Q3 2024 Inotiv Inc Earnings Call

Speaker Change: The End

Speaker Change: GRANT ISLANDS Text, Scribblings, and More

Speaker Change: Higher Ed.

Operator: To all locations currently on hold, we thank you for your patience, and we ask that you continue to stand by. Your conference will begin momentarily.

Speaker Change: To all locations currently on hold, we thank you for your patience and we ask that you continue to stand by. Your conference will begin momentarily.

unknown: Inotiv Inotiv Inotiv Inotiv Inotiv Inotiv Inotiv Inotiv Inotiv Inotiv Inotiv Inotiv Inotiv Inotiv Inotiv Inotiv Inotiv

Speaker Change: Come on everybody.

Speaker Change: [music]

Operator: Please stand by. Your conference is about to begin. Should you require operator assistance, please press star and 1. Or, rather, may I correct you, ladies and gentlemen, star and zero, should you require operator assistance today. Thank you.

Speaker Change: Please stand by, your conference is about to begin. Should you require operator assistance, please press star and 1.

Speaker Change: Or rather, may I correct myself, ladies and gentlemen, star and zero, should you require operator assistance today. Thank you.

Operator: Thank You

Operator: Good day everyone, and welcome to this Inotiv 3rd Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode, but later you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing the star and 1 on your touchtone phone.

Speaker Change: [inaudible]

Speaker Change: Good day, everyone, and welcome to this Inotiv third quarter earnings conference call. At this time, all participants are in a listen-only mode, but later you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing the star and 1 on your touchtone phone. I will be standing by should you need any assistance. It is now my pleasure to turn the floor over to Mr. Bob Yedid. Please go ahead, sir.

Operator: I will be standing by should you need any assistance. And it is now my pleasure to turn the floor over to Mr. Bob Yedid. Please go ahead, sir.

Bob Yedid: Thank you, Jim, and good afternoon, everyone, and thank you for joining today's quarterly conference call with Inotiv's management team. Before we begin, I'd like to remind everyone that some of the statements that management will make on this call are considered forward-looking statements, including statements about the company's future operating and financial results and plans. Such statements are subject to risks and uncertainties that could cause actual performance or achievements to be materially different from those projected.

Speaker Change: Thank you, Jim, and good afternoon everyone. Thank you for joining today's quarterly conference call with Inotiv's management team.

Bob Yedid: Any such statements represent management's expectations as of today, and you should not place undue reliance on these forward-looking statements, and the company does not undertake any obligation to update or revise such forward-looking statements, whether as a result of new information, future events, or otherwise.

Bob Yedid: Before we begin, I'd like to remind everyone that some of the statements that management will make on this call are considered forward-looking statements.

Speaker Change: Including the statements about the company's future operating and financial results and plans.

Speaker Change: Such statements are subject to risks and uncertainties that could cause actual performance or achievements to be materially different from those projected.

Speaker Change: Any such statements represent management's expectations as of today's date.

Speaker Change: 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.

Bob Yedid: Please refer to the company's SEC filings for further guidance on this matter. Management will also discuss certain non-GAAP financial measures in an effort to provide additional information for investors. The definition of these non-GAAP measures and reconciliations to the most comparable GAAP measures are included in the company's earnings release, which has been posted to the Investors section of the company's website, www.inotivco.com, and is also available in the Form 8K filed with the Securities and Exchange Commission.

Speaker Change: Please refer to the company's SEC filings for further guidance on this matter.

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

Speaker Change: Definition of these non-GAAP measures and reconciliations to the most comparable GAAP measures are included in the company's earnings release.

Speaker Change: which has been posted to the investor's section of the company's website, www.inotivco.com, and is also available in the form 8K, filed with the Securities and Exchange Commission.

Bob Yedid: If you haven't obtained a copy of today's press release yet, you can do so by going to the investor section of the company's website. Joining me today from Inotiv are Bob Leasure, President and Chief Executive Officer, and Beth Taylor, Chief Financial Officer. John Sagart, Chief Strategy Officer, will join us for the question and answer portion of this call. Bob will begin with some opening remarks, after which Beth will provide a summary of the company's financial results for the third quarter of fiscal 2024 and the nine months ended June 30, 2024. And then we'll open the call for questions. With those remarks, it's my pleasure to turn the call over to Bob Leasure, CEO. Bob, please go ahead.

Speaker Change: If you haven't obtained a copy of today's press release yet, you can do so by going to the investor section of the company's website.

Speaker Change: Joining me today from Inotiv are Bob Leasure, President and Chief Executive Officer, and Beth Taylor, Chief Financial Officer.

Speaker Change: John Sagart, Chief Strategy Officer, will join us for the question and answer portion of this call.

Speaker Change: Bob, we'll begin with some opening remarks.

Speaker Change: After which Beth will provide a summary of the company's financial results.

Speaker Change: for the third quarter of fiscal 2024, and the nine months ended June 30, 2024. And then we'll open the call for questions.

Speaker Change: With those remarks, it's my pleasure to turn the call over to Bob Leasure, CEO . Bob, please go ahead.

Bob Leasure: Thank you, Bob, and good afternoon to everyone joining our call today. Our third quarter was very productive for Inotiv. There were several critical events and accomplishments since our last quarterly call, which we believe will advance us towards our goal of being a leading mid-sized preclinical CRO in the market. I'm going to outline some of these for you now.

Beth: Thank you, Bob, and good afternoon to everyone joining our call today. Our third quarter was very productive for Inotiv. There were several critical events and accomplishments since our last quarterly call, which we believe will advance us towards our goal of being a leading midsize preclinical CRO in the marketplace.

Bob Leasure: These include, first, we reached a resolution of the Virginia DOJ investigation and related settlement, which we announced earlier. Second, we are announcing for the first time that on July 23, 2024, the U.S. Attorney's Office for the Southern District of Florida informed the company that it was no longer investigating the company or its subsidiaries with respect to the procurement of NHPs from foreign suppliers or NHP importation practices. Thirdly, we completed the UK site construction in Hillcrest and consolidation projects in our NRMS segment as of the end of July, further reducing our expenses and allowing for additional contracts to start up in the UK to enhance our revenue.

Speaker Change: I'm going to outline some of these for you now.

Beth: These include first, we reached a resolution of the Virginia DOJ investigation and related settlement which we announced earlier.

Beth: Second, we're announcing for the first time...

Beth: that on July 23, 2024, the U.S. Attorney's Office for the Southern District of Florida informed the company that it was no longer investigating the company or its subsidiaries with respect to the procurement of NHPs from foreign suppliers or NHP importation practices.

Beth: Third, we completed the UK site construction in Hillcrest and consolidation projects in our NRMS segment as of the end of July and further reducing our expenses and allowing for additional contracts to start up in the UK to enhance our revenue.

Bob Leasure: Fourth, further integrating and optimizing our transportation operations, from which we are now seeing the benefits, including improved service levels, reduced costs through streamlined processes, and increased efficiencies, producing faster response times and better experiences for our clients.

Beth: Fourth, further integrating and optimizing our transportation operations, from which we are now seeing the benefits, including improved service levels, reduced cost through streamlined processes and increased efficiencies, producing faster response times and better experiences for our clients.

Bob Leasure: Fifth, achieving year-to-date and quarter-over-quarter sales increases and margin improvements in our diet business globally. Sixth, achieving year-to-date and quarter-over-quarter sales increases and margin improvements in our European and U.K. RMS business lines, with the exception of NHP. Seventh, achieving an approximate year-over-year, year-to-date 32% increase in NHP Boarding and Breeding Service revenue. Eighth, our newer safety assessment service offerings, including genetic toxicology and biotherapeutic biological service lines, we saw year-over-year growth in revenues and backlog for year-to-date fiscal 2024 compared to year-to-date fiscal 23. Ninth, we implemented further integration initiatives and organizational changes, which allowed us to further reduce general administrative expenses.

Beth: Fifth, achieving year-to-date and quarter-over-quarter sales increases and margin improvements in our diet business globally. Sixth, achieving year-to-date and quarter-over-quarter sales increases and margin improvements in our European and UK RMS business lines, with the exception of NHPs.

Beth: Seventh, achieving an approximate year-over-year, year-to-date 32% increase in NHP boarding and breeding service revenues.

Beth: Eight, our newer safety assessment service offerings including genetic toxicology and biotherapeutic biological service lines, we saw year-over-year growth in revenues and backlog year-to-date fiscal 2024 compared to year-to-date fiscal 23.

Beth: Ninth, we implemented further integration initiatives and organizational changes which allowed us to further reduce general administrative expenses.

Bob Leasure: Tenth, we're beginning to see early signs of recovery in the NHP market and increased existing purchase orders. If we deliver on these orders... We could double the volume of NHP sold in Q4, 2024 compared to those sold in Q3 of 24, and we estimate this volume would also exceed those we sold in Q4 of fiscal 2023.

Beth: 10th, we're beginning to see early signs of recovery of the NSP market and increase existing versus orders.

Beth: If we deliver on these orders

Beth: We could double the volume of NHP sold in Q4.

Beth: 2024 compared to those sold in Q3 of 2024.

Beth: and estimate this volume but also see those would exceed those we sold in Q4 of fiscal 2023.

Bob Leasure: Eleventh, we believe we are developing a solid foundation for a potential recovery in the NHP business starting in calendar year 2025. A key feature of some of the negotiations currently underway is a migration to long-term reoccurring contracts, and we will seek to continue to diversify our customer base, a critical shift we initially announced in our February earnings call.

Beth: 11th, we believe we are developing a solid foundation of

Beth: for a potential recovery in the NHP business starting in calendar year 2025. A key feature of some of the negotiations currently underway is a migration to long-term reoccurring contracts, and we will seek to continue to diversify our customer base.

Bob Leasure: We amended our loan agreement with our senior debt holders for the DOJ settlement, and received a waiver for non-compliance with our financial covenants as of June 30, 2024. And lastly, we finalized the sale of the assets we had listed for sale. All these positive items notwithstanding, we also still have headwinds, which we are watching closely and working to overcome. These include pricing pressures in our DSA business, which has impacted revenue growth and margins.

Beth: A critical shift we initially announced in our February earnings call.

Beth: 12th we amended our loan agreement with our senior debt holders for the DOJ settlement received a waiver for non-compliance with our financial covenants as of June 30th 2024

Beth: And lastly, we finalized the sale of the assets we had listed for sale.

Beth: All these positive items that we're standing, we also still have headwinds which we are watching closely and working to overcome.

Beth: These include pricey pressures in our DSA business, which is impacted revenue growth in margins.

Bob Leasure: Year-over-year declines in sales in our discovery business, which is due to the softness of the market. We did implement a reduction in the workforce related to our discovery business while increasing our sales and marketing efforts. The sales of the NGP have come down, along with the cost of acquiring them.

Beth: Year-over-year declines in sales in our discovery business, which are due to the softness of the market, we did implement a reduction in workforce related to our discovery business while increasing our sales and marketing efforts.

Beth: The sales of the NHP's has come down.

Bob Leasure: The sale price of our NHPs, I should say, has come down along with the cost of acquiring them, and we expect pricing to remain in line with Q3, which is about 35% to 40% less than it was in Q4 of 2023. We still have some higher-cost HPs in inventory to sell. We will sell these higher-cost HPs. And as we sell these, our margins in Q4 of 2024 will be impacted within the RMS segment.

Beth: along with the cost of acquiring them.

Beth: The sale price of our NHPs, I should say, has come down along with the cost of acquiring them. And we expect pricing to remain in line with Q3, which is about 35 to 40 percent less than it was Q4 of 2023.

Beth: We still have some higher cost HPs in inventory to sell. We will sell these higher cost HPs.

Beth: and as we sell these our margins in Q4 of 2024 will be impacted within the RMS segment.

Bob Leasure: NHP sales and margins for Q2 and Q3 of fiscal 2024 were down significantly compared to the same periods in fiscal 2023. NHP profits were down approximately $36 million for the first nine months of fiscal year 2024 versus the same period in 2023. Overall, our adjusted EBITDA is down roughly $29 million year-to-date over the same period.

Beth: NHP sales and margins for Q2 and Q3 of fiscal 2024 were down significantly compared to the same periods in fiscal 2023.

Beth: NHP profits are down approximately $36 million for the first nine months of fiscal year 2024 versus the same period in 2023.

Beth: Overall, our adjusted EBITDA is down roughly $29 million year-to-date over the same period.

Bob Leasure: As financial improvements in many other areas of our business are being recognized, and some of the optimization projects are being completed, now I'll give some comments on what we are seeing in the market today. In the DSA segment, the improved funding levels for biotech companies in the first half of calendar 2024 have been positive, and we are seeing project awards by some clients that have recently raised capital. However, we expect biopharma companies in the short term to continue to take a restrained, conservative approach to their preclinical pipeline products in order to prioritize the use of limited capital on their most important projects.

Beth: As financial improvements in many other areas of our business are being recognized and some of the optimization projects are being completed.

Beth: Now I'll give some comments on what we are seeing in the market today.

