Q1 2025 Inotiv Inc Earnings Call
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Operator: and Nick Lutz. Please stand by. Your program is about to begin. If you need assistance during your conference today, please press star zero.
Speaker Change: Please standby your program is about to begin if you need assistance during your conference today. Please press Star zero.
Speaker Change: Good day, everyone and welcome to today's <unk> first quarter fiscal 'twenty 25 earnings conference call.
Operator: Good day, everyone, and welcome to today's Inotiv first quarter fiscal 2025 earnings conference. At this time, all participants are in a listen only. Later you will have the opportunity to ask questions during the question and answer session.
Speaker Change: At this time all participants are in a listen only mode.
Speaker Change: 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 star one on your telephone keypad you.
Operator: You may register to ask a question at any time by pressing star 1 on your You may withdraw yourself from the queue by pressing star 1. Please note this call may be recorded and I will be standing by.
Speaker Change: You may withdraw yourself from the queue by pressing star two.
Speaker Change: Please note this call maybe recorded and I will be standing by if you should need any assistance.
Steven Halper: It is now my pleasure to turn the conference over to Mr. Steven Please go ahead, sir. Thank you, Jess, and good afternoon, everyone. Thank you for joining today's quarterly call with Inotiv's management team.
Speaker Change: It is now my pleasure to turn the conference over to Mr. Steven Halper. Please go ahead Sir.
Steven Halper: Thank you Josh and good afternoon, everyone. Thank you for joining today's quarterly call and it says.
Speaker Change: Yeah.
Steven Halper: Before we begin, I'd like to remind everyone that some of the statements that management will make on this call are considered forward-looking statements, including statements about the company's future operating and financial results and plans. Such statements are subject to risks and uncertainties that could cause actual performance or achievements to be materially different from those projected. Any such statements represent management's expectations as of today's date. 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.
Speaker Change: 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 plants 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 managements expectations as of today's date, you should not place undue reliance on these forward looking statements and the company does not undertake any obligation to update or revise forward looking statements, whether as a result of new information future events or otherwise please refer to the company's SEC.
Steven Halper: Please refer to the company's SEC filings for further guidance on this matter, including risks and uncertainties that could cause results to differ from forward-looking statements.
Speaker Change: The SEC filings for further guidance on this matter, including risks and uncertainties that could cause results to differ from forward looking statements.
Steven Halper: Management will also discuss certain non-GAAP financial measures in an effort to provide additional information for investors. Definitions 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.inotiv.com, and it's also available in the Form 8K file with the Securities 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 Inotiv's website.
Speaker Change: Management will also discuss certain non-GAAP financial measures in an effort to provide additional information for investors.
Speaker Change: Conditions 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 Dot Dot com and is also available in the form 8-K filed with the Securities and Exchange Commission.
Speaker Change: And obtain the copy of todays press release, yet you can do so by going to the investors section of website.
Steven Halper: Joining us from the company this afternoon are Bob Leasure, President and Chief Executive Officer, and Beth Taylor, Chief Financial Officer, John Segarts, Chief Strategy Officer. will join us for the question and answer portion of the call.
Speaker Change: Joining us from the company in this afternoon.
Speaker Change: President and Chief Executive Officer, and Beth Chandler, Chief Financial Officer, John <unk>, Chief Strategy Officer.
Speaker Change: Joining us for the question and answer portion of the call.
Steven Halper: Bob will begin with some opening remarks, after which Beth will present a summary of the company's financial results for our first fiscal quarter of 2025. And then we'll open the call for questions.
Speaker Change: Bob will begin with some opening remarks, after which Scott will present, a summary of the company's financial results.
Speaker Change: First fiscal quarter of 2025, and then we'll open the call for questions.
Robert Leasure: It's now my pleasure to turn the call over to Bob Leasure, CEO. Bob, please go ahead. Thank you, Steve, and good afternoon to everyone joining our call today. During the first quarter, we moved forward with many of our objectives, which included improving the company's liquidity position, reducing revenue volatility, continuing to focus on client satisfaction and client relationships, and continued integration efforts as one company. I'll spend a few minutes on our first quarter results and highlights. To enhance liquidity, our recent equity offering provided net proceeds of $27.5 million. We are very pleased with the investor interest in not committing this offering.
Bob: Ill turn the call over to Bob <unk> CEO. Please go ahead.
Speaker Change: Thank you, Steve and good afternoon to everyone joining our call today.
Speaker Change: The first quarter, we moved forward with many of our objectives, which include improving the company's liquidity position.
Speaker Change: Reducing revenue volatility reduced are continuing to focus on client satisfaction client relationships.
Speaker Change: The integration efforts as one company.
Speaker Change: I'll spend a few minutes on our first quarter results and highlights.
Speaker Change: To enhance liquidity given our recent equity offering providing net proceeds of $27.5 million. We're very pleased with the investor interest in masco move to Salford.
Robert Leasure: The additional equity will help reduce liquidity risk going forward, allow us to continue to make long-term strategic decisions, provide additional stability. to reduce RMS volatility. We have expanded our NHP client base for calendar 2025 and pre-sold much of our NHP inventory, which we anticipate should deliver more consistent revenue streams. In addition, we also expect to continue to see an increase in our revenue from Colony Management Services in calendar 2025, as we did in 2024, and we continue to invest in our NHP facilities in order to maintain this momentum. We continue to make progress integrating and improving our North America transportation distribution systems, which we brought in-house about a year ago.
Speaker Change: Additional equity will help reduce liquidity risk looking forward allow us to continue to make long term strategic decisions provided additional stability.
Speaker Change: To reduce Rms volatility.
Speaker Change: We have expanded our HD client base for calendar 2025, and pre sold much of our inventory, which we anticipate should deliver more consistent revenue streams.
Speaker Change: In addition, we also expect to continue to see an increase in our revenue from colony management services.
Speaker Change: 2000 and talked about <unk>.
Speaker Change: We did in 2024, and we continue to invest in our HB facilities or maintaining this momentum.
Speaker Change: We continue to make progress integrating and improving our north American transportation distribution systems, which we brought in house about a year ago. We believe this has helped to improve the client experience as well as our efficiency.
Robert Leasure: We believe this has helped to improve the client experience as well as our efficiency. Last quarter, we announced that we would continue our site optimization program, North America, for the RMS business, which included closing three additional sites, of which two are owned and one is leased. while expanding an existing release location. We continue to execute on this initiative. This expansion is expected to be approximately $5 million investment, and we intend to use tenant improvement dollars along with proceeds from the sale of the two owned facilities to pay for this consolidation project. Once completed, we expect to...
Speaker Change: Last quarter, we announced and we continue our site optimization program North America with your RMS business, which included three additional sites of which two are <unk>.
Speaker Change: And one can sleep well.
Speaker Change: While expanding an existing lease location.
Speaker Change: We continue to execute on this initiative. This expansion is expected to be approximately $5 million investment and we intend to use tenant improvement dollars along with proceeds from the sale of the two owned facilities.
Speaker Change: This consolidation project.
Speaker Change: Once completed.
Speaker Change: You can expect.
Speaker Change: To be which we expect to be at the end of fiscal 2026, we estimate approximately $45 million a year in cost savings from reduced repair and maintenance expense all facilities lower cost production along with improved service for our clients while production capacity is expected to be unchanged.
Robert Leasure: To be, which we expect to be at the end of fiscal 2026, we estimate approximately $4 to $5 million a year in cost savings from reduced repair and maintenance expense on facilities, lower cost of production, along with improved service for clients while production capacity is expected to be unchanged. For the first quarter of fiscal 2025, total revenue was $119.9 million, compared to $135.5 million in the first quarter of fiscal 2024, representing a decrease of $15.6 million, or 11.5%. This decrease was mainly due to a $13.59 reduction in NHP revenue, which was driven primarily by prices.
