some discovery in preclinical studies moving outside the U S, which further impacted drug discovery and development and overall demand for Hps and the U S.

Robert W. Leasure: We indicated in our prior quarterly call that we expected this year could be choppy as it relates to HP sales. We believe the industry continues to reset and refocused pipeline priorities and our second quarter results reflects the after effects and volatility caused by the <unk> market dynamics at the end of 2022.

Robert W. Leasure: We believe the industry continues to reset and refocus pipeline priorities, and our second quarter results reflect the aftereffects and volatility caused by the NHP market dynamics at the end of 2022, through 2023, and the first half of fiscal 2024. We're currently witnessing some positive signs in the industry, such as a marked improvement in capital markets funding for biotech and small pharma companies during the first quarter of calendar 2024 as compared to the prior two years.

Robert W. Leasure: Two.

Robert W. Leasure: Through 2023 in the first half of fiscal 2024.

Robert W. Leasure: We're currently witness some positive signs in the industry such as marked improvement in the capital markets funding for biotech.

Robert W. Leasure: Pharma companies during the first quarter of calendar 2024, as compared to the prior two years.

Robert W. Leasure: While this is a positive sign for these companies and the CRM industry, we expect biopharma companies..., in the short term, to continue to take a restrained, conservative approach to the pipeline products in order to prioritize the use of capital to the most important projects. Accordingly, Inotiv's sales cycle has been slow as customers continue to evaluate and rationalize their product types.

Robert W. Leasure: While this is a positive sign for these companies and the CRM industry, we expect biopharma companies in the short term to continue to take a restrained conservative approach to the pipeline products in order to prioritize the use of capital to the most important projects.

Robert W. Leasure: Accordingly.

Robert W. Leasure: The sales cycle has been slow as customers continue to evaluate and rationalize their product pipelines.

Robert W. Leasure: This has impacted us predominantly through a further reduction in Q2 discovery sales versus the prior year and in the RMS NHP business, and our research models and services, RMS Business, some of our major CRO NHP customers have seen delays and slowdowns in their ability to acquire new discovery and safety assessment studies requiring NHP. In other cases, it also became apparent this quarter that certain customers mitigated supply chain risk in 2023 by purchasing NHPs well in advance of their needs and are now able to delay purchasing additional NHPs until they deplete their current inventory.

Robert W. Leasure: This has impacted us predominantly through a further reduction in Q2 discovery sales versus the prior year and in the RMS NSP business.

Robert W. Leasure: And our research models and services, our Rms business.

Robert W. Leasure: Some of our major CRO HP customers has seen delays and slowdowns in their ability to acquire new discovery and safety assessment studies, requiring any fees.

Robert W. Leasure: In other cases, it also became apparent this quarter that certain customers mitigated supply chain risks in 2023 by purchasing hp's well in advance of their needs.

Robert W. Leasure: Ill able to delay purchasing additional hps until they deplete their current inventories.

Robert W. Leasure: So this year, unlike 2023, we are now seeing customers align their NHP purchases more closely to their immediate project needs. Taking these dynamics collectively, we believe these pressures will normalize later in the year as customer NHP inventories are depleted, and they focus on ordering to meet shorter-term needs.

Robert W. Leasure: So this year. Unlike 2023, we're now seeing customers align their NXP purchases more closely to the immediate project needs.

Robert W. Leasure: Taking these dynamics collectively.

Robert W. Leasure: <unk>.

Robert W. Leasure: These pressures will normalize later in the year as customer inventories are depleted and they focus on ordering to meet <unk>.

Robert W. Leasure: Short term needs.

Robert W. Leasure: Internally, we remain encouraged by the results and benefits of many of the critical actions we took in 2023 are taking in 2024, such as the integration efforts of our acquisition. We are seeing lower cost and improved service from our RMS site optimization project. We anticipate the RMS site optimization and cost reduction initiatives we started last year are going to be completed by the end of July 2024, and the transportation initiatives which we announced in December of 2023 are currently being implemented to create further cost and customer service benefits.

Robert W. Leasure: Internally, we remain encouraged by the results and benefits of many of the critical actions. We took in 2023, we are taking in 2024, such as the integration efforts of our acquisitions.

Robert W. Leasure: We are seeing lower cost and improved service from RMS slide optimization projects, we anticipate the RMS site optimization and cost reduction initiatives. We started last year are going to be completed by the end of July 2024, and the transportation initiatives, which we announced in December of 2023 are currently being <unk>.

Robert W. Leasure: <unk> to create further cost and customer service benefits. Additionally.

Robert W. Leasure: Additionally, we are pleased to secure new contracts with research organization customers who wish to occupy space within our UK RMS facility. In addition to generating recurring income from the use of the space, infrastructure, and services, we are identifying opportunities to provide these customers with additional products and services to support their scientific research.

Robert W. Leasure: Additionally, we were pleased to secure new contracts with two research organization customers, who wish to occupy space within our UK Rms facilities.

In addition to generating recurring income from use of the space infrastructure and services. We are identifying opportunities to provide these customers with additional products and services to support their scientific research.

Robert W. Leasure: In DSA, new service offerings are now contributing to increases in safety assessment revenues, which have helped offset some of the decreases we have seen in the Discovery Services portion of that segment and Discovery. We believe the additional salespeople and initiatives we implemented in Q1 of fiscal 2024 will help to increase our market awareness and quoting activity as we go through the remainder of the year. With many of our announced projects now completed or nearing completion, we have also been able to reduce our overall operating expenses.

Robert W. Leasure: And DSA New service offerings are now contributing to increases in safety assessment revenues, which have helped to offset some of the decreases we have seen in discovery services portion of that segment.

Robert W. Leasure: In discovery, we believe the additional salespeople on initiatives, we implemented in Q1 of fiscal 2024 will help to increase our market awareness and quoting activity as we go through the remainder of the year.

Robert W. Leasure: With many of our announced projects now completed or nearing completion, we have also been able to reduce our overall all operating expense.

Robert W. Leasure: Further, due to current market conditions and certain efficiencies we've been able to achieve, we effected a small reduction in force in April, which will help further reduce expenses in future quarters. Overall, Net New DSA orders for this quarter were 35. For the year-to-date period ending March 31, 2024, we booked net new orders of $98.9 million versus $84.6 million for the six months ended March 31, 2023. The conversion rate this quarter was 30.1% versus 32% in the prior year.

Robert W. Leasure: Further due to current market conditions and certain efficiencies, we've been able to achieve we affected a small reduction in force in April which will help further reduce expenses in future quarters.

Robert W. Leasure: Overall net new DSA quarters for this quarter were 35.

Robert W. Leasure: Million dollars versus the $44 6 million last year for the year to date period, ending March 31, 2024, we booked net new orders of $98 9 million versus $84 6 million for the six months ended March 31 2023.

The conversion rate this quarter was 31% versus 32% in the prior year.

Robert W. Leasure: The DSA cancellations in Q2 were consistent with the prior year period and in the first six months of fiscal 2024 were slightly less than they were for the same period in 2023. For the six months ended March 31st, 2024, we generated positive cash from operating activities of $10.4 million and completed many of the investments and initiatives started almost 20 months ago. Capital investments were $7 million in the second quarter and $12.6 million in the year-to-date period.

Robert W. Leasure: The DSA cancellations in Q2 were consistent with prior year period and in the first six months of fiscal 2024 were slightly less than they were at the same period in 2023.

Robert W. Leasure: For the six months ended March 31, 2024, we generated positive cash from operating activities of $10 4 million and complete completed many of the investments and initiatives started almost 20 months ago.

Robert W. Leasure: Capital investments were $7 million in the second quarter and $12 6 million in the year to date period.

Robert W. Leasure: We expect these investments will be reduced further in the next two quarters and until we see further recovery and revenue. In Q2, we completed the sale of a Blackthorn, UK, and Dublin, Virginia facility. In April, we completed the sale of a Hazlet, Michigan facility. We expect to complete the sale of our Cumberland, Virginia facility in the third quarter and have listed for sale an additional 85 excess acres of land we have in Pennsylvania. With the investments that we have completed in the DSA business, we believe that we have the physical capacity to accommodate increased DSA revenue by 40% over the 185 million recognized in 2023.

We expect these investments will be reduced further in the next two quarters and until we see further recovery in revenue.

Robert W. Leasure: In Q2, we completed the sale of a black door UK in Dublin, Virginia facilities.

Robert W. Leasure: In April we completed the sale of our Hayslett, Michigan facility.

Robert W. Leasure: We expect to complete the sale of our Cumberland, Virginia facility in the third quarter and have listed for sale, an additional 85 excess acres of land we have in Pennsylvania.

Robert W. Leasure: With your investments.

Robert W. Leasure: We have completed and DSA business, we believe that we have the physical capacity to accommodate increased DNA DSA revenue.

Robert W. Leasure: 40% over the 185 million recognized in 2023.

Robert W. Leasure: This capacity still represents a substantial opportunity to improve our DSA sales and margins in the future. For these next two quarters, Inotiv remains on track to further achieve financial benefits from our investments and growth initiatives, increased sales and marketing, and the organic addition of new services, and our consolidation integration projects with the related efficiency gains. I want to update you now briefly on material legal issues we previously disclosed. For example, with respect to the Cambodian government official indicted by the U.S. government. That official was found not guilty on all counts and has now returned to Cambodia.