Beth: In the DSA segment, the improved funding levels for biotech companies in the first half of calendar 2024 have been positive.

Beth: We are seeing project awards by some clients that have recently raised capital.

Beth: However, we expect biopharma companies in the short term to continue to take a restrained, conservative approach to their preclinical pipeline products in order to prioritize the use of limited capital to their most important projects.

Bob Leasure: So far in fiscal 2024, our discovery and safety assessment business has not seen the growth we have seen in recent years due to weakness in the discovery market and related pricing pressures, which have impacted sales and margins. Our goal is to take advantage of our size and agility.

Speaker Change: So far in fiscal 2024, our discovery and safety assessment business has not seen the growth we have seen in recent years due to weakness in the discovery market and related pricing pressures which have impacted sales and margins.

Beth: Our goal is to take advantage of our size and agility.

Bob Leasure: We continue to focus on quality, delivery, and service. We are still a young company that can grow with its existing customer base and attract new customers to gain market share. For the nine months ended June 30, 2024, net new orders for DSA are running ahead of last year's pace by approximately 5%. Even with the industry price pressures we have seen in fiscal 2024, an approximately 10% decline in both revenue and orders in the early stage discovery business.

Beth: and continue to focus on quality delivery and service.

Beth: We are still a young company which can grow with its existing customer base and attract new customers to gain market share

Beth: For the nine months ended June 30th, 2024, net new orders for DSA are running ahead of last year's pace by approximately 5%.

Beth: Even with the industry price pressures, we have seen that fiscal 2024 and approximately 10% decline in both revenue and orders in the early stages of discovery business.

Bob Leasure: We believe many of our NHP customers have been depleting the NHP inventories they accumulated last year, as we discussed in our last call. Their on-hand inventory levels are now returning to more normalized levels, so we expect to see increased demand from these customers going forward, as evidenced by the level of current purchase orders for Q4 of fiscal 2024 to date. The most significant challenge we've faced financially this year in fiscal 2023 has been related to the volatility of sales and margins in our RMS business segment and, more specifically, our NHP business.

Beth: We believe many of our NHP customers

Beth: and then the pleading and examatories, they cumulative last year.

Speaker Change: As we've discussed in our last call, their on-hand inventory levels are now returning to more normalized levels. So we expect to see increased demand from these customers going forward as evidenced with the level of current purchase orders for Q4 of fiscal 2020 to date.

Beth: The most significant challenge we've faced financially this year in a fiscal 2023 has been related to the volatility of sales and margins in our RMS business segments and more specifically our NHP business.

Bob Leasure: As we have discussed in the past, the brick clinical testing 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 a subsequent industry ban on the importation of Cambodian NHPs into the U.S. in late 2022.

Speaker Change: As we've discussed in the past, the brief clinical testing industry faced challenges and volatility resulting from the U.S. Attorney's Office criminally charging.

Beth: A Cambodian government official on alleged charges of conspiracy to illegally import NHPs into the U.S. and a subsequent industry ban on the importation of Cambodian NHPs into the U.S. in late 2022.

Bob Leasure: This ultimately resulted in heightened concern among customers regarding their ability to access NHP to develop their pipeline projects, which together drove higher NHP pricing in fiscal 2023. The uncertainty and available supply in the U.S. also resulted in some discovery and pre-clinical studies moving to other countries, which further impacted drug discovery and development and overall demand for NHPs in the U.S. We previously indicated this year could be choppy as it relates to NHP sales, reflecting the aftereffects and volatility caused by the NHP market dynamics at the end of 2022, through 2023, and into the first half of fiscal 2024.

Beth: This ultimately resulted in heightened concern among customers regarding their ability to access any piece to develop the pipeline projects which together drove higher HP pricing in fiscal 2023.

Beth: The uncertainty and available supply in the U.S. also resulted in some discovery and preclinical studies moving to other countries, which further impacted drug discovery and development and overall demand for NHPs in the U.S.

Beth: We previously indicated this year could be choppy as it relates to NHP sales, reflecting the after effects and volatility caused by the NHP market dynamics at the end of 2022.

Beth: through 2023.

Beth: and into the first half of fiscal 2024.

Bob Leasure: We continue to evaluate options to reduce this volatility. And, in addition to our qualified and existing suppliers, we continue to expand and work with multiple suppliers in multiple countries. Crucially, as we evaluate new potential sources of NHPs, we continue to audit them rigorously for animal welfare and health standards and will not source from suppliers who do not and cannot meet those standards.

Beth: We continue to evaluate options to reduce this volatility.

Beth: and in addition to our qualified and existing suppliers, we continue to expand and work with multiple suppliers and multiple countries.

Beth: Critically, as we evaluate new potential sources of NHP, we continue to audit them rigorously for animal welfare and health standards and will not source from suppliers to do not and cannot meet those standards.

Bob Leasure: This year, we have seen NHP customers work towards reducing some owned inventory and aligning their NHP purchases more closely with their immediate needs. As we enter long-term supply contracts for NHP starting in calendar 2025, We will hopefully be increasing and restoring the reliability consistency of our RMS revenue. Within our non-NHP RMS business, over the last quarter, we've enjoyed solid demand in our small animal and service business in the UK and Europe and globally for our diets and bedding business.

Beth: This year we have seen NHP customers work towards reducing some owned inventory and aligning their NHP purchases more closely with their immediate needs.

Beth: As we enter long-term supply contracts for NHP starting in calendar 2025, we will hopefully be increasing and restoring the reliability consistency of our RMS revenues.

Beth: Within our non-NHP RMS business, over the last quarter we've enjoyed solid demand in our small animal and service business in the UK and Europe and globally for our diets and vetting business.

Bob Leasure: Before turning the call over to Beth, I'd like to provide a review of our recent operational challenges and a broader strategic view of how the company has progressed over the last few years. Over the past four years, Inotiv has dramatically grown and added multiple new products and service options, while also integrating and optimizing the business we have acquired. Our operating goals included...

Speaker Change: Before turning the call over to Beth, I'd like to provide a review of our recent operational challenges and a broader strategic view of how the company's progressed over the last few years.

Speaker Change: Over the past four years, Inotiv has dramatically grown and added multiple new product and service offerings while also integrating and optimizing the business we have acquired.

Bob Leasure: The company's effort to integrate and optimize facilities, improve our operations, take costs out of the business while improving service levels. We also completed significant investments to grow our service and to introduce ourselves to the market to obtain new customers and grow existing customers. And it's in this space that we have encountered some unexpected challenges over the past two years, as discussed above.

Speaker Change: are operating goals included.

Speaker Change: The company's effort to integrate and optimize facilities, improve our operations, take costs out of the business while improving service levels.

Beth: We also completed significant investments to grow our service and to introduce ourselves to the market to obtain new customers and grow existing customers.

Speaker Change: and it's of this face of unexpected challenges over the past two years as discussed above. But we continue to adapt and develop our business model for the long-term success.

Bob Leasure: But we continue to adapt and develop our business model for long-term success. We believe we have improved our competitive position as a mid-sized full-service CRO and provider of research models and diets. We have made progress in consolidating our facility footprint over the past three years while also expanding and improving our existing facilities and operations. As a result, we have seen lower costs and improved service and efficiencies from our operations. We remain committed to building a business that can create value for our customers, employees, and shareholders.

Speaker Change: We believe we have improved our competitive position as a mid-sized full-service CRO and provider of research model and diet.

Speaker Change: We have made progress in consolidating our facility footprint over the past three years, while also expanding and improving our existing facilities and operations.

Speaker Change: As a result, we have seen lower cost and improved service and efficiencies from our operations.

Speaker Change: We remain committed to building a business that can create value for our customers, employees, and shareholders.

Bob Leasure: As we have addressed some of the legal challenges and industry-related headwinds, we recognize our liquidity has been negatively impacted. We'll continue to evaluate our opportunities to improve our balance sheet and enhance our liquidity. In summary, starting in fiscal 2025, we expect to see a full-year impact of the positive changes in cost efficiencies achieved to date as we are positioning ourselves to not be dependent solely on a potential market recovery to improve our operating results and cash flow. With that, I'll turn the call over to Beth, who will provide a more detailed synopsis of Inotiv's results for the quarter.

Speaker Change: As we have addressed some of the legal challenges and industry-related headwins, we recognize our liquidity has been negatively impacted.

Speaker Change: We'll continue to evaluate our opportunities to improve our balance sheet and enhance our liquidity.

Speaker Change: In summary, starting in fiscal 2025, we expect to see a full-year impact of the positive changes in cost efficiencies achieved to date as we are positioning ourselves

Operator: to all locations currently on hold. We thank you for your patience and we ask that you continue to stand by. Your conference will begin momentarily. Please stand by. Your conference is about to begin. Should you require operator assistance? Please press star and one.

Speaker Change: do not be dependent solely on a potential market recovery.

Speaker Change: to improve our operating results and cash flow.

Speaker Change: With that, I'll turn the color over to Beth who will provide a more detailed synopsis of in it's results for the quarter.

Beth Taylor: Thank you, Bob. And good afternoon, everyone. For the fiscal 2024 third quarter, total revenue was $105.8 million compared to $157.5 million during the prior year period, a decrease of 33%, primarily due to a decrease in the number of NHP sold and an approximate 35% reduction in NHP average price in the current quarter compared to the prior year period, as well as the sale of the Israeli businesses in August 2023 and lower safety and discovery services revenues.

Beth Taylor: Thank you, Bob, and good afternoon, everyone.

Beth Taylor: For the fiscal 2024-3rd quarter, total revenue was $105.8 million, compared to $157.5 million.

Beth Taylor: during the prior year period.

Beth Taylor: A decrease of 33% primarily due to a decrease in the number of NHP sold and an approximate 35% reduction in NHP average price in the current quarter compared to the prior year period.

Speaker Change: The sale of the Israeli businesses in August 2023 and lower safety and discovery services revenue.

Beth Taylor: For the nine months into June 30, 2024, consolidated revenue was $360.3 million, down 16.5% compared to $431.7 million for the same period last year due to the decrease in NHP sold and the sale of the Israeli businesses in August of 2023. DSA revenues in the 2024 third quarter decreased by approximately 6% to $44.2 million when compared to the prior year period of $46.8 million. The decrease in DSA revenue was primarily driven by a decrease in general toxicology services due to a change in the mix of studies conducted in the 2024 third quarter compared to the 2023 third quarter and a decrease in DSA products and discovery services revenue. However, these impacts were partially offset by increases in genetic toxicology and biotherapeutic analysis revenue in connection with our newer service lines at our Rockville facility.

Beth Taylor: For the nine months into June 32, 2024, consolidated revenue was $360.3 million.

Speaker Change: down 16.5% compared to $431.7 million for the same period last year due to the decrease in NHP sold and the sale of the Israeli businesses in August of 2023.

Speaker Change: DSA revenues in the 2024 third quarter decreased by approximately 6% to $44.2 million when compared to the prior year period of $46.8 million.

Speaker Change: The decrease in the DSA revenue was primarily driven by a decrease in General Toxicology Services.

Operator: Rather may I make correct myself, ladies and gentlemen, star and zero? Should you require operator assistance today? Thank you.

Beth Taylor: due to a change in the mix of studies conducted in the 2024 3rd quarter compared to the 2023 3rd quarter and a decrease in DSA products and Discovery Services revenue.

Speaker Change: These impacts were partially offset by increases in genetic toxicology and biotherapeutic analysis revenue in connection with our newer service lines at our Rockville facility.

Operator: Good day everyone and welcome to this Inotiv 3rd quarter earnings conference call. At this time all participants are in a listen only mode but later you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing the star and one on your touch tone phone. I will be standing by.

Beth Taylor: DSA revenues for the nine months into June 30, 2024 were $135.5 million, which was slightly higher compared to the prior year period of $134.9 million. Overall, net new GSA orders this quarter were $40.4 million versus $48.6 million in the same quarter last year. For the year-to-date period ending June 30, 2024, we booked net new orders of $139.2 million versus $133.3 million for the nine months into June 30, 2023. The conversion rate this quarter was 31% versus 30% in the prior year.

Speaker Change: DSA revenues for the nine months into June 30, 2024 were $135.5 million, which was slightly higher compared to the prior year period of $134.9 million.

Speaker Change: Overall, net new DSA orders this quarter were $40.4 million versus $48.6 million in the same quarter last year.

Operator: Should you need any assistance?

Speaker Change: For the year-to-date period ending June 30, 2024, we booked net new orders of $139.2 million versus $133.3 million for the nine months into June 30, 2023.

Speaker Change: The conversion rate this quarter was 31% versus 30% in the prior year.

Beth Taylor: The DSA cancellations in Q3 were consistent with the prior year period, and in the first nine months of fiscal 2024, they were slightly less than the same period in fiscal 2023. RMS revenue for the fiscal third quarter was down 44.4% to $61.6 million compared to $110.7 million the same quarter last year, due primarily to lower NHP-related product and service revenue, mainly as a result of product volumes and pricing. In addition, there was a decrease in revenue of $3 million as a result of the sale of our Israeli businesses in August of last year.