Speaker Change: For the first quarter fiscal 2025 total revenue was 119 9 million compared to $135 million in the first quarter fiscal 2024, representing a decrease of $15 6 million or 11, 5%.
Speaker Change: This decrease.
Speaker Change: <unk> was mainly due to a $13 $5 million reduction.
Speaker Change: HP revenue, which was driven primarily by pricing.
Robert Leasure: The lower pricing and some lingering high-cost inventory again negatively impacted NHP margins during Q1 of fiscal 2025. In Q2 of fiscal 2025, we expect to see these margins improve compared to Q4 fiscal year 2024 and Q1 fiscal year 2025. DSA revenue decreased slightly from $44.7 million in Q1 of fiscal 24 to $42.8 million in Q1 of fiscal 2025. While DSA operating margins have remained stable, the decrease in DSA revenue was mainly due to a decline in our Discovery Services revenue. We had a strong quarter for new DSA awards, which was partially offset by cancellation. We saw a continued trend of strong awards for our new safety assessment services that were added over the last two years.
Speaker Change: The lower pricing and some lingering high cost inventory again negatively impacted <unk> margins during Q1 of fiscal 2025.
Speaker Change: In Q2 fiscal 2025, we expect to see these margins improve compared to Q4 fiscal year 2024 in Q1 fiscal year 2025.
Speaker Change: DSA revenue decreased slightly from $44 7 million in Q1 fiscal 'twenty four to $42 8 million in Q1 of fiscal 2025.
Speaker Change: DSA operating margins have remained stable the decrease DSA revenue was mainly due to a decline in our discovery services revenue.
Speaker Change: We had a strong quarter for new DSA awards, which was partially offset by cancellations.
Speaker Change: We saw in Kentucky, a continued trend of strong awards for our new safety assessment services.
Speaker Change: Over the last two years.
Robert Leasure: And we saw a 16% increase in Discovery Service awards in Q1 of Fiscal 2025 versus Q1 of Fiscal 2024. This was the first quarter of reported growth we saw for Discovery Service awards in the last two years. For the trailing 12 months, Discovery Service awards are still down 17% compared to the prior 12-month period. So it's still too early to say whether this is truly a trend, but it is encouraging, and we believe that some of the changes we've made to our discovery services sales team and marketing team and their sales approach a year ago are beginning to have and important impact.
Speaker Change: And we saw a 16% increase in discovery Service Awards in Q1 fiscal 2025 versus Q1 fiscal 2024.
Speaker Change: This was the first quarter over quarter growth, we solve for Discovery Service award in the last two years.
Speaker Change: For the trailing 12 months discovery service words are still down 17% compared to the prior 12 month period.
Speaker Change: So it's still too early to say, whether this is truly a trend, but it is encouraging and we believe that some of the changes we've made to our discovery services sales team the marketing team.
Speaker Change: Your sales approach a year ago are beginning to have.
Speaker Change: An important impact.
Speaker Change: Now let me provide some comments on what we're seeing in the market today and some forward looking thoughts on our different business segments.
Robert Leasure: Now let me provide some comments on what we are seeing in the market today and some forward-looking thoughts on our different business segments. Going into calendar year 2025, we will continue to focus on process optimization, innovation, exceeding client expectations. We expect to see year-over-year revenue and adjusted EBITDA growth each quarter for the remainder of fiscal 2025, as well as reduced NHP revenue volatility as compared to fiscal 2024. In the DSA business, we are emphasizing growing our existing client base through cross-selling our broad portfolio of products and services and attracting new clients to gain market share.
Speaker Change: Going into calendar year two.
Speaker Change: 2020, but we will continue to focus on process optimization innovation seething client expectations.
Speaker Change: We expect to see year over year revenue and adjusted EBITDA growth each quarter or does it remain.
Speaker Change: Under our fiscal 2025 as well as reduced.
Speaker Change: Revenue volatility as compared to fiscal 2024.
Speaker Change: And the DSA business, we are emphasizing growing our existing client base to cross selling our broad portfolio of products and services and attracting new clients to gain market share.
Robert Leasure: We believe the additional investments we've made in our sales team in 2024 and planned investments for 2025 will continue to benefit us in fiscal 2025 and 26. In the RMS segment, we've added new clients, and based on our NHD pre-sales, herd purchase orders, and demand for colony management services, we are optimistic about our goals for increasing RMS revenue in calendar 2025. Overall, remain confident going into 2025. We're also preparing for 2026 and 2027. The geofloatral and market condition, risk, and uncertainties will remain with us as they do for all companies. However, we are committed to building a business that will create value for our clients, employees, and our shareholders and look forward to our future.
Speaker Change: We believe the additional investments we've made in our sales team in 2024 and planned investments for 2025, we will continue to benefit us in fiscal 2025 and 26.
Speaker Change: And the RMS segment, we've added new clients.
Speaker Change: Just on our decreased sales.
Speaker Change: <unk> orders and demand for color management services.
Speaker Change: We're optimistic about our goals for increasing RMS revenue in calendar 2025.
Speaker Change: Yeah.
Speaker Change: Overall, we remain confident going into 2025, we're also preparing for 2026 for 2027.
The geopolitical and market condition risks and uncertainties will remain with us as they.
Speaker Change: Due for all companies.
Speaker Change: However, we are committed to building a business that will create value for our clients employees and our shareholders and look forward to our future.
Beth Taylor: I'll now turn the call over to Beth, who will provide a more detailed synopsis of Inotiv's results for the court. Thank you, Bob, and good afternoon, everyone. For the first quarter of fiscal 2025, total revenue was $119.9 million compared to $135.5 million in the first quarter of fiscal 2024. This was a $15.6 million or 11.5% reduction in sales from the prior year's quarter, and as Bob said earlier, most of this reduction was a result of reduced NHP pricing in the U.S. within our RMS segment. RMS revenue for the first quarter of fiscal 2025 decreased $13.7 million, or 15.1%, compared to Q1 of fiscal 2024.
Speaker Change: I will now turn the call over to Bill who will provide a more detailed synopsis of indices.
Bill: Results for the quarter.
Bill: Thank you Bob and good afternoon, everyone for the first quarter of fiscal 2025 total revenue was $119 $9 million.
Speaker Change: $145 $5 million in the first quarter of fiscal 2024.
Bill: Yes.
Speaker Change: $10 6 million dollar or 11, 5% reduction in sales from the prior year quarter and as Bob said earlier. Most of this reduction was a result of reduced in HP pricing in the U S.
Bill: Within our RMS segment.
Bill: RMS revenue for the first quarter of fiscal 2025 decreased $13 7 million or 15, 1% compared to Q1 of fiscal 2024.
Beth Taylor: As discussed earlier, the decrease in RMS revenue was due to the lower NHP-related product and service revenue, mainly as a result of a lower average selling price for NHPs in the U.S. We sold approximately the same number of NHPs in fiscal Q1 2025 compared to fiscal Q1 of 2024. However, the NHP average selling price in the U.S. in Q1 of fiscal 2025 was approximately 30.3% lower than in Q1 of fiscal 2024 and 1.6% lower than that in Q4 of fiscal 2024. We have indicated on previous conference calls that NHP sell prices declined from the highest we saw in Q4 of fiscal 2023 and the first half of fiscal 2024.
Bill: As discussed earlier the decrease in RMS revenue with due to the lower and HPV related product and service revenue, mainly as a result of a lower average selling price for in Hps and the U S.
Bill: Yes.
Bill: We sold approximately the same number then hpe's in fiscal Q1 2025 compared to fiscal Q1 of 2024. However, the average selling price in the U S. In Q1 of fiscal 2025.
Bill: Approximately 33% lower than in Q1 of fiscal 2024.
Bill: One 6% lower than that in Q4 fiscal 2024.
Bill: We have indicated on previous conference calls the N H P.
Bill: So prices declined from the highs we saw in Q4 of fiscal 2023 in the first half of fiscal 2020 for lower pricing and higher costs inventory again negatively impacted in HP margins. During Q1 of fiscal 2025, and we believe RMS margins for the remainder of calendar.