Robert W. Leasure: This capacity is still represents a substantial opportunity to improve our DSA sales and margins in the future.

Robert W. Leasure: For these next two quarters and it remains on track to further chief financial benefits from our investments in growth initiatives increased sales and marketing and the organic addition of new services and our consolidation integration projects with the related efficiency gains.

Robert W. Leasure: I want to update you now briefly on material legal issues, we previously disclosed.

Robert W. Leasure: With respect to the Cambodian government official indicted by the U S government.

Robert W. Leasure: That official was found not guilty on all counts and has now returned to Cambodia.

Robert W. Leasure: At this time, we do not have any further updates related to the status of potential future imports of NHPs into the U.S. from Cambodia. With respect to the investigation by the DOJ and other federal and state law enforcement agencies related to the Cumberland, Virginia facility, which we closed in September of 2022, we have been in discussions to resolve the open matters relating to the investigation. Since we believe this resolution is now probable and estimable,

Robert W. Leasure: At this time, we do not have any further updates related to the status of potential future imports of <unk> into the U S from Cambodia.

Robert W. Leasure: We have recorded an accrual of $26.5 million as of March 31st, 2024. We would expect to pay $6.5 million of this $26.5 million in fiscal year 2024, and the remaining $20 million would be a non-current liability to be paid over three to five years. This resolution is not finalized and not signed as of today. Until then, we cannot comment further. We have determined that in the last two years, we have incurred expenses of approximately $22 million for the investigation related so far to this Cumberland facility that we closed in 2022.

Robert W. Leasure: With respect to the investigation by the Doj and other federal and state law Federal and state law enforcement agencies related to the Cumberland for junior facility, which we closed in September of 2022.

Robert W. Leasure: We have been in discussions to resolve the open matters relating to the investigation.

Robert W. Leasure: Since we believe this resolution is now probable and estimate able.

Robert W. Leasure: We've recorded an accrual as of March 31, 2024, $26 5 million.

Robert W. Leasure: We would expect to pay $6 5 million of this $26 5 million in fiscal year 2024, and the remaining $20 million would be a non current liability to be paid over three years to five years.

Robert W. Leasure: This resolution is not finalized and not signed as of today.

Robert W. Leasure: Until then we cannot comment further.

Robert W. Leasure: We have determined that in the last two years.

Robert W. Leasure: We have incurred expenses of approximately $22 million for the investigation related so far.

Cumberland facility that we closed in 2022.

Robert W. Leasure: The total expenses include third-party fees to comply with subpoena information requests, legal fees, and the cost to close the facility. Some of these fees have been added back as restructuring costs and calculated and adjusted EBITDA. But, if possible, we would like to resolve this matter and put it behind us. With that, I'll turn the call over to Beth, who will provide a detailed synopsis of Inotiv's results for the quarter

Robert W. Leasure: The total expenses include third party fees to comply with subpoena information request legal fees and the cost to close the facility.

Robert W. Leasure: Some of these fees have been added back as restructuring cost and calculated and adjusted EBITDA, but.

Robert W. Leasure: But if possible we would like to resolve this matter and put it behind us.

Beth: With that I'll turn the call over to Beth who will provide detailed synopsis of <unk> results for the quarter.

Beth A. Taylor: Thank you, Bob, and good afternoon, everyone. Before I start, we have one correction to note. The incurred expenses for the investigation related to the Cumberland facility were $19 million, not $22 million. Now, for the current financial results for the 2024 second quarter, total revenue was $119 million compared to $151.5 million during the prior year period, a decrease of 21.5 percent, primarily due to a decrease in the number of NHP sold in the current quarter.

Beth: Thank you Bob and good afternoon, everyone before I start we have one correction to now.

Beth: The incurred expenses for the investigation related to the <unk> facility were 19 million not 2000 $18 million.

Beth: Now for the current financial results for the 2024 second quarter total revenue was $119 million compared to $161 5 million during the prior year period, a decrease of 21.5% primarily due to decrease in the number of in HP.

Beth: Fold in the current quarter.

Beth: The six months ended March 31, 2024, consolidated revenue was $254 $5 million down seven 2% compared to $274 $2 million for the <unk>.

Beth A. Taylor: For the six months ended March 31st, 2024, consolidated revenue was $254.5 million, down 7.2 percent compared to $274.2 million for the same period last year due to the decrease in NHP sold, which was primarily offset by a 3.6 percent increase in DSA revenue. DSA revenues in the 2024 second quarter decreased by less than 1% to $46.6 million when compared to the prior year period of $47 million. The decrease in DSA revenue was primarily driven by our discovery services as a result of the decline in overall biotech funding and, separately, a decrease in medical device surgical services due to cancellations we experienced in the fourth quarter of Fiscal 23 and Q1 of 2024 and also delayed projects. Partially offsetting this, we continue to see increased revenue from our new service offerings in genetic toxicology and biotherapeutic analysis in connection with new business at our Rockville facility, plus the timing of general toxicology services.

Beth: I'm paid last year due to the decrease in in Hp's Hull, which was primarily offset by a three 6% increase in DSA revenue.

Beth: DSA revenue in the 2024 second quarter decreased by less than 1%.

Beth: $46 $6 million when compared to the prior year period.

Beth: $47 million.

Beth: The decrease in the DSA revenue was primarily driven by our discovery services as a result of the decline in overall biotech funding and separately a decrease in medical device surgical services due to cancellations, we experienced in the fourth quarter and fiscal 'twenty three in Q1 of 2024.

Beth: And also the delayed project first.

Beth: Partially offsetting that we continue to see increased revenues from our new service offerings in genetic toxicology and bio therapeutics analysis in connection with new business at our Rockville facility plus the timing of general toxicology services.

Beth A. Taylor: DSA revenue for the six months ended March 31st, 2024 was $91.3 million, or 3.6% higher compared to the prior year of $88.1 million. The increase in DSA revenue was primarily driven by the mix of general toxicology services and continued increases from value-added services in connection with new business at a Rockville facility, partially offset by a decrease in revenue related to our discovery services as a result of the decline in overall biotech funding and a decrease in medical device surgical services due to cancellations we experienced in the fourth quarter of 23, in the first quarter of 24, and delayed projects.

Beth: DSA revenue for the six months ended March 31, 2024, or $91 3 million or.

Beth: Three 6% higher compared to the prior year of $88 $1 million.

Beth: The increase in DSA revenue was primarily driven by the mix of general toxicology services and continued increases from value added services in connection with new business at our Rockville facility.

Beth: Offset by a decrease in revenue related to our discovery services as a result.

Klein and overall biotech funding and a decrease in medical device surgical services due to cancellations we experienced in.

Beth: The fourth quarter and 23 in the first quarter at 24 and delayed projects.

Beth A. Taylor: RMS revenue for the fiscal second quarter was down 30.7% to $72.4 million compared to $104.5 million the same quarter last year due primarily to lower NHP-related product and service revenue. In addition, there was a decrease in revenue of $3.1 million as a result of the sale of our Israeli business in fiscal 2023 and a decrease in sales of small research models, which was partially offset by an increase in sales of diets and bedding.

RMS revenue for the first for the fiscal second quarter was down three 7% to $72 4 million.

Beth: Compared to $145 million, the same quarter last year, due primarily to the lower and HP related product and service revenue.

Beth: In addition, there was a decrease in revenue of $3 1 million.

Beth: Result is the sale of our Israeli business in fiscal 2023, and a decrease in sales of Smart research models, which was partially offset by an increase in sales.

Beth: Combating.

Beth A. Taylor: RMS revenue for the six months ended March 31, 2024, was down 12.3% to $163.2 million, compared to $186.1 million in the same period last year. The decrease was due to the negative impact of lower volume of NHP sales, lower revenue as a result of the sale of our Israeli businesses in fiscal 2023, and lower sales of small research models, partially offsetting these decreases in revenue. However, there were higher cells in diasem

Beth: <unk> revenue for the six months ended March 31, 2024 was down 12, 3% to $163 $2 million compared to $186 1 million in the same period last year.

Beth: The decrease was due to the negative impact of lower volume and HP sales lower revenue as a result of the sale of our businesses in fiscal 2023, and lower sales of small research models.

Beth: Offsetting these decreases in revenue.

Beth: There were higher sales.

Beth: Okay.

Beth A. Taylor: Regarding NHP pricing, we indicated on our last conference call that NHP prices were expected to come down from the highs we saw in Q4 of fiscal 2023. We did see NHP pricing in Q2 of fiscal 2024 come down roughly 2% from Q1 2024. This compares to a decrease in pricing in Q1 fiscal 24 of 18% compared to Q4 of fiscal 2023. Operating loss for the second quarter of fiscal 2024 was $43.1 million compared to a loss of $2.1 million from last year's second quarter, primarily due to lower margins relating to the decrease in revenue.

Beth: Regarding an HP pricing, we indicated on our last conference call then in HP prices.

Beth: We expect it to come down from the highs we saw in Q4 fiscal 2023, we did see an HP pricing in Q2 of fiscal 2024 on average come down roughly 2% from Q1 2024 as compared to the decrease in pricing in Q1 fiscal 2018.

Beth: Percent compared to Q4 and fiscal 2023.

Beth: Operating loss for the second quarter fiscal 2024 was $43 1 million compared to a loss of $2 1 million from last year's second quarter, primarily due to lower margins relating to the decrease in revenue.