Speaker Change: The DSA cancellations in Q3 were consistent with the prior year period, and in the first nine months of fiscal 2024, they were slightly less than the same period in fiscal 2023.

Speaker Change: RMS revenue for the fiscal third quarter was down 44.4%.

Speaker Change: to $61.6 million compared to $110.7 million, the same quarter last year, due primarily to the lower NHP-related product and service revenue, mainly as a result of product volumes and pricing.

Speaker Change: In addition, there was a decrease in revenue of $3 million as a result of the sale of our Israeli businesses in August of last year.

Beth Taylor: For the nine months into June 30, 2024, RMS revenue was down 24.3% to $224.8 million compared to $296.8 million in the same period last year. The decrease was due primarily to the negative impact of lower volumes of NHP sales, and lower revenue as a result of the sale of our Israeli businesses in fiscal 2023. The remaining decrease in RMS revenue was due primarily to decreases in small animal cells in RMS services in the U.S., partially offset by an increase in diet and bedding cells on a global basis.

Speaker Change: The 9 months ended June 32, 2024, RMS revenue was down 24.3% to 224.8 million dollars compared to 296.8 million dollars in the same period last year.

Speaker Change: The decrease was due primarily to the negative impact of lower volumes of NHB cell, lower revenue as a result of the cell of our Israeli businesses in fiscal 2023.

Speaker Change: The remaining decrease in RMS revenue was due primarily to decreases in small animal cells and RMS services in the U.S., partially offset by an increase in diet and bedding cells on a global basis.

Operator: And as now my pleasure to turn the floor over to Mr. Bob Yedid, please go ahead sir. Thank you, Jim, and good afternoon everyone. Thank you for joining today's quarterly conference call with Inotiv's management team.

Operator: Before we begin, I would like to remind everyone that some of the statements that management will make on this call are considered for the looking statements, including the statements about the company's future operating and financial results and plans. Such statements are subject to risks and uncertainties, could that cause actual performance or achievements to be materially different from those projected. Any such statements represent management's expectations as of today's date. You should not place undue reliance on these four looking statements and the company does not undertake any obligation to update or revise for the operating statements, whether as a result of new information, future events or otherwise.

Beth 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 and the first two quarters of fiscal 2024. We did see the average sales price of NHPs in Q3 of fiscal 2024 come down roughly 23 percent sequentially from Q2 of 2024. This was an approximate 35% decrease from the comparable period of fiscal 2023.

Speaker Change: 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 and the first two quarters in fiscal 2024.

Operator: Please refer to the company's SEC filings for further guidance on this matter. Management will also discuss certain non-gap financial measures in an effort to provide additional information for investors. Definition of these non-gap measures and reconciliation to the most comparable gap measures are included in the company's earnings release, which has been posted to the Investors section of the company's website, www.initivco.com, and is also available in the form 8K Files with the Security and Exchange Commission. 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.

Speaker Change: We did see the average sales price of NHPs in Q3 of fiscal 2024, on average, come down roughly 23% sequentially from Q2 of 2024.

Operator: Joining me today from Inotiv are Bob Leasure, President and Chief Executive Officer, and Beth Taylor, Chief Financial Officer.

Operator: John Seigard, Chief Strategy Officer, would join us for the question and answer portion on this call. Bob will begin with some opening remarks after which Beth will provide a summary of the company's financial results for the third quarter of 2024, and the nine months ended June 30, 2024. And then we'll open the call for questions.

Speaker Change: This was an approximate 35% decrease to the comparable period of fiscal 2023.

Robert Leasure: With those remarks, it's my pleasure to turn the call over to Bob Leasure, CEO. Bob, please go ahead. Thank you, Bob, and good afternoon to everyone joining our call today. Our third quarter was very productive for Inotiv.

Beth Taylor: As we are selling higher-cost NHPs that were purchased in late calendar 2023 and early calendar 2024, we are realizing lower margins in fiscal year 2024. The current costs and anticipated costs in future contracts for the acquisition of NHPs are expected to be lower, which should favorably impact future margins. As we work through the higher-cost NHPs in our inventory, RMS margins in the short term will continue to be depressed.

Robert Leasure: There were several critical events and accomplishments since our last quarterly call, which we believe will advance this towards the goal of being a leading midsize preclinical CRO in the marketplace. We'll get out on somebody before you now. These include first, we reached a resolution of Virginia DOJ investigation and related settlement between us earlier. Second, we're announcing for the first time that on July 23, 2024, the U.S. Attorney's Office for the Southern District of Florida informed the company that it was no longer investigating the company or its subsidiaries with respect to the procurement of NHPs from foreign suppliers or NHP importation practices.

Speaker Change: As we are selling higher costs in HPs that were purchased in late calendar 2023 and early calendar 2024, we are realizing lower margins in fiscal year 2024.

Speaker Change: The current costs and anticipated costs in future contracts for the acquisition of NHPs are expected to be lower, which should favorably impact future margins.

Speaker Change: As we work through the higher cost NHPs in our inventory, RMS margins in the short term will continue to be depressed.

Beth Taylor: Operating loss for the third quarter of fiscal 2024 was $20.8 million compared to operating income of $8.8 million from last year's third quarter, primarily due to a lower volume of NHP sales and lower margins on these sales. An additional $2 million charge related to the settlement agreement on June 3rd with the DOJ to adjust our estimate that was recorded in Q2 fiscal 2024 and the impact of lower margins following the sale of our Israeli business.

Speaker Change: Operating loss for the third quarter fiscal 2024 was $20.8 million compared to operating income of $8.8 million from last year's fiscal third quarter, primarily due to a lower volume of NHP sales and lower margins on these sales.

Robert Leasure: Third, we've completed the U.K, site construction in Hillcrest in consolidation projects and around our met segment as of the end of July, and further reducing our expenses and allowing for additional contracts to start up in the U.K, to enhance our revenue. Fourth, further integrating and optimizing our transportation operations from which we are now seeing the benefits, including improved service levels, reduced costs through streamlined processes and increased efficiencies, producing faster response times and better experiences for our clients.

Speaker Change: An additional $2 million dollar charge related to the settlement agreement on June 3rd with the DOJ to adjust our estimate that was recorded in Q2 fiscal 2024 and the impact of lower margins following the sale of our Israeli businesses.

Speaker Change: These items were partially offset by decreases in our provision as expected credit losses, restructuring costs, severance, remediation costs, and legal and third-party seats.

Robert Leasure: Fifth, achieving year-to-date and quarter-to-quarter sales increases and margin improvements in our diet business globally. Six, achieving year-to-date and quarter-to-quarter sales increases and margin improvements in our European U.K. RMS business lines with the exception of NHPs. Seven, achieving an approximate year-to-date, 32% increase in NHP boarding and breeding service revenues. News 8. Our new or safety assessment service offerings, including genetic toxicology and biofairy puny biological service lines, we saw year-over-year growth in revenues and backlog, year-to-date fiscal 2024 compared to year-to-date fiscal 23.

Beth Taylor: These items were partially offset by decreases in our provision of expected credit losses, restructuring costs, severance, remediation costs, and legal and third-party. The consolidated net loss attributable to common shareholders in the third quarter of fiscal 2024 totaled $26.1 million, or a $1 loss per diluted share. This compares to consolidated net income attributable to common shareholders of $1.8 million, or 7 cents of earnings per diluted share, in the third quarter of fiscal 2023.

Speaker Change: Consolidated net loss attributable to common shareholders in the third quarter of fiscal 2024.

Speaker Change: totaled $26.1 million or a $1 loss per diluted share.

Speaker Change: This compared to consolidated net income attributable to common shareholders of $1.8 million, or $0.07 of earnings per diluted share, in the third quarter of fiscal 2023.

Beth Taylor: For the third quarter, adjusted EBITDA was $0.1 million, or less than 1% of total revenues, compared to $30.5 million, or 19.4% of total revenues for last year's third quarter. For the nine months into June 30, 2024, adjusted EBITDA was $12.8 million, or 3.6% of total revenues, compared to the prior year period of $42.1 million, or 9.8% of total revenues. Non-GAAP operating income for our DSA segment in the third quarter was $7.8 million, or 17.6% of segment revenue compared to $10.2 million, or 21.8% of segment revenue in last year's third quarter. As our new DSA services come fully online and we begin to fill newly added capacity, we believe we will see margin improvement through operating leverage.

Speaker Change: For the third quarter, Adjusted EBITDA was...

Speaker Change: 0.1 million dollars or less than 1% of total revenues compared to 30.5 million dollars or 19.4% of total revenue for last year's third quarter.

Robert Leasure: 9. We implemented further integration initiatives and organizational changes which allowed us to further reduce general and administrative expenses. 10. We're beginning to see early sides of recovery of the NHP market and increase existing purchase orders. If we deliver on these orders, we could double the volume of NHP sold in Q4, 2024 compared to those sold in Q3 of 24. And S-made this volume would also see those would exceed those we sold in Q4 of fiscal 2023.

Speaker Change: For the nine months into June 30, 2024, adjusted EBITDA was $12.8 million, or 3.6% of total revenues, compared to the prior year period of $42.1 million, or 9.8% of total revenue.

Robert Leasure: 11. We believe we are developing a solid foundation for a potential recovery in the NHP business starting in calendar year 2025. A key feature of some of the negotiations currently underway is a migration to long-term reoccurring contracts and we will continue to continue to diversify our customer base. A critical shift we initially announced in our February earnings call. 12. We amended our loan agreement with our senior debt holders for the DOJ settlement received a waiver for non-compliance with our financial covenants as of June 30, 2024. And lastly, we finalized the sale of the assets we had listed for sale.

Speaker Change: non-GAAP operating income for our DSA segment in the third quarter was $7.8 million, or 17.6% of segment revenue, compared to $10.2 million, or 21.8% of segment revenue, in last year's third quarter.

Speaker Change: As our new DSA services come fully online and we begin to fill newly added capacity, we believe we will see margin improvement through operating leverage.

Beth Taylor: The book-to-bill ratio for DSA in the third quarter was 0.94 to 1, our nine-month year-to-date fiscal 2024 book-to-bill ratio was 1.06 to 1, and our trailing 12-month net book-to-bill was 0.95 to 1. Year-to-date, June 30, 2024, we booked net new orders of $139.2 million versus $133.3 million for the nine months into June 30, 2023. The DSA cancellations in the third quarter were consistent with the prior year period, and year-to-date for the last nine months, they were slightly less than the same period in the prior year.

Speaker Change: The book to the ratio for DSA in the third quarter was 0.94 to 1. Our nine-month year-to-date fiscal 2024 book to the bill was 1.06 to 1, and our trailing 12-month net book to the was 0.95 to 1.

Speaker Change: Year-to-date June 30, 2024, we booked net new orders of $139.2 million versus $133.3 million for the nine months into June 30, 2023.

Robert Leasure: All these positive items notwithstanding, we also still have headwinds which we are watching closely and working to overcome. These include price new pressures in our DSA business which is impacted revenue growth in margins. Year over year declined and sales in our discovery business which are due to the softness of the market. We did implement a reduction in workforce related to our discovery business while increasing our sales and marketing efforts. The sales of the NHPs has come down along with the cost of acquiring them.

Speaker Change: The DSA cancellations in the third quarter were consistent with the prior year period, and year to date for the last nine months were slightly less than the same period in the prior year.

Beth Taylor: DSA backlog was $139.4 million at June 30, 2024, compared to $149.1 million at June 30, 2023. In our RMS segment, non-GAAP operating income in the third quarter of fiscal 2024 was $6.5 million, or 10.6% of segment revenues, compared to $35 million, or 31.6% of segment revenues in last year's period. The lower non-GAAP operating income in Q3 fiscal year 2024 was primarily the result of a decrease in NHP sales and margins due to the sale of our Israeli businesses in August of last year. However, that was partially offset by favorable cost reductions related to legal and third-party fees, remediation costs, impairment charges, severance, and a decrease in our provision for expected credit losses and restructuring costs.

Speaker Change: DSA backwap was $139.4 million at June 30, 2024 compared to $149.1 million at June 32, 2023.

Speaker Change: In our RMS segment, non-GAAP operating income,

Speaker Change: in the third quarter of fiscal 2024 was $6.5 million or 10.6% of segment revenues compared to $35 million or 31.6% of segment revenues in last year's period.

Robert Leasure: The sale price of our NHPs I should say has come down along with the cost of acquiring them and we expect pricing to remain in line with Q3 which is about 35 to 40 percent less than it was Q4 of 2023. However, we still have some higher cost HPs in inventory to sell. We will sell these higher cost HPs and as we sell these our margins in Q4 of 2024 will be impacted within the RMS segment.

Speaker Change: The lower non-GAAP operating income in Q3 fiscal year 2024 was primarily the result of a decrease in NHP sales and margins in the sale of our Israeli businesses in August of last year.

Speaker Change: And that was partially offset by favorable cost reductions related to legal and third party fees, remediation costs, impairment charges, severance, and a decrease in our provision for expected credit losses and restructuring costs.