Beth Taylor: The lower pricing and higher cost inventory again negatively impacted NHP margins during Q1 of fiscal 2025, and we believe RMS margins for the remainder of calendar 2025 should improve from here. DSA revenue in the fiscal 2025 first quarter was $42.8 million compared to $44.7 million in Q1 of fiscal 2024. The quarter-over-quarter decrease in DSA revenue was primarily driven by a decrease in Discovery Services revenue. Overall, net new GSA orders this quarter were $42.3 million versus $33.7 million last quarter and $63.8 million in Q1 of fiscal 2024. The conversion rate in the first quarter of fiscal 2025 was 32.8 percent, slightly up from 32.6 percent in the prior year period.
Bill: 2025 should improve from here.
Bill: DSA revenue in the fiscal 2025 first quarter was $42.8 million compared to $44 $7 million in Q1 of fiscal 2024.
Bill: Over quarter decrease in DSA revenue was primarily driven by a decrease in discovery services revenue.
Bill: Overall net new DSA orders this quarter were $42 $3 million versus $33 7 million last quarter and $63 $8 million in Q1 of fiscal 2024.
Bill: Version ready in the first quarter of fiscal 2025 was 32, 8%.
Bill: Slightly up from 32, 6% in the prior year period.
Beth Taylor: The DSA cancellations and negative change orders in the first quarter of fiscal 2025 were approximately 64% higher compared to the prior year period, which had the lowest cancellations in the last two years. cancellations in the trailing 12-month period were approximately 1% less than the prior period. So overall, our operating loss for the first quarter of fiscal 2025 was $15.5 million compared to an operating loss of $9.4 million in the first quarter of fiscal 2024, primarily due to lower NHP margins as previously discussed. partially offsetting the decreases in NHP margins for decreases in restructuring costs, transportation costs, and costs related to sites closed in connection with our optimization plan.
The GSA cancellations and negative change orders in the first quarter of fiscal 2025 were approximately 54% higher compared to the prior year period, which had the lowest cancellations in the last two years.
Bill: <unk> in the trailing 12 month period were approximately 1% less than the prior year period.
Bill: So overall.
Bill: Operating loss for the first quarter of fiscal 2025 with $15 5 million.
Bill: And to an operating loss of $9 4 million in the first quarter of fiscal 2024, primarily due to lower and HP margins as previously discussed.
Bill: Partially offsetting the decreases in an HP margins for decreases in restructuring costs transportation costs and costs related to five.
Bill: Awesome.
Optimization of plant.
Beth Taylor: There were slightly lower DSA sales, which resulted in relatively flat DSA operating margins. Consolidated net loss attributable to common shareholders in the first quarter of fiscal 2025 totaled $27.6 million, or a $1.02 loss per diluted share. This compared to consolidated net loss attributable to common shareholders of $15.4 million, or $0.60 of loss per diluted share in the first quarter of fiscal 2024. In the first quarter of 2025, adjusted EBITDA was $2.6 million, or 2.2% of total revenue, compared to $9.6 million, or 7.1% of total revenue, for the first fiscal quarter of 2024. Non-GAAP operating income for our DSA segment in the first quarter was $7.1 million, or 5.9% of total revenue, compared to $6.9 million, or 5.1% of total revenue, in the last fiscal year's first quarter.
Bill: The slightly lower DSA sales, which resulted in relatively flat DSA operating margin.
Bill: Consolidated net loss attributable to common shareholders in the first quarter of fiscal 2025 totaled $27.6 million or <unk>.
Bill: One two cents loss per diluted share this compared to consolidated net loss attributable to common shareholders of $15 4 million.
Bill: Or 60 cents of loss per diluted share in the first quarter of fiscal 2024.
Bill: For the first quarter of 2025, adjusted EBITDA was two 6 million.
Two 2% of total revenue compared to $9 6 million or seven 1% of total revenue for the first fiscal quarter of 2024.
Bill: non-GAAP operating income for our DSA segment in the first quarter with $7 $1 million or five 9% of total revenue compared to $6 9 million or five 1% of total revenue in the last fiscal years first quarter.
Bill: As we continue to fill recently added capacity, we believe we will see margin improvement through operating leverage.
Beth Taylor: As we continue to fill recently added capacity, we believe we will see large improvement through operating lab capacity. The net vote-to-bill ratio for DSA in the first quarter of fiscal 2025 was 1.01 times to 1. Our trailing 12-month vote-to-bill was 0.87 times to 1. DSA backlog was $130.4 million at December 31, 2024, compared to $129.9 million at September 30, 2024, and $152.3 million at December 31, 2023. In our RMS segment, non-GAAP operating income in the first quarter of fiscal 2025 was $9.4 million, or 7.9% of total revenue, compared to $16.9 million, or 12.5% of total revenue in the first quarter of fiscal 2024.
Bill: Most of the bill ratio for DSA in the first quarter of fiscal 2025.
Bill: One one times to one our trailing 12 month book to Bill was <unk> eight.
Bill: Eight seven times to one.
Bill: <unk> backlog was $134 million at December 31, 2024, compared to $129 9 million at September 32024.
Bill: And 150 to $2 3 million at December 31, 2023.
Bill: And our RMS segment non-GAAP operating income in the first quarter of fiscal 2025 was $94 million or seven 9% of total revenue compared to $16 9 million or 12, 5% of total revenue in the first quarter of fiscal 2024.
Bill: Interest expense in Q1 of fiscal 2025 increased to $13 $8 million from $11 4 million in the first fiscal quarter of 2024 due to an increase in interest rate interest associated with the second lien notes issue and such.
Beth Taylor: Interest expense in Q1 of fiscal 2025 increased to $13.8 million from $11.4 million in the first fiscal quarter of 2024 due to an increase in interest rates, interest associated with the secondly note issue in September 2024 and periodic draws on our revolving credit facility. Our balance sheet as of December 31st, 2024 included $38 million in cash and cash equivalents as compared to $21.4 million on September 30th, 2024. Our quarter-end cash balance includes the net proceeds from our recent equity offering. Total net of debt issuance costs as of December 31st, 2024 was $396 million compared to $393.3 million on September 30th, 2024.
Bill: 2024 and periodic protocols.
Bill: Our credit facility.
Bill: Our balance sheet as of December 31, 2024 included $38 million in cash and cash equivalents as compared to $41 $4 million on September 32024.
Bill: Our quarter end cash balance includes the net proceeds from our recent equity offering.
Bill: Total debt net of debt issuance costs that December 31, 2024 was $396 million compared to $393 3 million on September 32024.
Beth Taylor: This includes $111.6 million of convertible notes as of December 31st, 2024 and our second lien note of $19.2 million. Net cash used in operations for the three months ended December 31st, 2024 was $4.5 million compared to cash used in operations of $6.5 million in the three months ended December 31st, 2023. In October of 2024, we entered into a Third Amendment with the seller of OVRC and extended the payable to January 27, 2026. Capital expenditures in the first quarter of fiscal 2025 were $4.5 million, or approximately 3.7% of total revenue. The first quarter of fiscal 2024 capital expenditures were $5.6 million, or 4.1% of revenue.
Bill: $111 6 million of convertible notes.
Bill: As of December 31, 2024, and our second lien notes of $19 $2 million.
Bill: Net cash used in operations for the three months ended December 31, 2024 was $4 5 million compared to cash used in operations of $6 $5 million in the three months ended December 31 2023.
Bill: In October of 2024, we entered into a third amendment with the seller.
Bill: RC and extended the payable to January 27 2026.
Bill: Capital expenditures in the first quarter of fiscal 2025 were $4 5 million Approx.
Bill: Three 7% of total revenue.
Bill: The first quarter of fiscal 2020 for capital expenditures.
Bill: $5 $6 million.
Bill: Four 1% of revenue.