Beth A. Taylor: The $26.5 million charge related to the agreement in principle with the DOJ and the impact of lower margins from the sale of our Israeli businesses. These items were partially offset by decreases in third-party fees and restructuring costs and favorable cost reductions related to site closures and optimizations compared to the prior year period. In addition, gross margins for the new DSA services are still creating a headwind for overall margins. However, as we see these service revenues increase, we expect to see an associated margin improve.

Beth: The $26 $5 million charge related to the agreement in principle with the Doj and the impact of lower margins from the sale of our Israeli businesses. These items were partially offset by decreases in third party fees and restructuring costs and favorable cost reductions related to the site closures and all.

<unk> patients compared to the prior year period.

Beth: In addition, gross margins for the new DSA services are still creating a headwind for overall margins. However, as we see the service revenues increase we expect to see an associated margin improvement.

Beth A. Taylor: Consolidated net loss attributable to common shareholders in the second quarter of fiscal 2024 totaled $48.1 million, or a $1.86 loss per diluted share. This compared to consolidated net loss attributable to common shareholders of $10 million, or a $0.39 loss per diluted share, in the second quarter of 2023. For the quarter, adjusted EBITDA was $3.1 million, or 2.6% of total revenues compared to $17.1 million, or 11.3% of total revenues for last year's second quarter.

Beth: Consolidated net loss attributable to common shareholders in the second quarter of fiscal 2024 totaled $48 $1 million or <unk>.

$1 86.

Beth: Loss per diluted share.

Beth: This compared to consolidated net loss attributable to common shareholders of $10 million or 39 loss per diluted share in the second quarter of 2023.

Beth: For the quarter adjusted EBITDA was $3 1 million or two 6% of total revenues compared to $17 1 million or 11, 3% of total revenue for last year's second quarter.

Beth A. Taylor: For the six months ended March 31, 2024, adjusted EBITDA improved by $1.1 million compared to the prior year period, to $12.7 million, or 5% of total revenues from $11.6 million, or 4.2% of revenue in the same period last year. Non-GAAP operating income for our DSA segment in the second quarter increased to $8.2 million, or 17.6% of segment revenue from $7.9 million, or 16.8% of segment revenue in last year's As our new DSA services are fully online, and we begin to fill newly added capacity, we continue to believe we will be able to boost our DSA operating margin.

Beth: For the six months ended March 31 2024.

Beth: <unk> EBIT improved by $1 1 million compared to the prior year period.

Beth: $12 $7 million or 5% of total revenues.

Beth: $11 6 million or four 2% of revenue in the same period last year.

Beth: non-GAAP operating income for our our DSA segment in the second quarter increased to eight 2 million or 17, 6% of segment revenue.

Beth: Seven $9 million or 16, 8% of segment revenue in last year's second quarter.

Beth: As our new GSA services are fully online.

Beth: We began to fill newly added capacity. We continue to believe we will be able to boost our DSA operating margin.

Beth A. Taylor: The book-to-bill ratio for DSA in the second quarter was 0.77 to 1, coming off the StrongNet awards in Q1 fiscal 2024, so our six-month year-to-date fiscal 2024 book-to-bill ratio is 1.11 to 1, and our trailing 12-month net book-to-bill is 0.9821. As we stated last quarter, we believe it is more meaningful to use book-to-bill ratios for six Year-to-date, March 31, 2024, we have booked net new orders of $98.9 million versus $84.6 million for the six months ended March 31, 2023. The DSA cancellations in the second quarter were consistent with the prior year period, and year-to-date for the last six months were slightly less than the same period in the prior year.

Beth: The book to Bill ratio for DSA in the second quarter was seven 7% to one coming off a strong net awards in Q1 fiscal 2024.

Beth: Our six month year to date fiscal 2024 book to Bill is 111 to one and our trailing 12 month net book to Bill.

Is nine eight to one as we stated last quarter. We believe it is more meaningful to us book to bill ratios for six months or longer is better indicators of our DSA performance.

Beth: Year to date March 31, 2024, we have booked net new orders of $98 $9 million versus $84 6 million for the six months ended March 31 2023.

Beth: The DSA cancellations in the second quarter were consistent with prior year period and year to date for the last six months was slightly less than the same period in the prior year.

Beth A. Taylor: GSA backlog was $142.1 million at March 31, 2024, compared to $145.7 million at March 31, 2023. In our RMS segment, non-GAAP operating income in the second quarter of fiscal 2024 was $8.2 million, or 11.3% of segment revenues, compared to $24.4 million, or 23.4% of segment revenues in last year's period. The lower operating income in Q2 fiscal 2024 was primarily the result of a decrease in RMS revenue and the $26.5 million charge related to the agreement in principle discussed above, partially offset by favorable cost reductions related to the site closures and optimizations compared to the prior year period, and decreased third-party fees and restructuring costs.

Beth: CSA backlog was $142 $1 million at March 31, 2024.

Beth: <unk> $245 $7 million at March 31, 2023.

Beth: And our RMS segment non-GAAP operating income in the second quarter of fiscal 2024 was $8 2 million or 11, 3% of segment revenues compared to $24 $4 million or 23, 4% of segment revenues in last year's period.

Beth: Our operating income in Q2 fiscal 2024 was primarily the result of a decrease in RMS revenue and the $26 $5 million charge related to the agreement in principle discussed above partially offset by favorable cost reductions related to the site closures and optimizations compared to the.

Beth: Prior year period, and decreased third party fees and restructuring costs.

Beth A. Taylor: Interest expense in Q2 2024 increased by $11.1 million, up from $10.5 million in last year's second quarter due to higher interest rates. Our balance sheet as of March 31, 2024 included $32.7 million in cash and cash equivalents as compared to $35.5 million at September 30, 2023. Total debt, net of debt issuance costs as of March 31, 2024, was $380.6 million, consistent with $377.7 million as of September 30, 2020. Net cash provided by operations for the six months ended March 31, 2024 was $10.4 million compared to cash provided by operations of $5.4 million in the same period last year. Cash provided by operations for the trailing 12 months was $32.8 million.

Beth: Interest expense in Q2, 2024 increased by $11 $1 million up from $10 $5 million in last years second quarter due to higher interest rates.

Beth: Our balance sheet as of March 31, 2024 included $32 $7 million in cash and cash equivalents as compared to $35 5 million at September 32023.

Beth: Total debt.

Beth: Net of debt issuance costs as of March 31, 2024 was $386 million consistent with the $377 7 million at September 32023.

Beth: Net cash provided by operations for the six months ended March 31, 2024 was $10 4 million compared to cash provided by operations of $5 4 million in.

Beth: In the same period last year cash.

Beth: Cash provided by operations for the trailing 12 months was $32 $8 million.

Beth A. Taylor: Capital expenditures in the second quarter were $7 million, or 5.9% of total revenue, and $12.6 million, or 5% of total revenue, for the six months ended March 31, 2024, as compared to $16.8 million, or 6.1% for the year-to-date period in 2023. The capital expenditures reflect investments in completing our DSA capacity expansions, infrastructure improvements in NHP facilities, and renovations in the UK in order to complete the expansion of Hillcrest for the new customer contracts and the consolidation of Blackthorn, as well as Enhancements in Laboratory Technology and Improvements for Animal Welfare. Now, let's turn to our guide.

Beth: Capital expenditures in the second quarter were $7 million or five 9% of total revenue and $12 6 million or 5% of total revenue for the six months ended March 31, 2024, as compared to $16 8 million or six 1% for the year.

Beth: Year to date period for 2023.

Beth: The capital expenditures reflect investments in completing our DSA capacity expansion infrastructure improvements and in HB facilities and renovations in the UK in order to complete the expansion of hill crest for the new customer contract and the consolidation of platforms.

Beth: And enhancements in laboratory technology presents for animal welfare.

Beth: Now, let's turn to our guidance.

Beth A. Taylor: With the significant impact that NHPs have on our revenue and margins and the current uncertainty and demand for NHPs, we are withdrawing financial guidance for fiscal year 2024. We expect to provide guidance once we have greater clarity on the NHP market and customer demand. We still believe in our long-term plan and our ability to achieve our financial goals. In the DSA segment, we are focusing on optimizing our market share and increasing awards to utilize new services and additional capacity to grow DSA segment revenue.

Beth: With the significant impact in Hp's have on our revenue and margins.

Beth: Current uncertainty in demand for in Hps, we are withdrawing financial guidance for fiscal year 2024, we expect to provide guidance once we have greater clarity on the <unk> market and customer demand.

Beth: We still believe in our long term plan and our ability to achieve our financial goals.

Beth: In the DSA segment, we are focusing to optimize our market share and increasing award to utilize new services and additional capacity to grow DSA segment revenue, we believe that our strategic initiatives to increase our sales force and optimize sales territory coverage and focus on sales and discovery.

Beth A. Taylor: We believe that our strategic initiatives to increase our sales force and optimize sales territory coverage and focus on sales and discovery services put us in an advantageous position to gain market share and increase awards as biopharma companies begin to increase their level of investment in preclinical studies. We will continue to stay focused on client satisfaction through innovation and the development of nimble solutions and custom offerings. As the industry continues to face headwinds, we remain focused on executing our plan for long-term growth and sustainable markets.

Beth: Services puts us in an advantageous position to gain market share.