Robert Leasure: NHPs sales of margins for Q2 and Q3 of fiscal 2024 were down significantly compared to the same periods in fiscal 2023. NHP profits are down approximately 36 million for the first nine months of fiscal year 2024 versus the same period in 2023. Overall our adjusted EBITDA is roughly down roughly 29 million year today over the same period. As financial improvements in many other areas of our business are being recognized and some of the optimization projects are being completed.

Beth Taylor: Interest expense in Q3 of 2024 increased to $12.1 million, up from $10.8 million in the last year's third quarter due to higher interest rates. Our balance sheet as of June 30, 2024 included $14.4 million in cash and cash equivalents as compared to $35.5 million on September 30, 2023. Total net of debt issuance cost as of June 30, 2024 was $382.4 million, relatively consistent with $377.7 million as of September 30, 2023.

Speaker Change: Interest expense in Q3 of 2024 increased to $12.1 million, up from $10.8 million in the last year's third quarter due to higher interest rates.

Speaker Change: Our balance sheet as of June 30, 2024 included $14.4 million in cash and cash equivalents as compared to $35.5 million on September 30, 2023.

Speaker Change: Total net of debt issuance cost as of June 30, 2024 was $382.4 million, relatively consistent with the $377.7 million as of September 30, 2023.

Robert Leasure: Now give some comments on what we are seeing in the market today. In the DSA segment, the improved funding levels for biotech companies in the first half of calendar 2024 have been positive. We are seeing projects awards, project awards by some clients that have recently raised capital. However, we expect biopharma companies in the short term to continue to take a restrained conservative approach to the preclinical pipeline products in order to prioritize the use of limited capital to the most important projects.

Beth Taylor: This includes $115.3 million of our convertible notes as of June 30, 2024. Net cash used by operations for the nine months into June 30, 2024 was $4.4 million compared to cash provided by operations of $9.1 million in the same period last year. Cash provided by operations for the trailing 12 months was $14.3 million. For the quarter ending June 30, 2024, cash used in operations included $6.5 million paid under the settlement with the DOJ for the investigation related to the Cumberland facility that we closed in 2022. As of June 30, 2024, we were not in compliance with the financial covenants under our credit agreement. However, we received a waiver from our lenders.

Speaker Change: This includes $115.3 million of our convertible notes as of June 30, 2024.

Speaker Change: Net cash used by operations for the nine months into June 30, 2024 was $4.4 million compared to cash provided by operations of $9.1 million in the same period last year.

Speaker Change: Cash provided by Alperations for the trailing 12 lawns was $14.3 million.

Robert Leasure: So far in fiscal 2024, our discovery and safety assessment of business has not seen the growth we have seen in recent years due to weakness in the discovery market and related pricing pressures which have impacted sales and margins. Our goal is to take advantage of our size and agility and continue to focus on quality, delivery and service. We are still a young company which can grow with its existing customer base and attract new customers to gain market share.

Speaker Change: During the quarter-ending June 30, 2024, the cash is an operation included $6.5 million paid under the settlement with the DOJ for the investigation related to the Comberland facility that we both in 2022.

Speaker Change: As of June 30, 2024, we were not in compliance with the financial covenants under our credit agreement. However, we received a waiver from our lenders.

Beth Taylor: Capital expenditures in the third quarter were $4.4 million, or 4.2% of total revenue. For the nine months ended June 30, 2024, capital expenditures were $17 million, or 4.7% of total revenue, as compared to $21.3 million, or 4.9% for the year-to-date period, in 2023. The capital expenditures reflect investments in facility improvements, site expansions, enhancements to laboratory technology, improvements in animal welfare, and system enhancements to improve the client experience. In terms of our capital improvements and site optimization plans, I am pleased to report that we have completed many of the investments and initiatives started in mid-calendar year 2022.

Speaker Change: Capital expenditures in the third quarter were $4.4 million or 4.2% of total revenue.

Robert Leasure: For the nine months end of June 30, 2024, net new orders for DSA are running ahead of last year's pace by approximately 5%. Even with the industry price pressures we have seen that fiscal 2024 and approximately 10% decline in both revenue and orders in the early stage discovery business. We believe many of our NHP customers have been depleting NHP inventories they accumulated last year as we've discussed in our last call. Their on-hand inventory levels are now returning to more normalized levels so we expect to see increased demand from these customers going forward as evidenced with the level of current purchase orders for Q4 of fiscal 2024 to date.

Speaker Change: For the nine months into June 30, 2024, capital expenditures were $17 million or $4.7% of total revenue. As compared to $21.3 million or $4.9% for the year-to-date period for 2023.

Speaker Change: The capital expenditures reflect investments in facility improvements, site expansions, enhancements to laboratory technology, improvements for animal welfare, and system enhancements to improve the client experience.

Speaker Change: In terms of our capital improvements and site optimization plans, I am pleased to report that we have completed many of the investments and initiatives started in mid-calendar year 2022.

Robert Leasure: The most significant challenge we face financially this year in a fiscal 2023 has been related to the volatility of sales and margins in our RMS business segment and more specifically our NHP business. As we've discussed in the past, the breed clinical testing 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 HPs into the U.S, and the subsequent industry ban on the importation of Cambodian NHPs into the U.S, in late 2022.

Beth Taylor: We expect these investments to be reduced further in the next two quarters and until we see a further recovery in revenue. Let's now turn to our guide. We withdrew financial guidance last quarter for fiscal 2024. We expect to provide guidance for fiscal 2025 once we have greater clarity on the market and customer demand. And with that financial overview, we will turn the call over to our operator for your question. Thank you. And to our phone audience joining us today, if you would like to ask a question at this time...

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

Speaker Change: Let's now turn to our guidance.

Speaker Change: We withdrew financial guidance last quarter for fiscal 2024. We expect to provide guidance for fiscal 2025 once we have greater clarity on the market and customer demand.

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

Operator: Thank you. And to our phone audience joining us today, if you would like to ask a question at this time, simply press star and 1 on your telephone keypad. Pressing star and 1 will place your line into a queue, and they will take your questions one at a time. Once again, ladies and gentlemen, that is star and 1. If you would like to ask a question, we'll hear first from Matt Hewitt at Craig Hallam, David Windley, Bob Yedid, Frank Takkinen, Or, sir, actually, we have a problem with the conference, the Q&A. Please re-signal with star and one, sir. Dave Windley at Jeffries.

Robert Leasure: This ultimately resulted in heightened concern among customers regarding their ability to access NHPs to develop the pipeline projects which together drove higher NHP pricing in fiscal 2023. The uncertainty and available supply in U.S, also resulted in some discovery in breed clinical studies moving to other countries which further impacted drug discovery and development and overall demand for NHPs in the U.S. We previously indicated this year could be choppy as it relates to NHP sales reflecting the after effects and volatility caused by the NHP market dynamics at the end of 2022 through 2023 and into the first half of fiscal 2024.

Speaker Change: [inaudible]

Robert Leasure: We continue to evaluate options to reduce this volatility, and in addition to our qualified and existing suppliers, we continue to expand and work with multiple suppliers in multiple countries. Critically, as we evaluate new potential sources of NHPs, we continue to audit them rigorously for animal welfare and health standards, and will not source from suppliers who do not and cannot meet those standards. This year, we have seen NHP customers work towards reducing some own inventory and aligning their NHP purchases more closely with their immediate needs.

Operator: Your line is open. Please go ahead. Thank you. Alright, Mr. Hewitt, is your line open, sir? Can you hear us?

Matthew Hewitt: I can hear you fine, apparently he couldn't hear me, but all right, a lot to unpack there, obviously, but it sounds like you're starting to see some signs of progress, maybe first up regarding the NHP business. One, it's great to hear that the Florida DOJ situation is resolved, and I'm just curious, what does that mean from a legal expense standpoint? That goes down, goes away, and I guess, in general, it sounds like your legal expenses are going to drop pretty dramatically. Is that fair?

Speaker Change: All right, Mr. Hewitt, is your line open, sir? Can you hear us?

Mr. Hewitt: I can hear you fine, apparently he couldn't hear me but all right a lot to unpack there obviously but it sounds like you're starting to see some signs of progress maybe first up regarding the NHP business

Speaker Change: One, it's great to hear that the Florida DOJ situation is resolved, and I'm just curious, what does that mean from a legal expense standpoint? That goes down goes away, and I guess in general, it sounds like your legal expenses are going to drop pretty dramatically, is that fair?

Robert Leasure: As we answered long-term supply contracts for NHP starting in calendar 2025, we will hopefully be increasing and restoring the reliability consistency of our RMS revenues. Within our non-NHP RMS business, over the last quarter, we have enjoyed solid demand in our small animal and service business in the UK and Europe, and globally for our diet and vetting business.

Bob Leasure: Beth, do you want to address that, what we've spent so far on legal expenses and... And yes, I hope we will begin to see those significantly reduced.

Speaker Change: Beth, do you want to address that, what we've spent so far in legal expenses?

Beth Taylor: And yes, I hope it would begin to see those significantly reduced.

Beth Taylor: Yeah, in regards to this particular matter, we hadn't received a subpoena since, I believe, June of 2021, but we were incurring some expenses in obviously monitoring the situation. Between that and the legal expenses for the Cumberland matter, we should see legal expenses come down for those matters by about. Probably about $2-$3 million a quarter.

Beth Taylor: Yeah, in regards to this particular matter, we hadn't received a subpoena since, I believe, June of 2021, but we were incurring some expenses in obviously monitoring the situation.

Robert Leasure: Before turning the call over to Beth, I'd like to provide a review of our recent operational challenges and a broader strategic view of how the company has progressed over the last few years. Over the past four years in it, it has dramatically grown and added multiple new product and service offerings, while also integrating and optimizing the business we have acquired. Our operating goals included the company's effort to integrate and optimize facilities, improve our operations, take calls out of the business while improving service levels.

Speaker Change: So, between that and the legal expenses for the Cumberland matter, I mean, we should see expenses, legal expenses come down for those matters.

Speaker Change: Bye-bye

Speaker Change: Probably about two to three million a quarter.

Bob Leasure: Can you tell them how much we have spent on those cases in the last two years?

Robert Leasure: We also completed significant investments to grow our service and introduce ourselves to the market to obtain new customers and grow existing customers. And into this space, some unexpected challenges over the past two years as discussed above. But we continue to adapt and develop our business model for the long-term success. We believe we have improved our competitive position as a mid-size full-service CEO and provider of research model and diet. We have made progress in consolidating our facility footprint over the past three years, while also expanding and improving our existing facilities and operations.

Speaker Change: Good, that's man, and what can you tell him what we so how much he spent over that on those cases in the last two years?

Beth Taylor: Yes, on the Cumberland case, in the last two years to address the legal inquiries and the closure of the site, we have spent. Before the settlement, it was approximately $21 million.

Speaker Change: Yes, on the one camera line case.

Speaker Change: in the last two years to address the the legal inquiries and the closure of the site.

Speaker Change: We have spent, before the settlement, it was approximately $21 million.

Matthew Hewitt: Wow. All right.

Speaker Change: Wow. All right. Well, it's great to have that. Yeah, that's great to have that behind you finally. And it sounds like you're starting to see some signs of recovery.

Bob Leasure: Well, it's great to have that behind you finally. And it sounds like you're starting to see some signs of recovery. Do you expect that with Q4 we will start to see the signs that this is improving, or is it really 25 with the contracts in place, the pricing reset both on the sales side as well as on the cost side? I'm just trying to triangulate when that really starts to impact the numbers.

Robert Leasure: As a result, we have seen lower cost and improved service and efficiencies from our operations. We remain committed to building a business that can create value for our customers, employees and shareholders. As we have addressed some of the legal challenges and industry-related headwinds, we recognize our liquidity has been negatively impacted. We'll continue to evaluate our opportunities to improve our balance sheet and enhance our liquidity.

Speaker Change: Do you expect that with Q4 we start to see the signs that that's improving or is it really 25 with the contracts in place, the pricing reset both on the sales side as well as on the cost side? I'm just trying to triangulate when that really starts to impact the numbers.

Bob Leasure: We're going to see a... Obviously, an improvement in Q4, we're going to sell potentially 120 or 130% more.

Speaker Change: We're going to see him.

Speaker Change: obviously an improvement in Q4. We're going to sell potentially 120, 130% more

Robert Leasure: In summary, starting in fiscal 2025, we expect to see a full-year impact of the positive changes and cost efficiencies achieved today, as we are positioning ourselves to not be dependent solely on a potential market recovery to improve our operating results and cash flow.

Bob Leasure: NHP's in Q4 than we did in Q3. As a matter of fact, I think we'll probably sell, potentially sell 20% more than we did in Q4 of last year. So this will be one of the first quarter-over-quarter improvements we have seen in several quarters. The pricing will be in line with what it was last quarter and probably closer to what it was again in 2022 and early 23 before all this started taking place before the Cambodian issues started taking place in late 22.

Speaker Change: NHPs in Q4 than we did Q3. As a matter of fact, I think we'll probably sell potentially sell 20% more than we did in Q4 of last year. So this will be one of the first quarter-over-quarter improvements we have seen in several quarters.