Beth Taylor: We expect to spend less than 4% of revenues for CapEx in fiscal 2025.
Bill: We expect to spend less than 4% of revenue for Capex in fiscal 2020.
Speaker Change: With respect to guidance as you know we withdrew our fiscal 2024 financial guidance absolutely reported Q2 2024 results. While we continue to feel good about the progress. We have made in recent quarters. We are not providing fiscal 2020 guidance at this time as we have stated.
Beth Taylor: With respect to guidance, as you know, we withdrew our fiscal 2024 financial guidance after we reported Q2 2024 results. While we continue to feel good about the progress we have made in recent quarters, we are not providing fiscal 2025 guidance at this time. As we have stated previously, we hope to provide guidance once we have greater clarity on the market and client demand. Needless to say, management has developed a comprehensive fiscal 2025 annual operating plan designed to continue to optimize our capital allocation and expense base and improve our operating results as discussed earlier. The plan forecasts compliance with the updated covenants under our latest amendment to the credit agreement entered into in September of 2024.
Speaker Change: Previously, we hope to provide guidance once we have greater clarity on the market and client demand.
Needless to say management has developed a comprehensive fiscal 2025 annual operating plan designed to continue to optimize our capital allocation and expense base and improve our operating results as discussed earlier the plan forecast.
Speaker Change: With the updated covenants under our latest amendment to the credit agreement entered into in September of 2024.
Operator: And with that financial overview, we will turn the call over to our operator for questions. Thank you. At this time, if you would like to ask a question, please press star 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2. Once again, that is star one to ask a question.
And with that financial overview, we will turn the call over to our operator for questions.
Speaker Change: Thank you at this time, if you would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: May remove yourself from the queue at any time by pressing star to once.
Speaker Change: Once again that is star one to ask a question.
Speaker Change: Yeah.
Frank Takkinen: We'll go first to Frank Takkinen with Lake Street Capital Markets. Thanks for taking the questions. I was hoping to start with maybe a little bit more of an update around NHPs. I was hoping to kind of ask two parts to it. One, have we worked through some of the higher cost NHPs throughout the first quarter, or do we still have some of that to work through in the remainder of the year? And then two, just any update from ordering patterns from customers would be good to hear as well.
Speaker Change: We'll go first to Frank <unk> with Lake Street capital markets.
Speaker Change: Great. Thanks for taking the questions I was hoping to start with maybe a little bit more of an update around NH piece I was hoping to kind of ask two parts to it one have we worked through some of the higher cost in hps throughout the first quarter or do we still have some of that to work through the remainder of the year and then two just any update.
Speaker Change: From ordering patterns from customers would be good to hear so thanks.
Speaker Change: We're going into calendar.
Robert Leasure: Well, going into calendar 25, we have worked through all the higher cost NHPs at this point. So I think that Edwin has passed. As far as ordering patterns, we have significantly changed. We said we would do last February. We significantly changed our approach this year. Last February, we went into the year without any real commitments, and we were selling most on the open market. It was still fairly volatile. And then people didn't want to, at that point, I wasn't sure what he wanted to lock into. Going into this year, We do have more solid commitments for this year going into this year.
Speaker Change: Calendar 'twenty five we have worked through all of the higher cost. Thanks piece at this point.
Speaker Change: So I think that that debt.
Dave: Edwin its Dave.
Dave: As far as ordering patterns.
Speaker Change: Significant Jason we said we would do last February we significantly changed our approach. This year, Alaska, we went into the year without any real commitment to we're selling most on the open market is still fairly volatile.
Speaker Change: And that people didn't want to do at that point I wasn't sure whether you wanted to Lockheed Boeing.
Speaker Change: Going into this year.
Speaker Change: And as prices normalize a little bit and stayed stable over the last two or three quarters.
Speaker Change: We do have more solid commitments for this year going into this year, we do know what.
Robert Leasure: We do know what people's expectations are. We can deliver. They may move a week or two. We'll work with our customers. But what we also do now is we make several more so they can board them with us. So that gives us the ability to be a lot less volatile than we have. So I think we'll be a little more consistent. We can still see, as we have in prior years, things slip in the last, you know, between the quarters. If large shipments may take place, you know, slip from one a couple weeks or from one month to the next, which can shift some things through quarters.
What people's expectations are.
Speaker Change: We can.
Speaker Change: Deliberate David Hay group, a week or two we will work with our customers, but what we also do now is we may sell more so that I can think of important them.
Speaker Change: So that gives us the ability to be a lot less volatile than we have so I think we'll be a little more consistent we can still see as we have in prior years, thanks slipped into Alaska.
Speaker Change: Between the quarters.
Speaker Change: Large shipments may take place.
Speaker Change: <unk> won a couple of weeks here for one month to the next which can which can ship some things through quarters.
Robert Leasure: But for the most part, you know, as I look at our cash flow and our stability and our volatility, we're going to be much less, and I think we're in a much better position going into this year. I think it'll be as significant as we get into Q2, Q3, and Q4 going into this year.
Speaker Change: For the most part.
Speaker Change: As I look at our cash flow and our stability or volatility.
Speaker Change: We're going to be much less.
Speaker Change: I think we're in a much better position going into this year I think it will be it'll be significant as we get into Q2, Q3 and Q4 going into this year.
Speaker Change: Okay. That's helpful. And then I was hoping I could ask one about the sites development I know, it's a little bit challenging to predict exactly how it's going to go but with the contemplation of Cambodia, and HP as being no longer being able to be exported worldwide.
Operator: Okay, that's helpful.
Operator: And then I was hoping I could ask one about the site's development. I know it's a little bit challenging to predict exactly how it's going to go. But with the contemplation of Cambodia NHPs no longer being able to be exported worldwide, how could that impact your dynamic? I realize it was pushed to the following year, but clearly there's some skepticism around that supply base. So maybe just talk through theoretically how that could impact the global NHP supply demand dynamic. Well obviously Cambodia is an important part of the global supply base and they're still exporting out of Cambodia I think in the range of 9,000 a year.
Speaker Change: That impact your dynamic I realize it was pushed to the following year, but clearly there is some skepticism around that supply base. So maybe just talk through theoretically how that could impact our global an HP supply demand dynamic.
Speaker Change: Well, obviously, Cambodia important parts of the global supply base and they are still exporting.
Speaker Change: I think in the range of <unk>.
Robert Leasure: So if you take that out of the global supply base that puts a lot of more pressure on what is available from the other existing supply bases. They did have the Saini meeting this week. I think they pushed that decision off. They're going to revisit again probably in November of 25. But right now we were ready for either event. We have a lot of contracts started for this year on the sales side and the buyer side. And you know, whatever the Saudis people choose to do, we will prepare for. I understand it's very important, but we can't control that.
Speaker Change: 9008 year. So if you take that out of the global supply base.
Speaker Change: That puts a lot of more pressure on what is available from the other existing supply basis. They did episodic spacing. This week I think you can push that decision after that revisit again, probably in November of 25.
Speaker Change: Yes.
Right now.
Speaker Change: <unk>.
Speaker Change: We were ready for.
Speaker Change: I would say we're prepared for either either event.
Speaker Change: We have water contract sorry for this year on the sales side by side.
Speaker Change: And.
Speaker Change: Whatever whatever their Saudi people choose to do we will prepare for I understand that.
Speaker Change: It's very important but we can't control that we need to be able to adapt. So we've worked very hard in the last two or three years to diversify the country's diversify.
Robert Leasure: We need to be able to adapt. So we've worked very hard in the last two or three years to diversify the countries, diversify the people we work with, to qualify additional suppliers, and we continue to maintain relationships with farms in Cambodia, and we will comply with whatever they decide and adjust accordingly. But I'm very proud of the team we have, how they've adjusted, become much more agile. And I think it's, you know, our customers are looking for ways to reduce risk. And you know, with that, the business continues to evolve, will evolve with it.