Beth: And increased award as Biopharma companies to begin to increase their level of investment in preclinical studies.

Beth: We will continue to stay focused on client satisfaction through innovation and the development of nimble solutions and custom offerings.

Beth: The industry continues to face headwinds, we remain focused on executing our plan for long term growth and sustainable margins.

Beth A. Taylor: If revenue and margins do not improve in Q3 fiscal 2024, we could be in non-compliance with our covenants at June 30, 2024, and we will have approximately 55 days after the end of this quarter to cure. We have plans to remedy any non-compliance with our lenders through a credit agreement amendment. And with that financial overview, we will turn the call over to our operator for questions.

Beth: If revenue and margins do not improve in Q3 fiscal 2024, we could be in noncompliance with our covenants at June 32024, and we will have approximately 55 days. After the end of the quarter to chair, we have plans to remedy any noncompliance with our lenders to our credit agreement Amendment.

Speaker Change: And with that financial overview, we will turn the call over to our operator for questions.

unknown: Thank you. Ladies and gentlemen, should you have a question, please press star 1. If you would like to withdraw your question, press star 2. One moment please for your first question. Your first question comes from Dave Windley from Jefferies. Please go ahead. Hi.

Speaker Change: Thank you ladies and gentlemen should you have a question. Please press star one if you would like to withdraw your question Press Star two.

Speaker Change: Woman. Please for your first question.

Speaker Change: The first question comes from Dave Windley from Jefferies. Please go ahead.

David Howard Windley: Hi, thanks for taking my questions. I wanted to start with NHP's.

David Howard Windley: Hi, Thanks for taking my questions I wanted to start on an NIH piece I heard.

David Howard Windley: I heard you say that the pricing in 2Q was just 2% lower than 1Q. Could you maybe help us with some numbers around that? Where was pricing at the peak? I think you referenced the peak of 3Q of your last fiscal year. Where was that? You know, where does the kind of down 2% and 2Q put you, and then... Given the low volume that you're highlighting, where is that price moving as we sit here today?

David Howard Windley: You say that the pricing in <unk> was just 2%.

David Howard Windley: Lower than <unk> could you.

David Howard Windley: Maybe help us with some numbers around that where.

David Howard Windley: Where was pricing at the peak I think you've referenced peak of three Q of your last fiscal year.

David Howard Windley: But where was that.

David Howard Windley: Where is the kind of down 2% and <unk> put you and then.

David Howard Windley: Given the low volume that you're you're highlighting.

David Howard Windley: Where where is where does that price moving as we sit here today. Thanks.

Robert W. Leasure: I think the peak was Q4 of last year, and Q1 was down 18%. I think we said Q2 was down 2%, so we'd be down 20% from where it was in Q4 of last year. More recently, I've not seen it slip. Thanks to you too, but it could.

Speaker Change: I think the peak was Q4 of last year and in Q1 was down 18% I think we said Q2 was down 2% so.

Speaker Change: We'd be down 20% from where it was Q4 of last year.

Speaker Change: I have not.

Speaker Change: More recently have not seen it.

Speaker Change: Slip.

Speaker Change: Since Q2, but it could.

Robert W. Leasure: And one of the things that's keeping us going is our costs are still high. So you've got to look at the world market to see where the prices are. Where's China, where's Cambodia, where's Vietnam? They're still selling across the world. And some of those prices are staying a little bit higher, but I expect we could see those come down this quarter and next quarter, and depending on what happens in Cambodia specifically. And so we'll just have to see how that goes.

Speaker Change: One of the things that's keeping up as our costs are.

Speaker Change: Are still high.

Speaker Change: So you got to look on the world market see where the pricing is where we're trying to we're just Cambodia, Vietnam, they're still selling across the world and some of those prices are staying a little bit stronger, but I expect I expect we could see those come down.

Speaker Change: In this quarter and next quarter.

Speaker Change: Depending on what happens in Cambodia, specifically.

Speaker Change: And so we'll just have to see how that goes.

David Howard Windley: Okay, Bob, so... In terms of revenue in the quarter, I just want to understand kind of your calculus around... uh... supply-demand. Your revenue was down $26 million. I forget the exact percentage, maybe 30% or something like that. But only 2% of that is price, so volume is down a lot. You mentioned costs. I mean, you know, the customer... Our average cost would be higher than last year's average cost. And the supply is down significantly, and our inventory is also down. But we do have plenty of inventory right now to meet our customers' needs. And I guess so, so... Sorry, sorry, go ahead. Sorry.

Bob: Okay, Bob so.

Speaker Change: In terms of the revenue in the quarter I, just want to understand kind of your calculus around.

Speaker Change: Supply demand.

Speaker Change: Youre down your revenue was down $26 million I forget the exact percentage, maybe 30% or something like that only 2% of that is price volume is down a lot you mentioned costs.

Speaker Change: Yeah.

Speaker Change: The customer our average cost would be higher than last year's average cost.

Speaker Change: And in the <unk>.

Buyers down significantly and our inventory is also down.

Speaker Change: But we do have we do have plenty of inventory right now to meet our customers' needs.

And I guess so.

Speaker Change: Perfect.

Speaker Change: Sorry, sorry go ahead sorry.

Robert W. Leasure: As I said, we did see a very weak second quarter in terms of units and the number of NHP sold. And so...

So we did see a very weak second quarter in terms of the units the number of NH peaceful.

Speaker Change: And so.

David Howard Windley: to ask the provocative question, I guess, why not drop the price to sell more volume?

Speaker Change: [laughter] SaaS a provocative question I guess why not dropped price to sell more volume.

David Howard Windley: But I'm not sure that would do it. The challenge is...

Speaker Change: But I'm not sure that would.

Speaker Change: That would do it.

Speaker Change: The challenges they don't need the volume right now.

Robert W. Leasure: They don't need the volume right now. Okay. So could price become an issue? It could, It's not been an issue. The issue has been people having inventory. And so some that have reoccurring monthly or quarterly shipments did not need any, or needed very few, just in the last quarter. I believe that, you know, we do have some visibility into some of the inventory and the levels. I think they are coming down, and I think we're starting to see some of that rebound in some customers, not all customers yet. We also see some customers that have lower demand, probably because they have lower orders.

David Howard Windley: Okay, and on the stocking point... Thank you.

Speaker Change: Okay.

Speaker Change: So good good price become an issue it could it's not been an issue the issue has been.

Speaker Change: People have inventory.

Speaker Change: And so.

Speaker Change: Some that have reoccurring.

Speaker Change: Our quarterly <unk>.

Speaker Change: Shipments did not need any needed very few.

Speaker Change: Yeah.

Speaker Change: And the last quarter.

Speaker Change: I believe that.

Speaker Change: We do have some visibility to some of the inventory.

Speaker Change: And the levels I think they are coming down and I think we're starting to see.

Speaker Change: Some of that rebound.

Speaker Change: And some customers not all customers yet.

Speaker Change: We also see some customers that have lower demand probably because they have.

Speaker Change: Lower orders.

Speaker Change: Okay.

Speaker Change: On the stocking point.

Speaker Change:

David Howard Windley: These animals have an age window in which they are applicable. They're usable for research studies. So they can't, they being the client, can't stop them indefinitely. Help us understand a little bit. I know you talked about selling and then contract boarding for some clients, but in those cases, you would know what you have on property. Help us to understand a little bit how this advanced buying and, you know, inventory stockpile of live animals works or works.

Speaker Change: These animals have an age window in which they are applicable there.

Speaker Change: Usable for research studies.

Speaker Change: So they can't.

Speaker Change: <unk> being the client can't stalk them in.

Speaker Change: Indefinitely.

Speaker Change: Hum.

Speaker Change: How how help us understand a little bit I know you talked about selling and then contract boarding for some clients, but in those cases, you would know what you have on property.

Speaker Change: Help us to understand a little bit how this advanced buying and.

Speaker Change: Inventory stockpiling of live animals.

Speaker Change: Works or worked.

Robert W. Leasure: Well, they can always take the first in inventory, be the first out of inventory. So they're quite adept at managing the age limits that they need. And also, you remember, some animals need to mature. There are some studies that need mature animals, and some need more immature animals. So there are different ages that may be needed at different times, but that is a customer-by-customer decision. And we've been able to manage our inventory accordingly.

Speaker Change: Well they they would they could always take first in inventory would be the first out of inventory.

Speaker Change: So there are quite adept at managing the age limits that they need.

Speaker Change: And also you remember some some animals need mature.

Speaker Change: There are some studies named mature animals.

Speaker Change: More inventory and so there are different there are different ages that may be needed at different times.

Speaker Change: But that is a customer by customer decision.

Speaker Change: And we've been able to manage our inventory accordingly.

David Howard Windley: Got it. One more question on NHPs and I'll yield. In your press release this afternoon, you disclosed the NHP-related revenue decline and then the cost of revenue in the $7.2 million range for that. That works out to about a 72% gross margin. Is that the right gross margin to be thinking about for NHP-related revenue?

Speaker Change: Got it one.

Speaker Change: One more question on any seasonal I'll yield.

Speaker Change: In your press release. This afternoon, you disclosed the NH P related revenue decline and then the cost of revenue and a $7 $2 million range for that.

Speaker Change: That works out to about a 72% gross margin is that the right <unk>.