Beth Taylor: With that, I'll turn the call over to Beth who will provide a more detailed synopsis of thank you Bob and good afternoon everyone. For the fiscal 2024-3rd quarter, total revenue was $105.8 million compared to $157.5 million during the prior year period, a decrease of 33%, primarily due to a decrease in the number of NHP sold and an approximate 35% reduction in NHP average price in the current quarter compared to the prior year period.

Speaker Change: The pricing will be in line with what it was last quarter and probably closer to what it was again in 2022 and early 23 before all this started taking, you know, before the, before the

Speaker Change: Before the Cambodian issues started taking place in late 22.

Bob Leasure: I believe that our margins, since we have higher-cost NHPs and inventory right now for some we bought at the end of last year, we'll sell most of those out in the Q4 period. So we'll start to see some of the margin improve going into 2025, and then I think we'll see much more consistency as we start to sell off the contracts in the calendar of 2025. But, you know, I believe that the bump that we're seeing in Q4 is very encouraging, somewhat, somewhat of a whiplash almost from where we've been in the last two quarters, and so that's probably an encouraging sign.

Speaker Change: I believe that our margins, since we have higher cost NHPs and inventory right now for some we bought at the end of last year.

Speaker Change: We'll sell most all of those out in the Q4 period, so we'll start to see some of the margin improve going into 2025, and then I think we'll see much more consistency as we start to sell off the contracts in the calendar of 2025.

Beth Taylor: The Cell of the Israeli Businesses in August 2023 and Lower Safety and Discovery Services Revenue. For the nine months into June 32, 2024, Consolidated Revenue was $360.3 million down 16.5% compared to $431.7 million for the same period last year due to the decrease in NHP's sold and the Cell of the Israeli Businesses in August of 2023. DSA revenues in the 2024-3rd quarter decreased by approximately 6% to $44.2 million when compared to the prior year period of $46.8 million.

Speaker Change: But, you know, I believe that the bump that we're seeing in Q4 is very encouraging, somewhat

Speaker Change: Somewhat of a whiplash almost from where we've been in the last two quarters and so that's probably an encouraging sign.

Matthew Hewitt: That's fantastic to hear! It's been a tough slog, but it's nice to see the light at the end of the tunnel. One of your peers reported yesterday and was talking a little bit about some of the headwinds that I think they were implying the industry is facing regarding not only small pharma, and I think you spoke to this a little bit, but small and medium-sized pharma and biopharma companies kind of holding that capital tight, even if they recently raised it, but then also even large pharma being a little more focused on clinical or later stage programs versus earlier It doesn't sound like you're necessarily seeing that, given some of the commentary you made, but do you want to discuss that a little bit, what you're seeing in the market?

Speaker Change: No, that's fantastic to hear. It's been a tough slog, but it's nice to see the light at the end of the tunnel there.

Speaker Change: One of your peers reported yesterday and was talking a little bit about some of the headwinds that I think they were implying the industry is facing regarding not only small pharma, and I think you spoke to this a little bit, but small and medium-sized pharma and biopharma companies kind of.

Beth Taylor: The decrease in the DSA revenue was primarily driven by a decrease in general toxicology services due to a change in the mix of studies conducted in the 2024-3rd quarter compared to the 2023-3rd quarter and a decrease in DSA products and Discovery Services Revenue. These impacts were partially offset by increases in genetic toxicology and biotherapeutic analysis revenue in connection with our newer service lines at our Rockville facility. DSA revenues for the nine months into June 30, 2024 were $135.5 million which was slightly higher compared to the prior year period of $134.9 million.

Speaker Change: holding that capital tight, even if they recently raised, but then also even large pharma being a little more focused on clinical or later stage programs versus earlier stage.

Speaker Change: It doesn't sound like you're necessarily seeing that some of them seem given some of the commentary of me, but do you want to discuss that a little bit what you're seeing in the market?

Bob Leasure: Well, I'll remind everybody that in our DSA sales, less than 5% is to large farmers. Top Farm.

Speaker Change: Well, I remind everybody that an RDSA sales less than 5% is the large farm.

Bob Leasure: So we are, you know, we're 95, 97% of our sales are biotech. We still believe we've been able to differentiate ourselves on service, and we still are taking advantage of some of the services that we built that we're still, I think, developing and gaining some market share. So some of that, I think, has helped offset that, and I think it still has the opportunity, again, to help us in the future. And remember, if you're comparing this to other public companies in our space, we are still much smaller than they are.

Speaker Change: and the top farmer. So we are, you know, we're 95, 97% of our sales is biotech.

Speaker Change: We still believe we've been able to differentiate ourselves on service and we still are taking advantage of some of the services that we've built that we're still, I think, developing and gaining some market share.

Beth Taylor: Overall, net new DSA orders this quarter were $40.4 million versus $48.6 million in the same quarter last year. For the year-to-date period ending June 30, 2024 we've booked net new orders of $139.2 million versus $133.3 million for the nine months into June 30, 2023. The conversion rate this quarter was 31% versus 30% in the prior year. The DSA cancellations in Q3 were consistent with the prior year period and in the first nine months of fiscal 2024 they were slightly less than the same period in fiscal 2023.

Speaker Change: So some of that, I think, has helped offset that, and I think still has the opportunity to...

Speaker Change: Again to help us in the future and remember if you're comparing this to other public companies in our space

Bob Leasure: So again, we're 180, 200 million dollars in DSA business. We can move the needle a little bit more with a $20 million increase in sales. We can also lose it a little bit more if we lose that 20 million. But so far, I think that we're focusing on what we can do to make sure we gain new accounts and grow with the accounts that we have. And yes, I do think that we have seen a little bit of pricing pressure.

Speaker Change: We are still much smaller than they are. So again, we're 180, 200 million of DSA business.

Speaker Change: We can move the needle a little bit more with a $20 million increase in sales. We can also lose it a little bit more if we lose that $20 million. But so far, I think that...

Speaker Change: We're focusing on what we can do to make sure we gain new counts and grow with the counts that we have. And yes, I do think that we have seen a little bit of pricing pressure.

Beth Taylor: RMS revenue for the fiscal third quarter was down 44.4% to $61.6 million compared to $110.7 million the same quarter last year due primarily to the lower NHP related product and service revenue, mainly as a result of product volumes and pricing. In addition, there was a decrease in revenue of $3 million as a result of the sale of our Israeli businesses in August of last year. For the nine months into June 30, 2024 RMS revenue was down 24.3% to $224.8 million compared to $296.8 million in the same period last year.

Bob Leasure: And we've responded case by case where we have to, but for the most part, I think we still are. We feel we're in a pretty good position for what we see in the back half of this year, so we'll see what happens.

Speaker Change: and we've responded in case by case where we have to, but for the most part I think we still...

Speaker Change: We feel we're in a pretty good position for what we see in the back after this year, so we'll see what happens.

Matthew Hewitt: Well, that's great to hear as well. Congratulations on some of the progress that you've made here in a rather tough environment. Thank you.

Speaker Change: Well, that's great to hear as well. Congratulations on some of the progress that you've made here in a rather tough environment.

Bob Leasure: Thank you. Yeah, we're looking forward to maybe controlling our destiny a little bit more next year.

Speaker Change: Thank you. We're looking forward to maybe controlling our destiny a little bit more next year.

Operator: And once again, to our phone audience, that is star and one if you would like to ask a question. Our next question today comes from the line of Frank Takkinen at Lake Street Capital Markets.

Speaker Change: [inaudible]

Speaker Change: And once again to our phone audience, that is star and one if you would like to ask a question. Our next question today comes from the line of Frank Takkinen at Lake Street Capital Markets.

Beth Taylor: The decrease was due primarily to the negative impact of lower volumes of NHP sales, lower revenue as a result of the sale of our Israeli businesses in fiscal 2023. The remaining decrease in RMS revenue was due primarily to decreases in small animal sales and RMS services in the US, partially offset by an increase in diet embedding sales on a global basis. [inaudible] The Booktable Ratio for DSA in the third quarter was 0.94 to 1.

Operator: Hey, great. This is Nelson Cox on for Frank.

Speaker Change: Hey, great. This is Nelson Coxon for Frank. Good to hear you're starting to see some normalcy starting to return.

Nelson Cox: Good to hear you're starting to see some normalcy starting to return.

Nelson Cox: Can you kind of touch on the end customer NHP inventory a bit more? I know it's maybe hard to quantify, but how do you think about that kind of reaching a normal inventory level? Is that kind of still six months out? Is it a year out? Or is it sooner than that with the comments you've had?

Speaker Change: [inaudible]

Speaker Change: Can you kind of touch on the end customer NHP inventory a bit more? I know it's maybe hard to quantify, but how do you think about that kind of reaching a normal inventory level? Is that kind of still six months out? Is it a year out? Or is it sooner than that with kind of the comments you've made?

Bob Leasure: Well, I think there are a couple of things that impact our customers' demand. One is their inventory level, and two is what volumes they have internally. Remember, many of these are CROs that have, and some of the CROs are, you know, as you can see from the reporting, down or flat. So I think both of those things can impact us, but I believe many of them last year bought more than they needed in salt sales, less than they expected. So, as a result, I had a lot more HPs.

Speaker Change: Well I think there are a couple things that impact our customers demand. One is their inventory level. Two is what what volumes they have internally. Remember some many of these are CROs that have and some of the CROs are you know as you can see from the reporting are down or flat.

Speaker Change: So I think both of those things can impact us. But I believe many of them last year bought more than they needed in salt sales.

Speaker Change: Less than they expected.

Bob Leasure: Right now, we've got good inquiry, and a good amount of POs in-house. I think people are being a little bit more cautious, but what we also don't have very good visibility into is what all of our competitors' situations are. But right now, we feel like we're in a pretty good position, and I like two things. One, I like the current POs we have in-house. I like the momentum I see towards

Speaker Change: So the result had a lot more HPs.

Speaker Change: Right now we've got good inquiry.

Speaker Change: Good amount of P.O.s in house

Speaker Change: I think people are being a little bit more cautious, but what we also don't have very good visibility to is what all of our competitors' situation is. But right now, we feel like...

Speaker Change: We're in a pretty good position, and I like two things. One, I like the current POs we have in-house. I like the momentum I see towards our 2025 contracts. And three, I really like the fact that we're diversifying our customer base. I think at one point we had...

Bob Leasure: I really like the fact that we're diversifying our customer base. I think at one point, we had... Our customer base, we had 25, one customer represented over 25% of our business. I think right now, in this quarter, we don't have anybody over 10% of our sales, is that correct, Beth? I think we've done a really good job of also diversifying our customer base, which is helping us a little bit.

Speaker Change: Our customer base, we had 25, one customer represented over 25% of our business. I think right now in this quarter we don't have anybody over 10% of our sales. Is that correct, Beth?

Speaker Change: And so I think we've done a really good job of also diversifying our customer base, which is helping us a little bit.

Nelson Cox: That's great. And then maybe just quickly one more, can you just talk a bit more about the investments you've made in the sales force and maybe the fruits you're starting to see from that so far?

Speaker Change: That's great. And then maybe just quickly one more. Can you just talk a bit more about the investments you've made in the sales force and maybe the fruits you're starting to see from that so far?

Bob Leasure: Well, yes, I think last year we announced that about this time last year, we did not have a really early stage discovery, separate discovery sales force. And we started building that last year and really through the end of the calendar year 24 and into 2025, we were building that early stage discovery sales force to go out and try to gain some market share. And as we continue to add to our services, our scientific talent, and get our scientists also more involved in the sales process, so that...

Speaker Change: Well, yeah, so I think last year we announced that we've about this time last year we did not have a really early stage discovery.

Speaker Change: Separate Discovery Salesforce.

Speaker Change: And we started building that last year and really through the end of the calendar 24 and into 2025, we were building that early stage discovery sales force.

Speaker Change: to go out and try to gain some market share. And as we continue, again, to add to our services, our scientific talent, and get our scientists also more involved in the sale process. So that...

Bob Leasure: It doesn't happen overnight, as we're developing relationships, but I think we're starting to see some of that, the fruits of our labor there. Again, in the DSA business, we continue to look for ways to improve the way that we approach the market and how to grow our customer base, and we have to balance that in line with our ability to add capacity, hire people, and improve our equipment, and our facilities, and brick and mortar, and make sure that we can provide a great customer experience.

Speaker Change: You know, it doesn't happen overnight.

Speaker Change: As we're developing relationships

Speaker Change: But I think we're starting to see some of that, the fruits of our labor there.

Speaker Change: Again, in the DSA business, we continue to look for ways to improve the way that we approach the market and how to grow our customer base, and we have to balance that in line with our ability to add capacity, hire people, and our equipment, and brick and mortar, and making sure that we can provide a great customer experience.