Speaker Change: We work with them to qualify additional suppliers and we continue to keep maintaining relationships with with farms in Cambodia in.
Speaker Change: We will we will comply with whatever whatever they decide and adjust accordingly, but very proud of the team we have.
Adjusted become much more agile.
Speaker Change: And I think as you know.
Speaker Change: Our customers are looking for ways to reduce risks and.
Speaker Change: With that.
Speaker Change: Business continues to evolve we'll evolve with it.
Speaker Change: Okay. That's helpful. And then just last one for me I was hoping you could help us out a little bit with maybe adjusted EBITDA cadence throughout the year heard the comment around staying in compliance with the covenants, but now that we're through some of the higher cost in hps and expecting a gross margin lift how should we expect that to flow into adjusted.
Operator: Okay, that's helpful.
Robert Leasure: And then just last one for me was hoping you could help us out a little bit with maybe adjusted EBITDA cadence throughout the year, heard the comment around staying in compliance with the covenants. But now that we're through some of the higher cost NHPs and expecting a gross margin lift, how should we expect that to flow into adjusted EBITDA for the fiscal second quarter ended March Well, so I think what we'll see over the year, and I'm not giving guidance, but for us to hit those covenants probably, Claire, as some of you have identified in your annals reports, that we'll have to grow sales.
Speaker Change: For the fiscal second quarter ended March.
Speaker Change: Well so.
Speaker Change: I think what we'll see.
Speaker Change: For the year.
Speaker Change: Given guidance, but for us to hit those covenants.
Speaker Change: Probably clear as some of you.
Speaker Change: In your analyst reports the win for gross sales.
Robert Leasure: And we expect sales will grow year over year, and I think I alluded to that in my comments. So seeing sales grow year over year, and having just seen that quarter that we finished at lower sales, you can pretty well see that we think that we will have a pretty good Q2, three, and four. I think if you also see that our original covenants, we are supposed to have a trailing 12-month evidaw in December. Beth, I believe it's $1.5 million, trailing six months, two quarters. was our coverage at 1.6 and we're coming out of this quarter at positive, I believe closer to 8.
Speaker Change: And.
Speaker Change: And we expect sales will grow year over year, and I think I alluded to that in my comments.
Speaker Change: We've seen sales grow year over year.
Speaker Change: Just seeing that that quarter that we finished at lower sales.
Speaker Change: You can pretty well see that and we think that we will.
Speaker Change: We have a pretty good Q2, three and four.
Speaker Change: I think you've you also say that.
Speaker Change: Our original Covenant suite, we're supposed to have a trailing 12 month EBITDA.
Speaker Change: In December.
Speaker Change: Thats I believe its $1 $5 million trailing six months two quarters, yes.
Speaker Change: With our covenant of one six and we're coming out of this quarter at positive I believe closer to eight.
Robert Leasure: So, you know, we're obviously ahead of where we thought we would be, and we're pleased with the results. and I think that the trailing nine months now, going into March, I think our government has said, I believe it's 13.5, Beth? Yes. And so, you know, we're pretty good. We're in pretty good shape. And as we look to the future quarters, we're fairly bullish compared to where we have come from. We have some, I think, great opportunities in front of us with what we have done. We have right-sized all of our facilities for pretty good economics.
Speaker Change: So.
Speaker Change: We're obviously ahead of where we thought we would be.
Speaker Change: And we're pleased.
Speaker Change: With the results.
Speaker Change: And I think that the trailing nine.
Speaker Change: Months now going into March I think our covenants.
Speaker Change: I believe it's $13 five yes.
Speaker Change: So we're pretty good we're in pretty good shape and as we look to future quarters.
Speaker Change: Yes.
Speaker Change: We're fairly bullish compared to where we've come from.
Speaker Change: We have some.
Speaker Change: Great opportunities in front of us with with.
Speaker Change: With what we have done we have we have right size all of our facilities are pretty good economics.
Robert Leasure: And that's something we've worked hard on the last two years. So we don't have to worry about it as much, other than the site consolidation we have going on in North America between a couple sites. We don't have to worry as much about brick and mortar on the right side. We've done a lot of the integration. And we started up some new services and expanded some sites. And again, the DSA business, we, as those sites grow, we're going to see some significant margin improvement of those sites. So I'm excited to see those grow, and we saw good growth, as I just alluded to, in our DTI discovery services and some of the service, our startups, which I think will enhance, we'll see in the back half of this year.
Speaker Change: That's something we've worked hard over the last two years. So we don't have to worry about as much.
Speaker Change: <unk> consolidation, we have going on in North America, we're doing a couple of sites.
Speaker Change: We don't have worried about brick and mortar side, we've done a lot of the integration.
Speaker Change: And we started up some new services and expanded some sites and the DSA business, we as those sites grow.
Speaker Change: Good to see some significant.
Speaker Change: Margin improvement at those sites, so I'm excited to see those drugs and we saw good growth as I just alluded to.
Speaker Change: And our TCR discovery services and some of the services are startups, which I think Luc.
Speaker Change: To enhance we'll see in the back half of this year.
Robert Leasure: So I think we'll see some margin improvement, for sure, and we'll see some even just even improvement on the back half of the year on the increase in sales and improving margin.
Speaker Change: So I think we'll see some margin improvement.
Speaker Change: For sure and we will see some.
Speaker Change: Some.
Speaker Change: EBITDA adjusted EBITDA improvement.
Speaker Change: On the back half of the year on those on the increasing sales and improving margins.
Speaker Change: Once again, if you would like to ask a question. Please press star one on your telephone keypad now.
Operator: Once again, if you would like to ask a question, please press star 1 on your telephone keypad.
Matthew Hewitt: We'll move next to Matt Hewitt with Craig Helen. Good afternoon. Thanks for taking the questions. And maybe to follow up on one of the things you said earlier, Bob, you kind of noted how there tends to be some lumpiness, particularly at the end of quarters with NHP sales. Did you have any of that this quarter? Did any of those sales slip out of Q1 into Q2? Yeah, we we probably did. You know, we could have some next quarter. And, you know, that next swing. It could swing, you know, three or four million in sales very easily, but, um...
Matt Hewitt: We'll move next to Matt Hewitt with Craig Hallum Capital Group.
Matt Hewitt: Good afternoon, thanks for taking the questions maybe to follow up on one of the things you said earlier, Bob you kind of noted how there tends to be some lumpiness, particularly at the end of quarters with an HP sales.
Matt Hewitt: Did you have any of that this quarter did any of those sales slip out of Q1 into Q2.
Matt Hewitt: Yes.
Matt Hewitt: We probably did.
Matt Hewitt: Yes, we could have some next quarter.
Matt Hewitt: Okay.
Matt Hewitt: Net swing.
Matt Hewitt: Could swing three or $4 million of sales very easily.
Robert Leasure: You know, again, overall, if it switches, plus four or five weeks, we're not, last year it could slip six months. We don't have anything like that. It slips four or five weeks or six weeks even. We're okay with that. So I'm not, you know, not really worried about that. Last year was a lot different market, I think, than what we've seen going into this year. Last year, people had inventory. They were reducing inventory. And then, you know, this year, we even have some deposits going in, which back up some of those sales and orders. So, again, I think we'll see less volatility.
Matt Hewitt: Again overall.
Matt Hewitt: Thank you.
Matt Hewitt: Four or five weeks were not last year. It slipped six months, we don't have anything like that for five weeks or six we can see that we're okay with that.
Matt Hewitt: Got it.
Matt Hewitt: Not really.
Matt Hewitt: Worried about that last year was.
Matt Hewitt: A lot of different market I think that what we see going into this year last year people had inventory they would do.
Matt Hewitt: <unk> inventory.
Matt Hewitt: And then this year, we even have some deposits.
Matt Hewitt: Back up some of those sales and orders. So again I think we'll see less volatility.