Speaker Change: Most margin to be thinking about on NIH P related revenue. Thank you.

Robert W. Leasure: No, no, I think that's, that, that is, that is not, that is, um... That just shows some of those indications of the... The cost didn't go down as much because the average cost for NHP sold went up.

Speaker Change: I think thats that is that is not that is.

Speaker Change: That just shows the some of those indications.

Speaker Change: Cost didn't go down as much because the average cost for <unk>.

Speaker Change: Pre sold went up was higher.

Robert W. Leasure: Okay, so the year-over-year change is not congruent. (Inaudible) I noticed that also yesterday when we were looking at this. That couldn't be misleading. That's not the margin. It's just indicative that the average price was going up.

Speaker Change: Okay. So okay. So the year over year change is not.

Speaker Change: Congruity.

Speaker Change:

Speaker Change: On a pro rata noted shape.

Speaker Change: I noticed that also yesterday, we were looking at this is it.

Speaker Change: That could be misleading that's not that's not the margins just indicative that the that the price that you would think it did.

Speaker Change: The average price was going up.

David Howard Windley: Got it. Okay. I'll yield the floor. Thank you.

Speaker Change: Got it okay I'll yield the floor. Thank you.

Matthew Gregory Hewitt: Your next question comes from Matt Hewitt on behalf of Craig Halen. Please go ahead.

Matthew Gregory Hewitt: Your next question comes from Matt Hewitt with Craig Hallum. Please go ahead.

Matthew Gregory Hewitt: Good afternoon. Thank you for taking the questions.

Matthew Gregory Hewitt: Good afternoon, and thank you for taking the questions maybe just a couple more on the NH piece.

Matthew Gregory Hewitt: Maybe just a couple more on the NHPs. Regarding Cambodia, it's still unknown what's going to happen there. But let's assume for sake of argument that that market opens back up to U.S. importation. What does that do to the supply-demand dynamics and ultimately the price?

Speaker Change: Regarding Cambodia, it's still unknown, what's going to happen there, but let's assume for sake of argument that that market opens back up to U S. Importation.

Speaker Change: What does that do to the supply demand dynamics and ultimately the pricing.

Robert W. Leasure: Well, one, we don't know when and if that will open. And two, I'm not going to sit here and try to predict the future of commodities. I think anything is possible. Again, it's a world market. Remember, Cambodians have been used everywhere but the U.S. still is.

Speaker Change: Well why don't we don't know when and if that will open.

Speaker Change:

Speaker Change: And I'm not kidding.

Speaker Change: I'm not going to sit here and try to predict the future commodities.

Speaker Change: I think any anything.

Speaker Change: As possible again, it's a world market remember cambodians have been used everywhere, but the U S.

Speaker Change: Phil.

Speaker Change: Could that help decrease the price.

Robert W. Leasure: Could that help decrease the price of the product? Yes. But second of all, will that impact margin dollars? It could, I think, but right now, I don't think we can sit here and predict commodity prices. What's important to us is that we really need to do this, and we have been making it more of a service business than just selling NHPs. And we continue to do that with boarding and with breeding.

Speaker Change: Of the cost yes.

Speaker Change: You know that but second of all would that impact margin dollars.

Speaker Change: It could I think.

Speaker Change: But right now I don't think we can sit here and predict commodity commodity pricing.

Speaker Change: What's important to us is that we need we really need to make this and we have been making it more of a service business than just selling NH piece, and we continue to do that with boarding and with breathing.

Robert W. Leasure: And, you know, at some point, yes, we're selling a significantly less amount of NHPs than we did in the past. So it's a matter of margin dollar for NHP, but it's also, you know, obviously, you can see it's very dependent on the number of NHPs that we sell. So,

Speaker Change: <unk>.

Speaker Change: You know some point, yes, we're selling a significantly less amount of any piece that we did in the past. So it's a matter of margin dollar for an HP Theres also.

Speaker Change: Obviously, you can see it's very dependent on the number of vintage piece that we sold so.

Matthew Gregory Hewitt: Got it. And then kind of transitioning from there. So I guess, and you just touched on it a little bit, but as you transition more customers to the contracts versus, you know, the prior year and a half of buying at the spot market, have you had success with that? When do you start to see that materialize from a margin perspective? And I guess maybe that has something to do with inventory. But when does that start to help on the margin front, having more consistent or better visibility via the contracts into, you know, the costs associated with those?

Speaker Change: Got it and then kind of transitioning from there so.

Speaker Change: Yes, and you just touched on it a little bit, but as you transition more customers to the contracts versus the prior year and a half of buying in the spot market have you had success with that.

Speaker Change: When do you start to see that materialize from a margin perspective, and I guess, maybe that has something to do with inventory, but when does that start to help on the margin front, having a more consistent.

Or better visibility.

Speaker Change: Are the contracts into.

Speaker Change: The costs associated with those.

Robert W. Leasure: Yes, we have had some success, and we're working on a calendar 2025 contract. But importantly, right now, we're also working on what is going to be needed for the back half of the year as the inventories start to deplete. Some people have more inventory than others, so I think we will see some of that change also. But, you know, longer term, and I've said this before, is that we want to make sure that, you know, we had a business two years ago that was fairly dependent on these NHPs and NHP margins.

Speaker Change: We yes, we have we have had some success and we're working on a calendar 2025 contracts.

Speaker Change: Importantly, right now we're also working on what is going to be needed at the back half of the year as the inventories start to deplete some people have more inventory than in others.

Speaker Change: Think we will see some of that change also.

Speaker Change: So the.

Speaker Change: Longer term and I just.

Speaker Change: <unk> said this before is that we want to make sure that we had a business two years ago that was fairly dependent on these <unk> and HP margins and I think what we're building right now is a business that's going to be much less dependent on our NXP margins going forward.

Robert W. Leasure: And I think what we're building right now is a business. This is going to be much less dependent on our NHP margins going forward. So, we probably will continue focusing on growing the margins in our small animal tech lab and DFA business. We're not probably going to see, I don't think, at least we're not going to put in our projections a bet on it, margins ever coming back to what we saw the last two years.

Speaker Change: So we're not we probably.

Speaker Change: We will continue focusing on.

Speaker Change: Growing the margins in our small animal Tech lab and DSA business.

Speaker Change: We're not going to.

Speaker Change: Probably see I don't think at least we're not going to put in our projections have been on at margins.

Speaker Change: We're coming back to what we saw the last two years.

Robert W. Leasure: If it does, that's great, but I don't think that's the business model we're going to build. In addition, as I said before, we'd like to see DSA be over 50, closer to 70 percent of our business, versus 30-70. So we'll continue to work in that direction, continue to build our services segment, and decrease the dependency on HP margins, and if they happen, that's great, but I don't think that once that's not going to be the business model that we count on for the next five years. The other margins have to come.

Speaker Change: If it does thats great but.

Speaker Change: I don't think that.

Speaker Change: <unk> business model, we're going to build in.

Speaker Change: In addition, as I've said before we'd like to see DSV over 50 closer to 70% of our business versus 30 70. So.

Speaker Change: So we'll continue to work that direction and continue to build our services segment.

Speaker Change: And decrease the dependency on HPE margins and if they happen that's great.

Speaker Change: I don't think that that's not going to be the business model that we count on for the next five years the margins have to continue to grow.

Robert W. Leasure: Maybe it won't last. If you look at what we've done, that's why it's important we can grow that DSA business because I think we'll get, with that next $60 million, I think we'll see over $30 million of that go to the bottom line. I think with the RMS, we'll see over 20 million costs coming out. We see the SG&A costs coming out. You start looking at that, and you add up that $40, $50, $60 million. That's why it's important to get those dollars out so we're not really as dependent on those NHP margins going forward, and that's what we're setting up.

Speaker Change: Maybe it will be less.

Speaker Change:

Speaker Change: So look we've done that's why it's important we can grow that DSA business, because I think we'll get with that with that $6 $60 million I think we'll see it was $30 million that go to the bottom line.

Speaker Change: With the with the RMS.

Speaker Change: Costs were taking out we will see over 20 million of costs coming out we see the SG&A cost coming out you start looking at that and you add up the 40 50 $60 million. That's why it's important to get those dollars out.

Speaker Change: We're not really is dependent on those <unk> margins going forward and that's what we're setting up.

Matthew Gregory Hewitt: Got it. And then maybe the last one for me, and I'll hop back into the queue. But regarding the early stage discovery work, the delay that you saw this quarter, you're not alone. Others have kind of talked about how the funding environment has improved, or has improved, yet these companies are a little bit slower to deploy that capital. You know, we're now into the third quarter for you, a month and a half into the quarter. Are you starting to see some of those dollars flowing at this point? Or anything that you can, you know, provide from a color perspective for how Q3 is shaping up? Yeah, I think, um...

Speaker Change: Got it and then maybe last one for me and I'll hop back into the queue, but regarding the early stage discovery work.

Speaker Change: Delays that you saw this quarter youre not alone others have kind of talked about how the funding environment improved or has improved yet there. These companies are a little bit slower to deploy that capital you know we're now into the.

Speaker Change: The third quarter for you.

And a half into the quarter are you starting to see some of those dollars flow at this point or.

Speaker Change: Anything that you can provide from a color perspective for how Q3 is shaping up.

Robert W. Leasure: Yeah, I think... You know, we've seen the safety assessment. For ourselves, they are relatively strong.