Bob Leasure: So this goes hand in hand with really building our operations. What we don't want to do is acquire a customer and then not deliver. So we've been focusing on, again, our operations, our metrics, our systems to make sure we can deliver that client experience, and we feel comfortable. Then we go out and try to grow. So to date, I think that some of the growth that we've had this year is not showing up because of some of the decrease in pricing, and a lot of the decrease in pricing, by the way, is in the NHP market because a lot of those are past due costs. And obviously, with the NHP costs being down, we're not passing that on as aggressively.

Speaker Change: Um...

Speaker Change: So we this goes hand in hand with really building our operations, what we don't want to do is acquire a customer and then

Speaker Change: Not delivered.

Speaker Change: So, we've been focusing on, again, our operations, our metrics, our systems to make sure we can deliver that client experience and we feel comfortable, then we go out and try to grow.

Speaker Change: So today, I think that some of the growth that we've had this year is not showing up because of some of the decrease in pricing, and a lot of the decrease in pricing, by the way, is in the NXP market, because a lot of those.

Speaker Change: are past due costs. We obviously, with the NHP costs being down, we're not passing that on as aggressive. So, but I think that we still have the opportunity to continue to grow. I think we have a great team, a great group of scientists.

Bob Leasure: But I think that we still have the opportunity to continue to grow. I think we have a great team, a great group of scientists who believe in our team, and we'll look forward to seeing what we can do in 2025.

Beth Taylor: Our nine-month year-to-date fiscal 2024 Booktable was 1.06 to 1, and our trailing 12-month net Booktable was 0.95 to 1. Year-to-date June 30, 2024, we booked net new orders of $139.2 million versus $133.3 million for the nine months into June 30, 2023. The DSA cancellations in the third quarter were consistent with the prior year period, and year-to-date for the last nine months were slightly less than the same period in the prior year.

Speaker Change: Believe in our team, and we'll look forward to seeing what we can do in 2025.

Nelson Cox: Great. Thanks, guys. I appreciate it.

Speaker Change: Great, thanks guys for shit, appreciate it

Operator: Our next question today will come from the line of Dave Windley at Jefferies.

Speaker Change: Our next question today will come from the line of Dave Windley at Jefferies. Let's try this again. Can you hear me this time?

Dave Windley: Let's try this again. Can you hear me this time?

Operator: Sure. Okay, fantastic. Glad to hear it.

Dave Windley: Sure. Okay, fantastic. Glad to hear it. I want to pick up on Frank's question there on the, on your answer, Bob, on the NHP business. So, if I understood what you were getting at was... ...

Dave Windley: I want to pick up on Frank's question there on your answer, Bob, on the NHP business. So if I understood what you were getting at was I think what you were saying is the DSA price compression was attributable to NHP pricing coming down to the extent that that passes through the study price. I was under the impression that your DSA business didn't do a lot of NHP testing, so maybe give us a sense of that mix. And, you know, is that shifting? And is your kind of improving stability of NHP supply influencing your ability to do more NHP study work?

Beth Taylor: DSA Back-Walk was $139.4 million at June 30, 2024 compared to $149.1 million at June 30, 2023. In our RMS segment, non-GAP operating income in the third quarter of fiscal 2024 was $6.5 million or 10.6% of segment revenues compared to $35 million or 31.6% of segment revenues in last year's period. The lower non-GAP operating income in Q3 fiscal year 2024 was primarily the result of a decrease in NHB sales and margins in the sale of our Israeli businesses in August of last year, and that was partially offset by favorable cost reductions related to legal and third-party fees, remediation costs, impairment charges, severance, and a decrease in our provision for expected credit losses and restructuring costs.

Dave Windley: I was under the impression that your DSA business didn't do a lot of NHP testing so maybe give us a sense of that mix.

Speaker Change: and, you know, is that shifting and is, you know, your kind of improving stability of NHP supply, influencing your ability to do more NHP study work.

Bob Leasure: We do NHP toxicology safety assessment studies, and that business has stayed for us at a very high level of occupancy, maximizing our occupancy for the last..., two or three years. We've seen good demand. Every once in a while, we may see a difference in revenue because of the mix in some of the projects or because of some of the NHP pricing, but we've seen that the safety assessment business stay fairly consistent and fairly busy for us.

Speaker Change: We do NHP toxicology safety assessment studies.

Speaker Change: Um...

Speaker Change: And that business has stayed for us at a very high level of occupancy, maximizing our occupancy for the last two or three years.

Beth Taylor: Interest expense in Q3 of 2024 increased to $12.1 million up from $10.8 million in the last year's third quarter due to higher interest rates. Our balance sheet as of June 30, 2024 included $14.4 million in cash and cash equivalents as compared to $35.5 million on September 30, 2023. Total set net of debt issuance costs as of June 30, 2024 was $382.4 million relatively consistent with the $377.7 million as September 30, 2023.

Speaker Change: So we've seen good demand every once-while, we may see a difference in revenue because of mix.

Speaker Change: and some of the projects, or because of some of the NHP pricing, but we've seen that safety assessment of business stay very fairly consistent and fairly busy for us. It's...

Bob Leasure: We probably used about 10% of our NHPs historically for our own internal use. So, we're not near as big as our competitors in that business, but we are in the safety assessment business and do large animal safety assessments. Right. Okay.

Speaker Change: We probably used about 10% of our HPs historically for our own internal use.

Speaker Change: So we're not near as big as our competitors.

Speaker Change: and that business, but we are in the safety assessment of business and do large animal safety assessment. Okay. That's helpful. I appreciate that. On the long-term contracts, can you give us a sense of...

Dave Windley: Right, okay. Okay, that's helpful. I appreciate that. On the long-term contracts, can you give us a sense of... say how many customers, what percentage of your RMS revenue, roughly, that these long-term contracts might engage in cover?

Beth Taylor: This includes $115.3 million dollars of our convertible notes as of June 30, 2024. Net cash used by operations for the nine months into June 30, 2024 was $4.4 million compared to cash provided by operations of $9.1 million in the same period last year. Cash provided by operations for the trailing 12 months was $14.3 million. During the quarter ending June 30, 2024, the cash used in operations included $6.5 million paid under the settlement with the DOJ for the investigation related to the convertible and facility that we closed in 2022.

Speaker Change: You know, say how many customers, what percentage of your RMS revenue roughly that these long-term contracts?

Speaker Change: Might engage in cover.

Bob Leasure: It's anywhere, it's probably going to be anywhere between one year and five years. And some of these involve boarding and investments, so that we've made, or they will be making, deposits, and so many of them are longer term in nature.

Speaker Change: and anywhere, it's probably going to be anywhere between one year and five years.

Speaker Change: and...

Speaker Change: Some of these involve boarding and investments that we've made, or they will be making, and deposits, and so many of them are longer term in nature.

Dave Windley: Okay, but in terms of like, I was thinking about your NHP customer base. Is it one or two customers that are willing to enter into these long-term contracts? Is it 10 or 20 customers that are there... and then when you think... It's more than two, but I don't know that we have... There aren't really 20 repeat customers out there. I think we're talking, you know, in more than the range of a half dozen to a dozen. That would make up, you know, 80% of our sales.

Beth Taylor: As of June 30, 2024, we were not in compliance with the financial covenants under our credit agreement. However, we received a waiver from our First. Capital expenditures in the third quarter were $4.4 million or $4.2% of total revenue. For the nine months ended June 30, 2024, capital expenditures were $17 million or $4.7% of total revenue as compared to $21.3 million or $4.9% for the year-to-date period for 2023. The capital expenditures reflect investments in facility improvements, site expansions, enhancements to laboratory technology, improvements for animal welfare and system enhancements to improve the client experience.

Speaker Change: Okay, but in terms of like...

Speaker Change: I was thinking about your NHP customer base. Is this one or two customers that are willing to enter into these long-term contracts? Is it 10 or 20 customers that are, and then when you think...

Speaker Change: It's more than two, you know, but I don't know that we have.

Speaker Change: There aren't really 20 reoccurring buyers out there. I think we're talking in more than the range of a half dozen to a dozen that would make up 80% of our buyers.

Bob Leasure: But I do think we will see, I do think we will see, you know, and a significant portion of our sales committed to long-term contracts. We will also have spot market sales and others that we're selling, but we'll have over 50%, probably over 75% be in long-term contracts and look forward to the recurring revenue.

Speaker Change: 80% of our sales.

Speaker Change: but I've got it, you think we will see, I do think we will see, you know.

Speaker Change: We have a significant portion of our sales committed to long-term contracts. We'll also have spot market sales and others that we're selling, but we'll have over 50%, probably over 75% be in long-term contracts.

Beth Taylor: In terms of our capital improvements and site optimization plans, I am pleased to report that we have completed many of the investments and initiatives started in mid-calendar year 2022. We expect these investments will be reduced further in the next two quarters and until we see a further recovery in revenue.

Dave Windley: Sure. And for clarification... Sorry, go ahead. Sorry.

Speaker Change: Contracts and look forward to the reoccurring revenue. And for clarity, sorry, I've said the best, we will give up some margin dollars to have reoccurring consistent revenue.

Bob Leasure: As I've said in the past, we will give up some margin dollars to have recurring...

Beth Taylor: Let's now turn to our guidance. We withdrew financial guidance last quarter for fiscal 2024. We expect to provide guidance for fiscal 2025 once we have greater clarity on the market and customer demand.

Dave Windley: And just for clarity, 80% of your NHP sales, is that right? Not total RMS sales, but NHP sales.

Speaker Change: Got it. And just for clarity, 80% of your NHP sales, is that right? Not total RMS sales, but NHP sales. That is correct. Okay. And then...

Bob Leasure: That is correct. Okay. And then, in terms of, um... There's an ethical...

Operator: And with that financial overview, we will turn the call over to our operator for your question.

Speaker Change: in terms of...

Dave Windley: That's a goal, Dave. We're not there yet, but that's a goal.

Mark: Mark, there's an episode.

Dave Windley: That's a goal, Dave. We're not there yet, but that's a goal.

Operator: Thank you. And to our phone audience joining today, if you would like to ask a question at this time, simply press star and one on your telephone keypad. Pressing star and one will place your line into a queue and we'll take your questions one at a time. Once again, ladies and gentlemen, that is star and one.

Bob Leasure: In terms of cost structure, you've done quite a bit of side consolidation. You've talked, you know, for at least a couple of quarters about your transportation, in-housing your transportation and streamlining that. Are there other targets that you have in mind for, you know, potential efficiency or cost takeout?

Speaker Change: Understood.

Speaker Change: Um...

Speaker Change: In terms of cost structure, you've done quite a bit of site consolidation, you've talked for at least a couple of quarters about your transportation, in-housing your transportation and streamlining that.

Operator: If you would like to ask a question, we'll hear first from Matt Hewitt at Craig Hallum. Or, sir, actually, we have a problem with the conference, the Q&A, please re-signal with star and one, sir.

Speaker Change: Are there other targets that you have in mind for potential efficiency or cost takeout?

Dave Windley: No, not at this point. We have been focused on this since 2022, and in order to close sites and optimize sites, it costs us money. We've made large investments to get there too. But I think that we have accomplished a lot of the major brick and mortar changes we need to make. I think that we will see more of those benefits come out this quarter and the next quarter because some of them are still coming to fruition. But we don't have any where I'm going to tell you that we have the ability to make a 20-30 million dollar cost improvement.

Speaker Change: No, not at this point. We have been focused on this since 2022 and in order to close sites and optimize sites, it costs us money. We've made large investments to get there too.

David Windley: Dave Windley at Jeffries, your line is open. Please go ahead. All right.

Speaker Change: But I think that we have accomplished a lot of the major brick-and-mortar changes we need to make.

Speaker Change: I think we will see more of those benefits come out this quarter and in the next quarter because some of them are still coming to fruition, but we don't have any where I'm going to tell you that we have the ability to make a $20-$30 million cost improvement.

Matthew Hewitt: Mr. Hewitt, is your line open, sir? Can you hear us? I can hear you fine, apparently he couldn't hear me. Please go ahead. All right. A lot to unpack there, obviously, but it sounds like you're starting to see some signs of progress. Maybe first up regarding the AHP business. One, it's great to hear that the Florida DOJ situation is resolved and I'm just curious, what does that mean from a legal expense standpoint?

Bob Leasure: Got it. Okay.

Speaker Change: Got it, okay. Maybe the last question is for Beth. Beth, you and your comments talked about you'll provide guidance FY 25, I believe you said guidance

Matthew Hewitt: That goes down, goes away. And I guess in general, it sounds like your legal expenses are going to drop pretty dramatically. Is that fair? That's you want to address that what we've spent so far in legal expenses? And yes, I hope it would begin to see this significantly reduced. Yeah. In regards to this particular matter, we hadn't received a subpoena since I believe June of 2021. But we were incurring some expenses in obviously monitoring the situation.

Beth Taylor: Maybe, maybe the last question is for Beth. Beth, you and your comments talked about you'll provide guidance for FY 25. I believe you said guidance. At a later date, when you have more visibility, are we to interpret that as... at the normal time for FY 25, which I assume would be on your fourth quarter call for 24, or could it actually be further into FY 25, you know, in air quotes, as you get greater visibility?