Robert Leasure: And I think we're doing, hopefully we're doing a good job. customer satisfaction and be very customer driven. We take care of the customer. We're small enough, agile enough. The rest of our business works very well. Economics are set up well right now. What we're doing, we have good people. You know, one of the things we didn't talk about, but you know, last year we had some challenges between the DOJ issues and some of the things going on. And we probably have some customers that may be very nervous and important. And right now, I'm optimistic. I see some of those customers returning.
Matt Hewitt: And I think we're confident we're doing good job there.
Matt Hewitt: This year one of the big differences, we have brick and mortar we have integration with optimization.
Matt Hewitt: Good luck this.
Matt Hewitt: This year, we've taken a lot of that this year is what we need to focus on customer.
Matt Hewitt: Customer satisfaction at very very customer driven.
Matt Hewitt: Take care of the customer we're small enough agile now.
Matt Hewitt: The rest of our business works very well economics are set up well right now what we're doing with good. Good people what are the things you talked about last year, we had some challenges between the Doj issues in some of the things going on and we probably had some customers.
Matt Hewitt: That'd be very nervous and voice.
Matt Hewitt: And right now.
Speaker Change: Obviously, you're going to see some of those customers returning I see our turnover is low as its ever been.
Robert Leasure: I see our turnover as low as it's ever been. And that was a challenging year for our industry and for our business. And as others go through that, I'm really, really pleased with the lower turnover. Our management team is staying together. It gives us a much better opportunity to do a great job for our customers. So we're going to keep that customer focus, continue to bring them back, continue to make sure we keep our employees satisfied, and I think the business will take care of itself. No, we don't have all the... The Tailwinds that we have going into, you know, a biotech funding that's up 20, 30, 40% right now, nor are we expecting that.
Speaker Change: And that was a challenging year for our industry and for our business because of the sell through that.
Speaker Change: I am really really.
Speaker Change: I'm pleased with it.
Speaker Change: With the lower turnover of our management team for staying together.
Speaker Change: It gives us a much better.
Speaker Change: You're doing a great job for our customers. So we're going to keep that customer focus.
Speaker Change: We need to bring them back.
Speaker Change: To make sure we keep our employees satisfied.
Speaker Change: I think the business will take care of itself.
Okay.
Speaker Change: No we don't have all of it.
<unk>.
Speaker Change: Tail winds that we'd have going into.
Speaker Change: Our biotech funding Thats up 2030, 40% right now.
Speaker Change: Are we expecting that does.
Operator: If that happens, that's great, but right now, we don't see that, we're not expecting that, but I still think we're going to grow in spite of that. Got it.
Speaker Change: As that happens Thats great.
Speaker Change: Right now we do.
Speaker Change: Don't see that we're not expecting that but I still think we're going to grow in spite of that.
Speaker Change: Got it and then.
Operator: And then shifting gears a little bit. The book to bill and a couple of the other metrics have been bouncing around a little bit. The one in particular that I wanted to mention was the cancellations. It seemed like the last couple of quarters you were seeing some improvement that those cancellations were declining, getting back to a normalized level. It seems like that bounced back up here a little bit. Is that just a function of what's going on with pharma companies reprioritizing pipelines and acting quicker on the fill and kill decisions? Or is there some other reason that you saw that number elevated here in Q1?
Speaker Change: Shifting gears a little bit.
Speaker Change: The book to Bill.
Speaker Change: A couple of the other metrics behind that kind of been bouncing around a little bit with the one in particular that I wanted to mention was the cancellations. It seemed like the last couple of quarters, you were seeing some improvement that those cancellations were declining kind of getting back to a normalized level. It seems like that bounce back up here a little bit is that just a function of what's going on with pharma.
Speaker Change: Companies kind of re prioritizing pipelines and kind of.
Speaker Change: Acting quicker on the fill and killed decisions or is there. Some other reason that you saw that that number elevated here in Q Q1.
Robert Leasure: And I think we saw it elevated because we had one large project, which, you know, about $4 million that got canceled, and that's over $4 million, and that's significant to us. So we have large POs. If one project cancels, it's significant. And so one project can make a difference. And usually we don't have those large projects to cancel. This quarter, we had an anomaly. We did have a large project that got canceled that drove that vote to bill number down or would have been possible. And so, again, I'm not overly worried about it because, you know, I think that was one that we'll see every once in a while like that.
Speaker Change: And I think we saw elevated because we had one large project.
Speaker Change: About $4 million of tough canceled.
Speaker Change: And so over $4 billion, that's significant to us so large, but we have large deals with one project cancels.
Speaker Change: And so on one project and make a difference.
Speaker Change: And usually we don't have those large projects to be canceled this quarter. We had an anomaly we did have a large project.
Speaker Change: Canceled that drove that that book to bill number down or.
Speaker Change: It's been positive.
Speaker Change: So again I'm not overly worried about it.
Speaker Change: I think that was one that we will see every once in a while I would like to add.
Robert Leasure: But hopefully, you know, we don't have a lot of those out there typically. I think we can't avoid it. We were really pleased. We made a lot of change for sales organization a year ago. How we approach discovery, translational sciences, and even a little bit of safety assessment. And seeing that 14 and 15% growing awards for the three months, Q1, and Discovery, for me is a pretty good green shoot. We're looking for that, you know, where we expect to go. But that's something that we've seen year over year decline for several years. And that's a pretty important business.
Speaker Change: Okay.
Speaker Change: We don't have a lot of those out there.
Speaker Change: I think we can take weighted.
Speaker Change: We were really pleased we made a lot of change for sales organization a year ago.
Speaker Change: How do we approach.
Speaker Change: Discovery translational sciences, and even a little bit safety assessment.
Speaker Change: Yes.
Speaker Change: Seeing that.
Speaker Change: That 14%, 15% growing awards.
Speaker Change: For the three months Q1 and discovery for me as it is a pretty good green shoots we're looking for that.
Speaker Change: We expect to go there.
Speaker Change: That's something that we've seen year over year decline for several years Smith.
Speaker Change: It's a pretty important business is very high cost.
Robert Leasure: It's very high cost structure. We have a lot of leverage. There's an increase in sales. A lot of this can go to a large percentage that goes to the bottom line. So I was encouraging, you know, all of the cancellations were discouraging. I was, I think I probably had more positive takeaways from the quarter because I think that was a one-off, one large project that really drove that negative cancellation number up. Got it.
Speaker Change: Sure, we have low leverage and the increase in sales a lot of this.
Speaker Change: Now to our outlook.
Speaker Change: Large percentage of it goes to the bottom line so.
Speaker Change: I wasn't great.
Although the cancellations with east Kurt was discouraging I was I think I'd, probably just add more.
Speaker Change: While some takeaways from the quarter.
Speaker Change: Because I think that was a one off one large project that really drove that make the cancellation number got it got it alright, one last one for me and then I'll hop back in the queue, but as you look at the remainder of this year and given some of your success with some of the newer tests or services that have been rolled out here recently do you envision rolling out some.
Operator: All right. One last one for me, and then I'll hop back into Q.
Robert Leasure: But as you look at the remainder of this year, and given some of your success with some of the newer tests or services that have been rolled out here recently, do you envision rolling out some additional services over the course of this year? Or is it more about just selling more of your existing portfolio? Thank you. We will continue to be very customer driven. If our customers are looking for additional service and we're outsourcing what we feel like we can do a better job, we will consider that. Right now, I want our focus to be on our customers and delighting and meeting and exceeding those expectations and really improving communication.
Speaker Change: Additional services over the course of this year or is it more about just selling more of your existing portfolio. Thank you.
Speaker Change: Yes.
Speaker Change: We.
Speaker Change: We will continue to be very customer driven part of our customers are looking for additional service.
Speaker Change: We are outsourcing what we feel that we can do a better job we will consider that right now we're not.
Speaker Change: I wanted to focus to be.
Speaker Change: On our customers and delighting and meeting and exceeding those expectations and really improve the communication.