Speaker Change: Yeah I think.

Speaker Change: We've seen safety assessment.

Robert W. Leasure: I think we sell safety assessment actually increased probably, you know, eight or 9% year over year. It's the discovery that's down 10 plus percent year over year. That's really hurting, and you know that we saw, and you know, and we were down from week comparisons from a year ago.

Speaker Change: For ourselves the relatively strong I think we saw safety assessment actually is increased probably.

Speaker Change: Eight or 9% year over year, it's the discovery, that's down 10 plus percent year over year, that's really hurting us.

Speaker Change: And.

Speaker Change: That we saw.

Speaker Change: And we were down from weak comparisons from a year ago.

Robert W. Leasure: So this discovery is the area where I think we're seeing the greatest impact on our business and on our margins and our top line. And so we started making those sales changes and how we operate six months ago. Now, I think what we are seeing now is an increase in the number of customers who are starting to work with us, and then, hopefully, we'll start seeing an increase in the amount of awards and the size of the awards.

Speaker Change: The discovery is the area, where I think where we're seeing the greatest impact on our business and to our margins and our topline.

And so we started making those sales changes in how we operate six months ago.

Speaker Change: Now I think what we're seeing now is an increase in the amount of customers who are starting to work with US and then we should hopefully we'll start seeing an increase in the amount of awards and the size of the awards, but.

Robert W. Leasure: But I'm pleased with the progress that the sales team is making. It's not going to happen overnight, but they've been very focused. They've done a great job. We are seeing incremental new customers. We're starting to see some of the size increase. Will that happen overnight? Will we see that next quarter or two quarters out? That's hard for us, that's why we're not giving that guidance right now, but we are seeing some momentum.

Speaker Change: I am pleased with the progress that the sales team is making.

Speaker Change: It's not going to happen overnight, but they've been very focused they've done a great job, we are seeing incremental new customers.

Speaker Change: We're starting to see some of the size of the increase.

Speaker Change: That happened overnight with or will we see that next quarter or two quarters out.

Speaker Change: That's hard for us that's why we're not giving that guidance right now but.

Speaker Change: You know we are seeing some momentum.

Speaker Change: Got it alright, thank you.

unknown: Ladies and gentlemen, as a reminder, should you have a question, please press star 1. Your next question comes from Frank Takkinen from Lake Street Capital Markets. Please go ahead.

Ladies and gentlemen, as a reminder, should you have a question. Please press star one.

Speaker Change: Your next question comes from Frank <unk> from Lake Street Capital markets. Please go ahead.

Frank James Takkinen: Great, thanks for taking the questions. I'll also start with one on the NHP business, maybe just from a higher level, Bob, trying to understand the market. Obviously, supply is constrained, and some people have heard the comments about some of the business moving overseas. If we're thinking about just the US market, what's the quantity change of NHPs being used in the US last year versus maybe kind of thinking about projections for this year? And I know it's gonna be tough to track exactly, but maybe a percentage reduction estimate would be a good way to be thinking about it.

Frank: Alright, thanks for taking the questions I'll also start with one on the <unk> business, maybe just from a higher level, Bob I'm trying to understand the market. Obviously supply is constrained in some and heard the comments about some of the business moving overseas. If we're thinking about just the U S market, what's kind of the quantity change of NH piece being used in the.

Frank: The U S last year versus may be kind of thinking about projections for this year and I know, it's going to tough to track exactly but maybe a percentage reduction estimate would be a good way to be thinking about it.

Robert W. Leasure: Frank, the information that I have that we looked at is coming from the USDA, and you know, I think if you look at it in broad terms, I believe it was in the 30,000 plus HPs imported and 22, and I think it dipped down to like 19,023. And so that's a pretty substantial, I think, reduction, and then we found, I think, some of that inventories did not really go down, and some of our customers' So I think it's a function of what has moved overseas.

Frank: Turning to the information that I have that we looked at is coming from the USDA.

If you look at it in broad terms.

Frank: These are I believe.

Frank: And the 30 <unk>.

Frank: Hps imported and.

Frank: In 'twenty two.

Frank: And I think it dipped down to like 19023.

Frank: Into the U S.

Frank: And so that's it.

Frank: Pretty substantial.

Frank: I think reduction and then we found I think it's some of the.

Frank: Inventories did not really go down and some of our customers inventories may have actually increased.

Frank: So I think it's a function of what moved overseas, it's a function of.

Robert W. Leasure: It's a function of. It's a function of People are getting smarter, redesigning studies to maybe use less NHP, and fewer studies overall. So I don't have any exact numbers. I'd say our safety assessment business... internally, has stayed very full, and we've stayed. It's been one of the positive things I've been very pleased with our ability to maintain the same level in the use of NHPs, but we're a very small user compared to the overall market and some of the other CROs.

Frank: People getting smarter redesigning studies, maybe use less NH piece.

Frank: And Les studies overall.

Frank: So I don't have any exact numbers I'd say, our safety assessment business.

Frank: Internally has stayed very full and we've stayed.

It's been one of the positive I'm very pleased with is our ability to maintain our.

Frank: At the same level and use of NH piece, but we're we're very small user compared to some of the big compared to the overall market and some of the other crows.

Robert W. Leasure: So that, you know, it's. But I think the reduction, the numbers I gave you, are substantial. And so a slight recovery there will be substantial.

Frank: It's.

Frank: But I think it I think the reduction.

Frank: The numbers I gave you are substantial.

Frank: And so slight a slight recovery there will be substantial.

Frank James Takkinen: Got it. That makes sense.

Speaker Change: Got it that makes sense and I know you.

Speaker Change: Pulled the guidance are reluctant to kind of call. It forward, but is it how are we thinking about where we are in the destocking process I think I heard some comments that maybe some of your customers are.

Speaker Change: Getting ready to reorder, but do we feel like the worst of the Destocking.

Frank James Takkinen: And I know you pulled the guide and are reluctant to kind of comment forward, but how are we thinking about where we are in the de-stocking process? I think I heard some comments that maybe some of your customers are getting ready to reorder, but do we feel like the worst of the de-stocking? Is it over? Is there still a decent slug of customers that have good inventory, and we should expect kind of this level or this run rate from the RMS business for the next couple quarters?

Speaker Change: As is over or is there still are.

Speaker Change: Decent slug of customers that have good inventory and we should expect kind of this level or this run rate from the RMS business for the next couple of quarters.

Robert W. Leasure: Well, frankly, if I had that specific answer, we wouldn't have withdrawn. We would have

Speaker Change: Well frankly, if I had that specific answer we wouldn't drop we would have.

Robert W. Leasure: Putting out new guidance, I think, is so I'm going to be careful. I don't I don't have a really good feel for that right now. We can see some customers coming back and ordering.

Speaker Change: Put out new guidance I think is so I'm gonna be careful I don't I don't have a really good feel for that right now we can see.

Speaker Change: Some customers coming back and ordering.

Speaker Change:

Robert W. Leasure: But, you know, we're meeting with them and on site at their facilities. Hopefully, we'll get a better feel for them. And as we do, and we have a better feel for it, then, you know, I think we'll we'll come back and be able to do it. That's one of the things that has us concerned, where are we in that process overall? But I think last quarter was fairly weak. I'd hope that we don't have a, and I'd hope we don't get any weaker than that.

But we're meeting with them and onsite at their facilities, hopefully, we get a better deal for them and as we do and we have a better feel for it then I think we'll come back and be able to do.

Speaker Change: Something with guidance again, but right now.

Speaker Change: That's one of the things as you know.

Speaker Change: <unk>, where are we in that process.

Speaker Change: Overall.

Speaker Change: But I think last quarter was fairly weak I would hope that we don't have but I don't.

Speaker Change: Hope you don't get any weaker than that.

Frank James Takkinen: All right. Okay. And then last one for me. In relation to the DOJ matters, if the agreement in principle is signed in its current form, just a clarifying question: does this resolve all outstanding DOJ matters, or is there still pending investigation ongoing beyond what's in that agreement in principle?

Speaker Change: Right, Okay, and then last one for me.

In relation to the Doj matters, if the agreement in principle, it's signed in its current form just a clarifying question does this resolved.

Speaker Change: All outstanding Doj matters or is there still pending investigation ongoing beyond what's in that agreement in principle.

Speaker Change: Okay.

Speaker Change: Well there.

Robert W. Leasure: As far as I know, I think we had this Virginia matter. The last time we received a subpoena from the NHP matters, which we've talked about, I think was in June of 2021. So I don't know that, you know, I don't know that we ever will find out, or have a resolution from that.

Speaker Change: As far as I know I think we had.

Speaker Change: This was.

Speaker Change: The Virginia matter.

Speaker Change:

Speaker Change: The last time, we received a subpoena from the NH P matters.

Speaker Change: Which we've talked about I think was in June of 2021.

Speaker Change: So I don't know.

Speaker Change: I don't know that we ever.

Find out.

Robert W. Leasure: Could they ask more questions? I guess they could, but the last time we received a subpoena related to the NHP matter, which was in Miami, Florida, was June 21. This was the only active one that we currently had subpoenas. I believe we've referred to other cases like SEC inquiries, which we've been cooperating with, but I'm not aware of any other DOJ matters that we speak of today. Got it. Okay. Thank you.