Matthew Hewitt: So between that and the legal expenses for the Converland matter, I mean, we should see expenses, legal expenses come down for those matters, by about, probably about two to three million a quarter. That's right. Can you tell me how much we spent over that on those cases in the last two years? Yes, on the one camera line case, in the last two years to address the legal inquiries and the closure of the site, we have spent, yeah, and before the settlement it was approximately 21 million. Well, all right. Well, it's great to have that behind you, finally. And it sounds like you're starting to see some signs of recovery.

Speaker Change: At a later date, when you have more visibility, are we to interpret that as

Speaker Change: At the normal time for FY-25, which I assume would be on your fourth quarter call for 24, or could it actually be further into FY-25, you know, in air quotes as you get greater visibility?

Beth Taylor: Well, we will certainly focus on and try to provide some guidance as early as we can. So we'll have to see where we are with primarily the NHP contracts, because that's going to provide us really some more stable guidance going forward. So if we can certainly do that on our next quarterly call, we can, but we'll just... We'll have to take take that as soon as the contracts are finalized. Okay. All right.

Speaker Change: But we will...

Speaker Change: certainly, you know, focus and try to provide some guidance as early as we can. So we'll have to see where we are with the primarily the NHP contracts.

Speaker Change: Because that's going to provide us, you know, really some more stable guidance going forward. So, if we can certainly do it on our next quarterly call, we can, but we'll just...

Speaker Change: We'll have to take that as.

Dave Windley: Okay. All right. Great. Thank you.

Speaker Change: and the contracts are finalized. Okay, all right, great. Thank you.

Operator: We'll hear next from the line of Eric Caldwell at Baird. Please go ahead.

Speaker Change: Well, here next from the line of Eric Culldwell at Beard. Please go ahead. Thanks. Good afternoon. I have a few around TechLab.

Eric Caldwell: Thanks, Good afternoon. I have a few questions around TechLAD and I was hoping, sorry, I'm not as familiar with all of the inputs as some of the some of the earlier guys on the call here, but can you remind me the growth that you quoted this quarter and then whether or not that was against an easier comparison last year, so it's a recovery, or is it really an acceleration off of a stabler performance in the diet and betting business last year?

Eric Culldwell: I was hoping, I'm sorry, I'm not as familiar with all of the inputs as some of the earlier guys on the call here.

Eric Culldwell: Can you remind me the growth that you quoted this quarter, and then whether or not that was against an easier comparison last year, so it's a recovery, or is it really an acceleration off of a stabler performance in the diet and bedding business last year?

Bob Leasure: I don't know, the growth that we're seeing and Our dive business has been pretty consistent growth we started seeing two years ago. And we're seeing growth in volume and in pricing. And I've been very pleased with that. So that was a business that, as we look at our segments, that it's probably seen a pretty significant turnaround in its profitability, some of that because we're using up a higher level capacity, some of that because we're doing much better in transportation, some because we're doing much better in buying the commodities, and some because we're gaining market share, we're picking up new customers, and we're doing a great job of delivering a quality product.

Speaker Change: I don't know the growth that we are seeing and our dive business has been pretty consistent growth and we started seeing two years ago.

Robert Leasure: Do you expect that with Q4, we start to see the signs that that's improving, or is it really 25 with the contracts in place, the kind of the pricing reset, both on the sales side as well as on the cost side, I'm just trying to triangulate when that really starts to impact the numbers. We're going to see obviously an improvement in Q4. We're going to sell potentially 120, 130 percent more NHPs in Q4 than we did Q3.

Speaker Change: and we're seeing growth in volume and in pricing.

Speaker Change: and been very pleased with that. So that was the business that...

Speaker Change: as we look at our segments that it's probably seen a pretty significant turnaround.

Speaker Change: And what...

Prof. Daley: and Prof. Daley.

Prof. Daley: Some of that because we're using up a higher level of capacity, some of that because we're doing much better in transportation, some because we're doing much better in buying the commodities, and some because we're gaining market share, we're picking up new customers and we're doing a great job of delivering a quality product.

Bob Leasure: So, I don't know what the future holds, but I think that we've had consistent growth since we were involved in business since 2022. And I, so I don't think we've ever had a down year in it. But again, I've only been in the business for two and a half years now.

Robert Leasure: As a matter of fact, I think we'll probably sell, potentially sell 20 percent more than we did Q4 last year. So this will be one of the first quarter of recorder improvements we have seen in several quarters. The pricing will be in line with what it was last quarter and probably closer what it was again in 2022 and early 23 before all this started taking, you know, before the, before the Cambodian issue started taking place in late 22.

Prof. Daley: So...

Speaker Change: I don't know what that, you know, I think that we've had consistent growth since we've been involved in business since 2022 and so I don't think we've ever had a down year, but again I've only been in the business two and a half years now.

Eric Caldwell: I think what I'm trying to get to, Bob, is whether there's more to learn about the global model market as opposed to your company outperforming on a number of fronts. And you mentioned some of these items, which included, you know, better transport, gaining share, better buying, and pricing. I'm not sure how much it really tells us about the broader market. I have to admit, I was sort of hoping you'd say, no, no, the overall animal research models market's growing faster.

Speaker Change: I think what I'm trying to get to, Bob, is whether there's more to learn about the global model market as opposed to

Robert Leasure: I believe that our margins, since we have higher cost NHPs in inventory right now, for some we bought the end of last year, we'll sell most of those out in the Q4 period. So we'll start to see some of the margin improve going into 2025. And then I think we'll see much more consistency as we start to sell off the contracts in 2000 and calendar 2025. But, you know, I believe that the bump that we're seeing in Q4 is very encouraging somewhat of a whiplash almost from where we've been in the last two quarters. And so that's probably an encouraging sign. You know, that's fantastic to hear.

Bob: Uh, your company.

Speaker Change: outperforming on a number of fronts and you mentioned some of these items which included you know better transport, gaining share, better buying

Speaker Change: Pracing it.

Speaker Change: I'm not sure how much it really tells us about the broader market, I have to admit I was sort of hoping you'd say, no, no, the, the, the overall animal research models markets growing faster. And maybe that's a part of it at some level, which maybe seems a bit hard to.

Eric Caldwell: And maybe that's a part of it at some level, which maybe seems a bit hard to digest after some of the updates we've seen recently from your peers. But I was hoping maybe you could give us a better sense of, you know, whether there were certain geographies, animal models, and diets for certain animal models that maybe were standing out in terms of demand.

Speaker Change: to digest after some of the updates we've seen recently from from your peers, but I was hoping maybe you could give us a better sense on, you know, whether there were certain geographies, animal models, diets for certain animal models that maybe were standing out in terms of demand? Well, I see what you're asking.

Bob Leasure: Well, I see what you're asking. I will say that our diabetes growth, I believe, is outpacing what we're seeing in small animals and is outpacing what we're seeing in large animals. And so I think we're picking up market share. But I don't think we're seeing growth because the market is growing. That's where I was trying to go, yeah, pretty much. No, I've been, you know, we look at a lot of metrics, our speed quoting, our percent we deliver on time, our customer complaints.

Speaker Change: I will say that our style of Beth's growth I believe is outpacing what we're seeing in small animals and outpacing what we're seeing in large animals.

Matthew Hewitt: It's been a tough slog, but it's nice to see the light at the end of the tunnel there.

Robert Leasure: One of your peers reported yesterday and was talking a little bit about some of the headwinds that I think they were implying the industry is facing regarding not only small pharma, and I think you spoke to this a little bit, but small and medium-sized pharma and bioparma companies kind of holding that capital tight, even if they recently raised. But then also even large pharma being a little more focused on clinical or later stage programs versus earlier stage.

Speaker Change: So I think we're picking up market share, I don't think we're seeing it the growth because the market is growing.

Speaker Change: That's...

Speaker Change: That's where I was trying to go, yeah, pretty much. No, I've been, you know, if we look, we look at a lot of metrics.

Speaker Change: Our speed quoting, our percent we deliver on time, our customer complaints, a lot of things related to transportation.

Robert Leasure: It doesn't sound like you're necessarily seeing that, given some of the commentary you made, but do you want to discuss that a little bit what you're seeing in the market? Well, I'll remind everybody that in our DSA sales, less than 5% is to large farm and to the top farmer. So we are, you know, we're 95, 97% of our sales is biotech. We still believe we've been able to differentiate ourselves on service and we still are taking advantage of some of the services that we've built that we're still, I think, developing and gaining some market share.

Eric Caldwell: We're all related, a lot of things related to transportation. All those metrics, customer service metrics we're looking at in our delivery, are all really seeing a lot of improvements in the last two years. And I think we're just doing a much better job of delivering. I think our customers are pleased, and I think that's why we're getting more work.

Speaker Change: and Delivery, all those metrics.

Speaker Change: Customer service metrics we're looking at and our delivery and and all all Really seeing a lot of improvements in the last two years And I think we're just doing a much better job of delivering I think our customers are pleased And I think that's why we're getting more work

Bob Leasure: That's exceptionally helpful. And then I'm not sure what level of transparency you're providing on the number of NHPs. We've heard all the growth and the recovery and demand here in the next couple of quarters, but are you sharing any numbers on actual volume? In terms of, we've never actually shared volume, I can't tell you that, you know, we were, in terms of our volume, you know, again, Beth, we were down this quarter, volume prices were down, and our volume was down another 30% from last quarter, which we thought was low.

Speaker Change: That's exceptionally helpful. And then I'm not sure what level of transparency you're providing on the number of NHPs. We've heard all the growth in the recovery and demand here in the next couple of quarters. Are you sharing any numbers on actual volume?

Robert Leasure: So some of that, I think, has helped offset that and I think still has the opportunity to, again, to help us in the future. And remember, if you're comparing yourself to public companies in our space, we are, we are still much smaller than they are. So, again, we're 182 million of DSA business. We can move the need a little bit more with a $20 million increase in sales. We can also lose it a little bit more if we lose that $20 million.

Speaker Change: and in terms of, we've never actually shared volume. I can't say that, you know, we were in terms of...

Robert Leasure: But so far, I think that we're focusing on what we can do to make sure we gain new accounts and grow with accounts that we have. And yes, I do think that we have seen a little bit of pricing pressure and that we've responded in case by case where we have to. But for the most part, I think we still, we feel we're in a pretty good position for what we see in the back half of this year.

Speaker Change: In terms of our volume, you know, again, Beth, we were down, this quarter volume prices was down and our volume was down another 30% from last quarter which we thought was low.

Eric Caldwell: But we now think that our volume, we could see next quarter up 120, 130% from this quarter in terms of volume alone. And we think it could be literally another 15, 20% more than we saw even a quarter a year ago. And that's, as I said, that would be the first quarterly increase that we have seen in quite some time now. Any questions? Is that a macro?

Beth Taylor: Um, yeah.

Speaker Change: But we now think that our volume, we can see next quarter up 120-130% from this quarter in terms of volume alone.

Speaker Change: and we think it could be nearly another 15-20 percent more than we saw even a quarter of a year ago.

Robert Leasure: So we'll see what happens. Well, that's great to hear as well. Congratulations on some of the progress that you've made here in a rather tough environment. Thank you.

Speaker Change: And that's, as I said, that'd be the first quarter-over-quarter increase that we have seen in quite a while. Now, I know your question is, is that a macro? Well...

Bob Leasure: I think one, we are seeing some customers that need some inventory, and two, what we can't see is what other competitors have in terms of their inventory and what the general market is. Are we picking up market share because of the volatile market, maybe some inventory, other people are out of inventory? Some of those are good questions we don't have the answer to, but I know that we are seeing a... a nice increase, and we're seeing a good response to our desire to work with us in 2025.

Speaker Change: I think one, we are seeing some customers that need some inventory and too, what we can't see is what other competitors have in terms of their inventory and what that general market is. Are we picking up market share because of their, because the volatility market may be some inventory.

Robert Leasure: Yes, we're looking forward to maybe controlling our destiny a little bit more next year.

Frank Takkinen: And once again, to our phone audience, that is star and one, if you would like to ask a question, our next question today comes from the line of Frank Takenin at Lake Street Capital Markets.

Speaker Change: Other people are out of inventory. Some of those are good questions. We don't have the answer to, but I know that we're, you know, we're seeing a, a nice increase and we're seeing good response to our desire to work with us in 2025.

Nelson Cox: Hey, great. This is Nelson Cox on for Frank. Good to hear.

Robert Leasure: You're starting to see some normalcy starting to return. Can you kind of touch on the end customer NHP inventory a bit more? I know it's maybe hard to quantify, but how do you think about that kind of reaching a normal inventory level and is that kind of still six months out as a year out or as sooner than that was kind of the comments you've made? I think there are a couple of things that impact our customers demand.

Eric Caldwell: That's a good update. Thank you very much for that.

Speaker Change: That's a good update. Thank you very much for that.

Operator: And that is all the time we have for questions today. Mr. Leasure, I'm happy to turn it back to you, sir, for any additional or closing remarks.

Speaker Change: And that is all the time we have for questions today. Mr. Leasure, I'm happy to turn it back to you, sir, for any additional or closing remarks.