Robert Leasure: I think we have a lot of good services. We have a couple of small add-ons that we're looking, but they're not going to be significant. They'll allow us to grow some sites and be a little more sophisticated. But they're not significant. We're buying new equipment or hiring people. What we're doing is we're training and making sure our people are trained to do these things and are really improving. So they're not the new ones where I need new brick and mortar, new technology. It's really training and expanding upon what we have in place. Okay, great. Thank you.
Speaker Change: I think we have.
Speaker Change: A lot of the services, we're going to we have a few I guess I think we have a couple of smaller items that we're looking but theyre not going to be significant.
They allow us to grow into some sites.
Speaker Change: Can be a little more sophisticated and.
Speaker Change: But they're not significant we're buying new equipment or hiring people. What we're doing is we're training.
Speaker Change: Making sure our people are trained to do these things that are really improving so theyre not that they weren't going to be new brick and mortar new technology, its really training and expanding upon book we have in place.
Speaker Change: Okay, great. Thank you.
Operator: Thank you, Beth. Takkinen with Star One.
Matt Hewitt: Thank you Matt.
Matt Hewitt: Hi, Kennon with Star one if you had a question we will go next to David Windley with Jefferies.
David Windley: We'll go next to David Windley, which Hi, good afternoon. Thanks for taking my questions. I wanted to understand the accounting revenue recognition cadence on pre-sales of inventory. Are these essentially commitments, or is this a transaction that triggers Rev-Rec in the first quarter when you pre-sell? No, we don't. We don't recognize any revenue until there's a transition of ownership. So we don't recognize revenue of orders when they come in. It's only after they are sold and transaction is complete. So no, there's none of that has been recognized. So when you say you're pre-selling inventory. You have more orders in hand than you did entering last fiscal year.
David Windley: Hi, good afternoon, thanks for taking my questions.
Matt Hewitt: I wanted to understand.
Matt Hewitt: The accounting revenue recognition cadence on pre sales of inventory are these.
Matt Hewitt: Are these essentially commitments or are you is this a transaction that that triggers Rev Rec and the first quarter when you pre sell inventory.
Matt Hewitt: No we don't.
We don't recognize any revenue until the bill.
Matt Hewitt: So there is a transition of ownership so we don't recognize revenue.
Matt Hewitt: Okay.
Matt Hewitt: Orders when they come in it's only after they are solid and transactions completed so no. There is none of that has been recognized.
Speaker Change: So when you say youre pretty selling inventory.
Speaker Change: You have the you have more orders in hand, then you did entering last fiscal year.
Robert Leasure: but those have materialized in sales. That is correct. We have orders, signed orders, and we may have deposits. but not revenue-recognized. Okay, so we have shown this and we, and then correspondingly, we also have probably more deposits out with our suppliers. So we have bought further in advance, and we have sold further in advance. Okay.
Speaker Change: But yes, we have mature.
Speaker Change: Realized in sales.
Speaker Change: That is correct.
Speaker Change: We have orders <unk> orders and we may have deposits.
Speaker Change: But not revenue recognition.
Speaker Change: Okay.
Speaker Change: Correspondingly, we also have probably more deposits out with our suppliers.
Speaker Change: So we are we have bought further in advance and we have sold further in advance.
Speaker Change: Okay.
Speaker Change:
Robert Leasure: And, and in the case of so maybe invoking then the colony management services, if I if I understand correctly, the way you're saying that, I mean, I would guess that in those cases, the client has bought the animal and you're boarding them and title has changed hands, is that right? Yes, if we are boarding for, and then the title has passed specifically. And we would be awarding. Okay, can you give me a sense of proportion?
Speaker Change: And in the case of so maybe invoking then the colony management services, if I understand correctly. The way you are saying that.
Speaker Change: I mean.
Speaker Change: I would I would guess that in those cases, the client has bought the animal in your boarding them in title has changed hands is that right.
Speaker Change: Yes, if we are boarding four.
Speaker Change: Title has passed specifically.
Speaker Change: And we would be.
Speaker Change: Good morning.
Speaker Change: Okay can you give me a sense of.
Speaker Change: Proportion.
Robert Leasure: How much of your RMS revenue, or first of all, I guess, Colony Management Services are in RMS, is that right? And then how much of RMS revenue might Colony Management Services represent? Thanks. are calling management services for the RMS business. Oh, I think it, you know, a couple years ago it was 22. May have been in the range of $17 million. And I don't think we've ever given these numbers before, but if they can do it publicly. Last year was probably closer to 27 million, and I think we'll see that grow another 20%. as we go forward.
Speaker Change: How much of your RMS revenue was call. It our first of all I guess colony management services are in RMS is that right and then how much of RMS revenue My colleague colony management services represent.
Speaker Change: Okay.
Speaker Change: Our common management services for the RMS.
Speaker Change: S business.
Speaker Change: Thank you.
Speaker Change: A couple of years ago was 22.
Speaker Change: Thanks Ben.
Speaker Change: The range of $17 million.
Speaker Change: And I don't think we are getting these number per quarter.
Speaker Change: They can do it publicly last year was.
Speaker Change: The closer to $27 million.
Speaker Change: And I think we will see that growing over 20%.
Speaker Change: As we go forward.
Robert Leasure: So I think it's, it's, you know, it's some customers and large pharma and it's all about looking to, to make sure they reduce the risk by, by owning these fees, but they may not have a place to store them, but they would like to buy and make sure that they have access and reduce their risk and their volatility. And so we need to make sure that we're setting up our business to be able to comply to help them reduce their risk also. Do you have plenty of...
Speaker Change: No.
Speaker Change: I think it's.
Speaker Change: Some customers in large pharma and all above looking too to make.
Speaker Change: Make sure they reduced the rates by by adding agencies, but they may not have a place to storm I think we'd like to buy and make sure that they have access and reduce their risk and their volatility and so we need to make sure that we're setting up our business to be able to comply with to help them reduce their risk also.
Speaker Change: Uh-huh.
Speaker Change: Do you have plenty of.
Robert Leasure: I don't know if the animals even have to be moved, but for colony management, do you have to have a dedicated... I presume this is in Alice, Texas, but do you have plenty of room to grow that business? And that's a very good question. We have about 700 acres down there. We've built up and invested quite a bit in the last couple of years in transportation and roads and water, sewer, hospitals, veterinary support, commissary, things that you need, the infrastructure you need to have support for the colonies. Now we are building out brick and mortar places to do boarding and indoor and outdoor facilities, improving heating and air flow and water and what not.
Speaker Change: I don't know what the animals, even have to be moved but like for colony management do you have to have a dedicated.
Speaker Change: Beth I presume this is an Alice Texas.
Speaker Change: Do you have plenty of plenty of room to.
Speaker Change: To grow that business.
Speaker Change: Without kind of we have as part of your favorite Sweet.
Speaker Change: Okay.
Speaker Change: Very good question we have.
Speaker Change: We have about 700 acres down there.
Speaker Change: We've built up and invested quite a bit last couple of years.
Speaker Change: In transportation.
Speaker Change: Roads water sewer.
Speaker Change: Hospitals.
Speaker Change: Our export infrastructure commentary. Thanks, the infrastructure you need to have to have support for the countries. Now we are we are building out.
Speaker Change: Brick and mortar places.
Speaker Change: To do boarding.
Speaker Change: And indoor outdoor facilities.
Speaker Change: Improving feeding and airflow water or whatnot.
Robert Leasure: We have been pretty much at full capacity for the last couple of years, and so as we've been able to expand, we've been able to increase that revenue base. And so that's where some of our expansion dollars are going this year. Understood. We have 700 acres, and of those 700 acres, we're probably using about 250.
Speaker Change: We have been.
Speaker Change: Pretty much at full capacity.
Speaker Change: Last couple of years.
Speaker Change: So as we've been able to to expand we've been able to increase that that.
Speaker Change: Net revenue net revenue base.
Speaker Change: So thats, where some of our dollars are going this year.