Speaker Change: Do you have a resolution from that because they ask more questions I guess, they could but the last time, we received a subpoena related that the NXP matter, which was in Miami, Florida was June of 'twenty one.

Speaker Change: This was the only active one that we currently had subpoenas I believe we've referred to other cases like.

Speaker Change: FCC inquiries, which have been cooperating with but I don't I'm not aware of any other Doj matters as we speak of today.

Speaker Change: Got it okay. Thank you I'll start this is.

Robert W. Leasure: You know, we've had really three substantial overhangs in the past three years. One was the DOJ-Virginia matter, which has been expensive for us; also, the DOJ-NHP matter, which we've also spent several million dollars on the last two years following and looking into that. And then we have the downturn in the biotech funding market. What I'm looking forward to is...

Speaker Change: We've had we've had really three <unk>.

Speaker Change: Stanford overhangs in the past three years, one was the Doj, Virginia matter, which has been massive.

Speaker Change: Of course also the Doj and HP matter.

Which.

Speaker Change: We've also spent several million dollars over the last two years, following and look and looking into that.

Speaker Change: And then we have the downturn with the biotech funding market.

Speaker Change: What I am looking forward to is.

Robert W. Leasure: I'm seeing the conclusion of all three of these, quantifying what it's gonna cost us to move forward. And I, you know, overall, yeah, I'd give ourselves a little bit of credit. It's been difficult.

Speaker Change: The conclusion of all three of these quantifying what it's going to cost us and move forward.

Speaker Change: Overall, yes.

Speaker Change: That gives ourselves.

Speaker Change: A little bit of.

Robert W. Leasure: Those were, first of all, very expensive matters. I outlined $19 million that was added in legal fees. I think the $22 million includes the cost of closure of the facility, and the 22. 19 is just the third-party piece. Is that right, Beth?

Speaker Change: It's been difficult.

Speaker Change: First of all very expensive matters outlined 20 $19 million I think that said and legal fees I think the 22 million includes the actually the cost of closure.

Speaker Change: Of the facility and the 22 19 is just the third party fees is that right.

Robert W. Leasure: I think the total is 19. Um, yeah. So, if you look at that, and you look at that money spent, and you look at where we are on our sales and margins being less than we expected due to this reduction in our industry later, we're behind where we'd like to be with cash, right now in terms of liquidity. But I would say, you know, give ourselves an A on managing the balance sheet. As outlined, we've generated $32 million in cash.

Speaker Change: The total is I think the total of 19.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: So if you look at that and you look at that money spent and you look at where we are unless on our sales and margins being less than we expected.

Speaker Change: This reduction in <unk>.

Speaker Change: And our industry later, we're behind where we'd like to be with cash.

Speaker Change: Right now liquidity, but I would say you know I'll get ourselves in a of managing the balance sheet. That's outlined we've generated 32 million cash.

Robert W. Leasure: The team has done a good job of managing the balance sheet, and we continue to make all the cost cutting and integration site optimization projects come to fruition. We're about done with those now, so that should be significantly reduced. We invested over $22 million in infrastructure and animal welfare improvements in the facilities we purchased, which are significant.

Speaker Change: The team has done a good job of managing the balance sheet continuing to make all the cost cutting and integration side automation.

Speaker Change: Site optimization projects come to fruition, we're about done with those now so that.

There should be significantly reduced we invested over $22 million in infrastructure and animal welfare improvements in the facilities. We purchased significant those are coming to an end.

Robert W. Leasure: These are coming to, you know, most of those that we wanted to do. So we've done a good job, I think, of managing our balance sheet. We sold some assets, did a little bit better than we thought on the sale of the assets, and we've maintained very good lender support. So, you know, I'm really pleased that even last week we found that we may have this event that is probable and estimable that, you know, with being able to work with our lenders in a very short period to get the amendment we did yesterday, I think shows fabulous cooperation.

Speaker Change: Most of those that we wanted to do.

Speaker Change: So we've done a good job I think of managing our balance sheet, we sold some assets do a little bit better than we thought on the sale of the assets.

Speaker Change: And we've maintained very good lender support.

Speaker Change: So.

Speaker Change: I'm really pleased that even the last week, we found it we may have this event.

Speaker Change: That is probable estimate able.

Speaker Change: With it with.

Speaker Change: Being able to work with our lenders in a very short period to get the amendment. We did yesterday I think shows Fabulous cooperation really appreciative of of.

Robert W. Leasure: I'm really appreciative of them being attentive to our needs and continuing to work with us. So I think we have some positives, but yeah, we've had a couple tough things go against us. We've managed through it. We've continued to stay focused on the long term, and yeah, I'm pleased that we've also had some pretty good wins throughout. So we'll get through this, and then we'll figure out how to manage going forward.

Speaker Change: That'd be in attendance to our needs and continuing to work with us. So I think we have some positives, but yeah theres been a cup we've had a couple of tough things go against us.

Speaker Change: We've managed through it we've continued to stay focused on the long term.

Speaker Change: Yeah, I'm I'm I'm pleased that we've also had some had some pretty good wins throughout so we'll get through this and then we will we'll figure out how to manage forward.

Speaker Change: Okay.

Matthew Gregory Hewitt: Ladies and gentlemen, as a reminder, should you have a question, press star 1. Your next question comes from Matthew Hewitt from Craighalem. Please go ahead.

Speaker Change: Hello, Ladies and gentlemen, as a reminder, should you have a question press star one.

Speaker Change: Next question comes from Matthew Matt Hewitt from Craig Hallum. Please go ahead.

Matthew Gregory Hewitt: Quick question regarding the BioSecure Act. It's been front of mind for a lot of investors here over the past couple months, and with it, moving through the house today. I'm just curious what, if any, impact you could see on your business if Wuji App Tech is ultimately blocked from the US market? I assume that would be positive. But what are you hearing from customers? And how are you thinking about that?

Speaker Change: Quick question regarding the bio secure act.

Speaker Change: It's been front of mind for a lot of investors here over the past couple of months and with it moving through the house today I'm just curious what if any impact you could see on your business. If wuxi uptick is ultimately blocked from the U S market I assume that would be a positive but what are you hearing from customers and how are you.

Speaker Change: You're thinking about that.

Robert W. Leasure: Well, first of all, I have not followed what came out today. So if something just happened today, I'm not familiar with it. I have not had an update.

Speaker Change: Well first of all I've said I don't I'm not followed what came out today. So it's something just happened today I'm not familiar with it I might have an update.

Robert W. Leasure: We have followed it. WUJI F-TECH is a large player in our market for discovery and safety assessment. I'm not going to sit here and tell you we're going to build a business plan based on our competitor having something negative happen to them, nor are we going to bet on it. [inaudible] There seems to be a move to China, which would probably take some significant capacity out of the U.S. And yes, we ourselves and the other CROs in the U.S. benefit from that, from, you know.

Speaker Change: We have followed it.

Speaker Change: Wuxi uptick as a large player in our market.

Speaker Change: In discovery and safety assessment.

Speaker Change:

Speaker Change: I'm not I'm not going to sit here and tell you we're going to build a business plan based on.

Speaker Change: Our competitor, having something negative happens to them.

Speaker Change: Nor are we going to bet on it.

Speaker Change: They are.

Speaker Change: The things that they moved to China.

Speaker Change: Wood.

Speaker Change: We'd probably be a significant.

Speaker Change: Some significant capacity out of the U S and yes.

Speaker Change: Get ourselves and the other arrows in the U S benefit from that.

Speaker Change: Yeah.

Speaker Change: Bob.

Robert W. Leasure: Yeah, that's not lost on us, that there could be some, had, um... I'm going to sit here and tell you we're going to bet our business on somebody having a bad day and what the government's going to do, and I don't want to wish anybody bad luck. I've dealt with my own DOJ and government issues, and I know it can be challenging.

Bob: Yeah, well, that's not lost upon us.

Bob: So there could be some.

Bob: Some window are back with that actually and that they may help us out, but I'm not going to sit here and tell you. We're in a better business on somebody having a bad day and what the government's going to do.

Bob: I don't want wish anybody bad luck.

Bob: I've dealt with my own.

Bob: Doj government issues, and I don't and I.

Bob: It can be challenging.

Speaker Change: Got it alright, thank you.

David Howard Windley: Your next question comes from Dave Windley from Jefferies. Please go ahead.

Speaker Change: Your next question comes from Dave Windley from Jefferies. Please go ahead.

David Howard Windley: All right, thanks for taking the follow-ups, just a couple. Bob, you talked about in the kind of geographic mix of studies that some studies moved out of the U.S. I think you mentioned Europe. Canada, I think, was also a net recipient. In terms of, your supply of NHPs is kind of emphasizing the point that you don't do a lot of SA, study conduct in NHPs, so most of your NHPs you're selling to others that are doing that. Are you not able... Is it not part of your business to supply NHPs to users outside the United States?

David Howard Windley: Hi, Thanks for taking the follow up just a couple.

David Howard Windley: Bob you talked about the kind of geographic.

Speaker Change: Geographic mix of studies that some studies moved out of out of the U S. I think you mentioned Europe, Canada I think there's also.

Speaker Change: Net recipient.

Speaker Change: Band.

Speaker Change: In terms of.

Speaker Change: Your supply of any hps kind of emphasizing the point that you don't you.

Speaker Change: You don't do a lot of D.

Speaker Change: S a.