Bob Leasure: Yeah, thank you everyone for joining the call today, and I think our restructurings and integration, reorganization, and new customer contracts are providing us the ability to address some of the past industry and economic challenges. We're also pleased to see the conclusion of certain government investigations.

Mr. Leasure: Yeah, thank you everyone for joining the call today, and I think our restructurings and integration, reorganization, new customer contracts are providing us the ability to address some of the past industry and economic challenges.

Robert Leasure: One is their inventory level. Two is what volumes they have internally. Remember, many of these are CROs that have, and some so I think both of those things can't back us, but I believe many of them last year bought more than they needed and saw sales less than they expected. So as a result, had had a lot more NHPs. Right now we've got good inquiry, good amount of POs in house. I think people are being a little bit more cautious, but what we also don't have very good visibility, too, is what all of our competitor situation is.

Speaker Change: We're also pleased to see the conclusion of certain government investigations.

Bob Leasure: It's now critical that we do not compare ourselves to where we have come from but remain focused on where we need to go from here. I want to close today by really reiterating our confidence in the future of our industry, our company, and the investments we've made to position ourselves for the future. We'll continue building ourselves as a high-touch, flexible provider that is really attractive to our customers, who appreciate the personal service and attention to detail they can get from Inotiv.

Speaker Change: It's now critical that we do not compare ourselves to where we have come from, but remain focused on where we need to go to from here.

Speaker Change: I want to close today by really reiterating our confidence in the future of our industry, our company, and the investments we've made to position ourselves for the future.

Speaker Change: will continue building ourselves as a high-tech, flexible provider is really attractive to our customers who appreciate the personal service and attention to detail they can get from inactive.

Bob Leasure: Our metrics related to customer service, quality, and delivery are continuing to improve. We continue to get better every day in all aspects of our business, and our industry, and believe our best days are ahead. Thank you for your time today.

Speaker Change: Our metrics related to the customer service quality and delivery are continuing to brew and we continue to get better every day in all aspects of our business. We're still very young company.

Robert Leasure: Right now we feel like we're in a pretty good position and I like two things. One, I like the current POs we have in house. I like the momentum I see towards our 2025 contracts. And three, I really like the fact that we're diversifying our customer base. I think at one point we had Our customer base, we had 25, what one customer represented over 25% of our business? I think right now in this quarter we don't have anybody over 10% of our sales. Is that correct, Beth? Make sure I say that right. Yeah, that's correct. And so I think we've done a really good job of also diversifying our customer base, which is helping us a little bit.

Speaker Change: and our industry and believe our best days are ahead. Thank you for your time today.

Operator: Ladies and gentlemen, this does conclude today's teleconference, and we thank you for your participation. You may now disconnect your lines.

unknown: Everything I Realize Was The Blessing Of A Lover BF-WATCH TV 2021

Speaker Change: Thank you very much.

Speaker Change: [inaudible] who's the one who's the one who's

Robert Leasure: That's great. And then maybe just quickly one more. Can you just talk a bit more about the investments you've made in the sales force and maybe the fruits you're starting to see from that so far? Well, yes. I think last year we announced that we've about this time last year we did not have a really early stage discovery, separate discovery sales force. And we started building that last year and really through the end of the calendar 24 and into 2005, we were building that early stage discovery sales force to go out and try to gain some market share.

Robert Leasure: And as we continue to add to our services, our scientific talent and getting our scientists also more involved in the sale process. So that doesn't happen overnight as we're developing relationships, but I think we're starting to see some of that, the fruits of our labor there. Again, in the DSA business, we continue to look for ways to improve the way that we approach the market and how to grow our customer base.

Robert Leasure: And we have to balance that in line with our ability to add capacity, higher people and in our equipment and brick and mortar and making sure that we can provide a great customer experience. So this goes hand in hand with really building our operations. What we don't want to do is acquire a customer and then not deliver. So we've been focusing on, again, our operations, our metrics, our systems to make sure we can deliver that client experience.

Robert Leasure: And we feel comfortable. Then we go out and try to grow. So today, I think that some of the growth that we've had this year is not showing up because of some of the decrease in pricing. And a lot of the decrease in pricing, by the way, is in the NHP market because a lot of those are past due costs. And we obviously, with the NHP costs being down, we're not passing that on as aggressive. So, but I think that we still have the opportunity to continue to grow. I think we have a great team, a great group of scientists, believe in our team.

Robert Leasure: And we'll look forward to seeing what we can do in 2025.

Robert Leasure: Great.

Robert Leasure: Thanks, guys.

Robert Leasure: Appreciate it.

David Windley: Our next question today will come from the line of Dave Wendley at Jeffries.

David Windley: Let's try this again. Can you hear me this time? Sure. Okay. Fantastic. Glad to hear it. I want to pick up on Frank's question there on the on and your answer Bob on the NHP business. So if I understood what you were getting that was. I think what you were saying is the DSA price compression was attributable to NHP pricing coming down to the extent that that passes through the study price.

Robert Leasure: I was under the impression that your DSA business didn't do a lot of NHP testing, so maybe give us a sense of that mix and is that shifting and is your kind of improving stability of NHP supply influencing your ability to do more NHP study work? We do NHP toxicology safety assessment studies, and that business has stayed for us at a very high level of occupancy, maximizing out our occupancy for the last two or three years.

Robert Leasure: So we've seen good demand every once well. We may see a difference in revenue because of mix and some of the projects or because of some of the NHP pricing, but we've seen that safety assessment business stay fairly consistent and fairly busy for us. We've probably used about 10% of our NHP's historically for our own internal use. So we're not near as big as our competitors, and in that business, but we are in the safety assessment business and do large animal safety assessment. Right. Okay. That's helpful. I appreciate that.

Robert Leasure: On the long-term contracts, can you give us a sense of how many customers, what percentage of your RMS revenue, roughly, that these long-term contracts might engage and cover? It's anywhere, it's probably going to be anywhere between one year and five years, and some of these involve boarding and investments so that we've made, or they will be making, and deposits, and so many of them are longer-term in nature. Okay. But in terms of like, just thinking about your your your NHP customer basis, this one or two customers that are willing to enter into these long-term contracts, is it 10 or 20 customers that are and then when you think it's more than two, but I don't know that we have, there aren't really 20 reoccurring buyers out there.

Robert Leasure: I think we're talking of, you know, in more than range of a half dozen to a dozen that would it would make up, you know, 80% of our, 80% of our sales. Got it. But I've got it. I do think we will see, I do think we will see, you know, a significant portion of our sales committed to long-term, committed to long-term contracts. We will also have spot market sales and others that we're selling, but we'll have over 50% probably over 75% be in long-term contracts and look for that, look forward to the reoccurring revenue. Sure.

Robert Leasure: And for clarity, sorry, go ahead. I've said in the past, we will give up some margin dollars to have reoccurring consistent revenue. Newt. Got it.

Robert Leasure: And that just for clarity, 80% of your NHP sales. Is that right? Yeah. Total RMS sales, but NHP sales. That is correct. Okay.

Robert Leasure: And then in terms of that's a goal, they were not there yet, but that understood. Understood.

Robert Leasure: In terms of cost structure, you've done some quite a bit of side consolidation. You've talked at least a couple of quarters about your transportation, in-housing, your transportation, and streamlining that. Are there other targets that you have in mind for potential efficiency or cost takeout? No, not at this point. We have been focused on this since 2022, and in order to close sites and optimize sites, it costs us money. We've made large investments to get there too.

Robert Leasure: But I think that we have accomplished a lot of the major brick and mortar changes we need to make. I think that we will see more of those benefits come out this quarter and the next quarter, because some of them are still coming to fruition. But we don't have any where I'm going to tell you that we have the ability to make a $20, $30 million cost improvement. Got it. Okay.

Beth Taylor: Maybe the last question is for Beth. Beth, you and your comments talked about, you'll provide guidance FY25. I believe you said guidance at a later date when you have more visibility.

Beth Taylor: Are we to interpret that as at the normal time for FY25, which I assume would be on your fourth quarter call for 24, or could it actually be further into FY25, you know, in their quotes as you get greater visibility? Well, we will certainly focus and try to provide some guidance as early as we can. So we'll have to see where we are with primarily the NHP contracts, because that's going to provide us really some more stable guidance going forward. So if we can certainly do it on our next quarterly call, we can, but we'll just, we'll have to take that as the contracts are finalized. Okay. All right. Great. Thank you.

Eric Coldwell: We'll hear next from the line of Eric Caldwell at Baird. Please go ahead. Thanks. Good afternoon.

Robert Leasure: I have a, I have a few around tech lad and I was hoping I'm sorry, I'm not as familiar with all of the inputs of some of the, some of the earlier guys on the call here, but can you remind me the growth that you quoted this quarter and then whether or not that was against an easier comparison last year or so it's a recovery or is it really an acceleration off of a stable or performance in the diet and betting business last year? I don't know.

Robert Leasure: The growth that we're seeing and our diet business has been pretty consistent growth and we started seeing two years ago. And we're seeing growth in volume and in pricing, and been very pleased with that. So that was a business that, as we look at our segments, it's probably seen a pretty significant turnaround, and it's profitability, some of that because we're using up a higher level capacity, some of that because we're doing much better in transportation, some because we're doing much better in buying the commodities, and some because we're gaining market share, we're picking up new customers and we're doing a great job of delivering a quality product.

Robert Leasure: So I don't know what that, you know, I think that we've had consistent growth since we've been involved in business since 2022, and so I don't think we've ever had a down year, but again, I've only been in the business two and a half years now.

Robert Leasure: I think what I'm trying to get to, Bob, is whether there's more to learn about the global model market as opposed to your company outperforming on a number of fronts, and you mentioned some of these items, which included, you know, better transport, gaining share, better buying, pricing, that I'm not sure how much it really tells us about the broader market. I have to admit, I was sort of hoping to say no, no, the overall animal research models markets growing faster, and maybe that's a part of it at some level, which maybe seems a bit hard to digest after some of the updates we've seen recently from your peers, but I was hoping maybe you could give us a better sense on whether there were certain geographies, animal models, diets for certain animal models that maybe were standing out in terms of demand.

Robert Leasure: Well, I see what you're asking. I will say that our diet growth, I believe, is outpacing what we're seeing in small animals, and outpacing what we're seeing in large animals. So I think we're picking up market share. I don't think we're seeing the growth because the market is growing. That's where I was trying to go. Yeah, yeah, much. Now, if we look at a lot of metrics, our speed-quoting, our percent we deliver on time, our customer complaints, we're all related, a lot of things related to transportation, and delivery.

Robert Leasure: All those metrics, customer service metrics, we're looking at, and our delivery and all really seeing a lot of improvements in the last two years. And I think we're just doing a much better job of delivering. I think our customers are pleased, and I think that's why we're getting more work.

Robert Leasure: That's exceptionally helpful. And then I'm not sure what level of transparency you're providing on the number of NHPs. We've heard all the growth and the recovery and demand here in the next couple of quarters, but are you sharing any numbers on actual volume? In terms of, we've never actually shared volume. I can't tell you that in terms of In terms of our volume, you know, again, Beth, look, we were down, this quarter volume, prices was down, and our volume was down, another 30% from last quarter, which we thought was low.

Robert Leasure: But we now think that our volume, we can see next quarter up 120, 130% from this quarter in terms of volume alone. And we think it could be literally another 15, 20% more than we saw even a quarter a year ago. And that's, as I said, that'd be the first quarter of a quarter increase that we have seen in quite a while.

Robert Leasure: Now, any questions? Is that a macro? Well, I think one, we are seeing some customers that need some inventory. And two, what we can't see is what other competitors have in terms of inventory, and what that general market is. Are we picking up market share because of their, because of the volatility market, maybe some inventory, other people are out of inventory. Some of those are good questions. We don't have the answer to. But I know that we're, you know, we're seeing a nice increase, and we're seeing good response to our desired work with this in 2025.

Robert Leasure: But that's a good update. Thank you very much for that.

Robert Leasure: And then as all the time we have for questions today, Mr. Leisure, I'm happy to turn it back to you, sir, for any additional or closing remarks. Yeah. Thank you, everyone, for joining the call today, and I think our restructuring is an integration, reorganization, news customer contracts are providing us the ability to address some of the past industry and economic challenges. We're also pleased to see the conclusion of certain government investigations.

Robert Leasure: It's now critical that we do not compare ourselves to where we have come from, but remain focused on where we need to go to from here. I want to close today by really reiterating our confidence in the future of our industry, our company, and the investments we've made to position ourselves for the future. We'll continue building ourselves as a high touch flexible provider is really attracted to our customers who appreciate the personal service and attention to detail they can get from in it.

Robert Leasure: Our metrics related to customer service quality and delivery are continuing to prove and we continue to get better every day and all aspects of our business. We're still very young company and our industry and believe our best days are ahead.

Operator: Thank you for your time today. Ladies and gentlemen, this does include today's teleconference and we thank you for your participation. You may now disconnect your lines.

Operator: [inaudible]