Speaker Change: Understood.
Speaker Change: You're on your I mean, we have so.
Speaker Change: Perfect. We have 700 acres. Another 700 acres, we're probably using about 250.
Speaker Change: Yes, yes, yes.
Robert Leasure: On your NHP sourcing comments, so you're through the high cost inventory, should we think of the move now to be kind of a step function down or is it more of a glide path? over the next couple of quarters. to a lower cost level. I think you'll see a step function. down, because I think most of the higher costs. NXPs are out and the pricing is set for next year, so I think we'll see that. More of a step. And we'll see, you know, I think we'll see increased. increasing sales each quarter. So we won't see.
Speaker Change: On your NSP sourcing comments that youre through the high cost inventory should we think of.
Speaker Change: The move now to be kind of a step function down or is it more of a glide path.
Speaker Change: Over the next couple of quarters.
Speaker Change: To a lower cost level.
Speaker Change: I think you see it.
Speaker Change: Function.
Speaker Change: Uh huh.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: Most of the higher cost.
Speaker Change: Nxp's are out and the pricing is set for next year. So I think we'll see we'll see.
Dan: Hey, Dan.
Speaker Change: More of a step.
Speaker Change: And we will see I think we'll see increase.
Speaker Change: Increasing sales each quarter.
Speaker Change: So we won't see.
Robert Leasure: I think the margins could be improved, but we'll see. I think that each quarter, the sales may improve.
Speaker Change: I think the margins could improve.
Speaker Change: The improvement we will see I think that each quarter the sales group.
Speaker Change: Okay, and then last one for me on the I mean, it does sound like.
Robert Leasure: Okay, and then last one for me on the, I mean, it does sound like. were kind of meaningfully better sequentially. And then you have this one large cancellation. Can you talk to us about the mix of that? Like, I'd love more color on. What clients are those coming from and what type of... services are they Wanting to engage you on, I think if I remember correctly, your DSA business does not have a lot of NHP related services, so I think you would tell me that it's mostly rodent studies, but I'd love any additional color on what the profile of that improving bookings picture looks like.
Speaker Change: The DSA gross bookings.
Speaker Change: We're.
Speaker Change: Kind of meaningfully better sequentially.
Speaker Change: And then you had this this one large cancellation can.
Speaker Change: Can you talk to us about the mix of that like I would love more color on.
Speaker Change: What clients.
Speaker Change: Are those coming from and what type of.
Speaker Change: Services are they.
Speaker Change: Wanting to engage you on.
Speaker Change: If I remember correctly your DSA business does not have a lot of NH key related services. So I think you would tell me that it's mostly rodent studies, but I'd love any additional color on what.
Speaker Change: Kind of a profile of that improving bookings picture looks like thank you.
Robert Leasure: Well, our DSA backlog in customers is over 95-96% biotech. So that, you know, that's what you look for. As we've mentioned, between large pharma and biotech, it is biotech. We are getting, for some of the unique services we have, such as genetic toxicology, and some of our discovery work, we may see some increase in work from large pharma, but for the most part it is biotech focused. As far as, you know, service, I think we, again, that some of the services that we've built up, biotherapeutics and genetic toxicology. We are seeing some, and DTS right now, we saw some pretty good awards last quarter and those are unique.
Speaker Change: Our DSA backlog and customers are 90 over 90, 596% biotechs.
Speaker Change: So that.
Speaker Change: That's where you're going forward as we've mentioned between large pharma and biotech. It is alright, yes, we are getting.
Speaker Change: For some of the unique services we have.
Speaker Change: As genetic toxicology and some of our discovery.
Speaker Change: I see some increasing.
Speaker Change:
Speaker Change: Werent from large pharma, but for the most part is biotech.
Speaker Change: Focus.
Speaker Change: As far as different.
Speaker Change: Services I think we.
Speaker Change: Again, some of the services that we build up biotherapeutics in the G&A toxicology.
Speaker Change: We are seeing some.
Speaker Change: And Etfs right now we saw some pretty good awards last quarter those are unique.
Robert Leasure: We have a good scientific team there, and those have been very helpful. Yeah, I think there's the general safety assessment. The general safety assessment, again, we like to leave it with science and work with customers we identify at the discovery stage, and that's starting to happen, but that probably is still fairly flat to them as far as, because there's capacity in the market and people don't need to still look that far in advance. We're also probably seeing an increasing amount, some of the things I outlined, is blanket purchase orders come in. People want to move very quickly and gain their confidence.
Speaker Change: We have a.
Speaker Change: Good scientific team there.
Speaker Change: And those have been very helpful.
Speaker Change: Yes, I think the general safety assessment.
Speaker Change: The general safety assessment.
Speaker Change: Again, we'd like to lead with science and work with customers, we identify the discovery stage and that's starting to happen but.
Speaker Change: Probably yes.
Phil: As Phil.
Phil: Fairly flat to down as far as it gives us capacity in the market people don't need to still focus as foreign.
Phil: Dance.
Phil: We're also probably seeing an increasing amount of some of those things I outlined his blanket purchase orders come in as people want to move very quickly and gain their confidence that use us a little bit in the past, but now they're giving us more meaningful. Thank you first source. So we can move more quickly with them and work hand in hand, with a partner with them more than we have in the past.
Robert Leasure: They've used this a little bit in the past, but now they're giving us more meaningful blanket purchase orders so we can move more quickly with them and work, and then have them partner with them more than we have in the past. That's very encouraging. So I think for the Commodity Safety Assessment, we've done a lot of work on that. Probably not. I think that's still a flag, and still, if we can lead with science, it's good, but it's some of the other specialty services in science that we've been working on that we're probably seeing more growth, and again, as I said, discovering translational sciences would be nice for us to see that growth.
Phil: That's very encouraging.
Phil: So I think for the commodity safety assessment.
Phil: Probably not.
Phil: So flat.
Phil: Phil.
Phil: If we can lead with science its good but its somebody other specialty services in science that we've been working on it we're probably seeing more more growth and again as I said discovery and translational sciences would be a nice would be nice to see that growth.
Operator: That's very helpful.
Speaker Change: Got it that's very helpful. Thank you.
Operator: Thank you.
It appears we have no further questions at this time I will now turn the program back over to Mr. Bob leisure for any additional or closing remark.
Operator: It appears we have no further questions at this time.
Robert Leasure: I will now turn the program back over to Mr. Bob Leasure for any additional or closing remarks. Thank you, everyone, for joining today's call. We're very pleased with the events and results of this past quarter that have indicated and made progress towards reducing our revenue volatility, improving our cash flow and liquidity, I think, going forward. We'll continue building Inotiv as a high-touch, flexible provider with strong scientific capabilities that is focused on our clients' needs, a positive environment for employees to have a career and grow and generate positive returns for our shareholders. We'll continue to pay attention to the details to get better every day, so 4 to 25.
Speaker Change: Yeah.
Speaker Change: Alright, well. Thank you everyone for joining today's call. We're very pleased with the results for this past quarter.
Speaker Change: Indicated made progress towards reducing our.
Speaker Change: Revenue volatility improving our cash flow and liquidity I think going forward. We will continue building <unk> as a high touch flexible provider with strong side, David terrific capabilities and focused on our clients' needs.
Speaker Change: Positive environment for our employees to have a career and grow and generate positive returns for our shareholders. We will continue to pay attention to the details get better every day.
Speaker Change: 25.
Robert Leasure: Thank you for your time today. Thank you.
Speaker Change: Thank you for your time today.
Speaker Change: Thank you ladies and gentlemen, this does conclude today's program. We thank you for your participation you may disconnect at anytime.
Operator: Ladies and gentlemen, this does conclude today's program. We thank you for your participation. You may disconnect. Goodbye
Speaker Change: Goodbye.
Speaker Change: Oh.
Speaker Change: Uh-huh.
Speaker Change: [music].
Mhm.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Sure.
Speaker Change: Okay.