Speaker Change: Study conduct in an H P. So most of your in Hps, you're selling to others that are doing that are you not able.

Is it not part of your business to supply and hps to users outside the United States.

Robert W. Leasure: We do so NHPs in Europe, but we do not sell them anywhere else. So, but we quarantine and distribute them in Europe and the U.S.

Speaker Change: We do so NH piece in Europe.

Speaker Change: And but we do not sell anywhere else.

Speaker Change: So, but we coordinating and distribute in Europe and U S.

David Howard Windley: So for those studies that moved to Europe, would you be able to continue, or would you see customers continue to, to buy from you for that, or would have over the last year or so?

Speaker Change: So for those studies that moved to Europe, you would be able to continue.

Speaker Change: You would see customers continue to.

Speaker Change: To buy from you for that or would have slashed over the last year or so.

Robert W. Leasure: We would, but I don't think the European safety assessment business is big enough to make it that big of a dent in it. We don't see that much of a change over there in what we can sell.

Speaker Change: We would I don't think the European safety assessment business is big enough to make it.

Speaker Change: That big make a big Dent in it we've not we don't see that big of a change over there and what we can sell.

David Howard Windley: Got it, okay. And then on the cash flow, several parts that I wanted to kind of understand if the benefits of which may still be in the future for you, so like proceeds from the sale of Blackthorn, proceeds from the Hazlitt Michigan facility, proceeds from the sale of Cumberland. Are those all, have you received those yet, or would those all add to your cash balance post March 31st? And how much would that be?

Speaker Change: Got it okay.

Speaker Change: And then on the on the cash flow.

Speaker Change: Several several parts because I wanted to kind of understand if the the benefits of which may still be in the future for you. So like proceeds from the sale of Blackstone proceeds from them Hazlett, Michigan facility proceeds from sale of Cumberland.

Speaker Change:

Speaker Change: Are those all have you received those yet or were those all add to your cash balance.

Speaker Change: <unk> March 31st and.

Speaker Change: And how much would that be.

Robert W. Leasure: Those on March 31st. They were not all closed, Beth. Well, Cumberland's not closed. That'll close this quarter. And that's what closed it after March 31st, isn't it? When did... When did Dublin and the UK miss close, do you know?

Speaker Change: Those at March 31.

Speaker Change: They were not all cause deaths well Cumberland has not closed that will close this quarter.

Speaker Change: And.

Speaker Change: That's what close after March 31.

Speaker Change: When did when did.

Speaker Change: When the doubling in U K and as close you know.

Beth A. Taylor: Double and close in Q2, and Hazlitt Clothes.

Speaker Change: <unk> closed in Q2.

Speaker Change: And has that closed in April.

Beth A. Taylor: So we'll have two, and Blackthorn was in April. No, and Q2. And Q2. So we'll have two closures in Q3.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: And Blackstone was in April.

Speaker Change: Now in Q2.

Thank you too can walk, though closure in Q3.

Speaker Change: Okay.

David Howard Windley: Can you give an approximate kind of net proceeds from those in Q3?

Speaker Change: Okay.

Speaker Change: Approximate kind of net proceeds from those in Q3.

Speaker Change: Okay.

Beth A. Taylor: Yeah, Hazlett is like $150,000 in material, and what we get for Cumberland will pretty much offset the expenses to prepare the site for closure.

Speaker Change: Yeah.

So it is like 150000 kind of immaterial count and what we get for Cumberland.

Speaker Change: Well.

Speaker Change: Pretty much offset the expenses to prepare the site for closure.

Speaker Change: Okay.

David Howard Windley: So just the last question then, on cash flow, you had $10 million in positive cash flow, $10.4 million in positive cash flow in the quarter. A couple of fairly significant moving parts there, year to date, are there. Are there are there items that, you know, say timing of timing of payments, timing of accruals that you would expect to reverse in the next quarter that would cause the delta between operating losses and positive cash flow to narrow significantly?

Speaker Change: So just the last question then on on the cash flow you had 10 million in positive cash flow of $10 4 million of positive cash flow in the quarter.

Speaker Change: A couple of fairly significant moving parts.

Speaker Change: Their year to date are there.

Speaker Change: Are there are there items that.

Our say timing of timing of payments timing of accruals that that you would expect.

Speaker Change: To reverse in the next quarter that would.

Speaker Change: What caused the delta between operating losses, and positive cash flow to narrow significantly.

Beth A. Taylor: I don't think so. I don't, yeah, I don't see any significant prepaid in the next quarter, and Inventory will probably, it will go down significantly for whatever NHSN is.

Speaker Change: I don't think so I don't yes, I don't see any significant prepay.

Speaker Change: In the next quarter.

Speaker Change: And inventory.

Speaker Change: We'll probably.

Speaker Change: It will go down significantly.

Speaker Change: Significantly for whatever and HTC.

Beth A. Taylor: Yeah, okay, so no significant, yeah, the most important one.

Speaker Change: Yeah Okay.

Speaker Change: Significant yeah.

Robert W. Leasure: The most significant would be if we settle with the DOJ and Make a Payment. That $6.5 million we talked about. Other than that, as we look out over the next 12 months, and we look at our cash flows and our different models for the next 12 months, we do not see that we have a liquidity problem.

The most significant would be if we settled with the Doj.

Speaker Change: And make a payment.

Speaker Change: That $6 5 million, we talked about.

Speaker Change: Brighter than that.

Speaker Change: As we look out over the next 12 months.

Speaker Change: And we look at our cash flows.

Speaker Change: Different models. The next 12 months, we do not see that we have liquidity problems.

David Howard Windley: Okay. Okay. All right. That's what I'm getting at. Thank you. I appreciate it.

Speaker Change: Okay. Okay, alright, that's what I'm getting at thank you appreciate it.

Robert W. Leasure: I appreciate it. There are a couple out there.

Speaker Change: Okay out there no we sensitize that looked at it I would you know.

Robert W. Leasure: No, we have sensitized that, and looked at it. I would, you know, I'd like not to be that tight, but no, we will not have a liquidity issue. But, um... What we talk about is, you know, working with our lenders if we have covenants. But we have time to address that.

David Howard Windley: Sounds great. Thank you for the answers.

Speaker Change: I'd like not to.

Speaker Change: To be that tight.

Speaker Change: No we will not have we will not have a liquidity issue.

Speaker Change: But.

Speaker Change:

Speaker Change: You know we could what we talk about as deno working with our lenders if we have covenant issues, but we have time to address that.

Speaker Change: It sounds great. Thank you for the answers.

Speaker Change: Thank you.

unknown: And there are no further questions at this time. I will turn the call back over to Bob Leasure for closing remarks.

Speaker Change: And there are no further questions at this time I will turn the call back over to Bob <unk> for closing remarks.

Robert W. Leasure: Well, thank you everyone for joining today's call, and I want to close today by reiterating our thinking on the long-term future of our industry, our company, and the investments we've made to position ourselves for the future. New spending on research and development for new medicines has historically ebbed and flowed based on either industry-specific factors, such as the timing of patent expirations or macroeconomic or geopolitical factors. But over any long-term analysis, the trend has always been robustly upward over time.

Bob: Well. Thank you everyone for joining today's call and I want to close today by reiterating our thinking on the long term future.

Bob: For our industry our company the investments we've made to position ourselves for the future.

Bob: The new spending on research and development for new medicines, historically, ebbed and flowed based on either the industry specific factors, such as timing of patent expirations or macroeconomic or geopolitical factors.

Bob: But over any long term analysis, the trend has always been robustly up overtime.

Robert W. Leasure: Our global population is getting older. People are looking for a higher quality of life as they age. But there is still a multitude of largely unmet medical needs.

Bob: Our global population is getting older people are looking for higher quality of life as they age.

Bob: Phil multitude of largely unmet medical needs the companies that work in this space our customers are committed to providing that and have historically reinvested more strongly after every down cycle.

Robert W. Leasure: The companies that work in this space, our customers, are committed to providing that, and they have historically reinvested more strongly after every down cycle. Within the broader industry context, we believe we're building ourselves a high-touch, flexible provider that is really attractive to biotech customers who appreciate the personal service and attention to detail they can get from Inotiv. We've done a lot of work over the last couple of years in an effort to both drive our top line for the long term with investments and additional capacity, new service lines, and stronger sales and marketing efforts, and drive our bottom line through operating leverage gained from optimizing our site footprint, transportation, and logistics. I feel very positive about our team, what we've accomplished, our ability to navigate through our current challenges, and how the next 12 months look for our industry and our company.

Bob: Within the broader industry contacts we believe we're building ourselves a high touch flexible provided it is really attractive to biotech customers, who appreciate the personal service and attention to detail they can get from <unk>.

Bob: A lot of work over the last couple of years in an effort to both drive our topline for the long term with investments in additional capacity new service lines and stronger sales and marketing efforts drive our bottom line to operating leverage gained from optimizing our site footprint transportation logistics.

Bob: I feel very positive about our team what we've accomplished our ability to navigate through our current challenges.

Bob: And how the next 12 months look for our industry and our company.

unknown: Thank you for your time today. Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you.

Bob: Thank you for your time today.

unknown: Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you.

Speaker Change: Ladies and gentlemen. This concludes today's conference call you may now disconnect. Thank you.

Speaker Change: [noise] [music].

Speaker Change: Hum.

Speaker Change: Hum.