Q2 2025 Inotiv Inc Earnings Call

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Speaker Change: To all sites on hold, we appreciate your patience and please continue to stand by.

Speaker Change: Thanks to Denis Armstrong, Will Rothbro, Brett Shelley And Robert Leadster

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Operator: Please stand by, your program is about to begin.

Operator: Good day, everyone, and welcome to today's Inotiv second quarter fiscal 2025 earnings call. At this time, all participants are in a listen only mode. Later you will have the opportunity to ask questions during the question and answer session. Please note, today's call will be recorded and I will be standing by should you need any assistance.

Speaker Change: Good day, everyone, and welcome to today's Inotiv 2nd quarter fiscal 2025 earnings call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session.

Speaker Change: Please note, today's call will be recorded, and I will be standing by, should you need any assistance. It is now my pleasure to turn the conference over to Steve Halper of Lifesci Advisors. Please go ahead.

Steve Halper: It is now my pleasure to turn the conference over to Steve Halper of Lifesci Advisors. Please go ahead.

Steve Halper: Thank you, Chloe, and good afternoon, everyone. Thank you for joining today's quarterly 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 the 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.

Steve Halper: Thank you, Chloe, and good afternoon everyone. Thank you for joining today's quarterly 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 the call are considered forward-looking statements, including statements about the companies.

Future Operating and Financial Results and Plans [inaudible]

Steve Halper: or achievements to be materially different from those projected. Any such statements represent management 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.

Steve Halper: 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 T-violings for the guidance on this matter, including risks and uncertainties that could cause results to differ from forward-looking

Steve 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. 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 investor section of the company's website, www.inotiv.com, and is also available in the form 8K filed with the Securities and Exchange Commission.

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

Steve Halper: Gatmeasures are included in the company's earnings release, which has been posted to the Investor section of the company's website, www.initiv.com, and is also available in the form 8K filed with the Security's Exchange Commission.

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

Steve Halper: If you haven't obtained the copy of today's personal lease yet, you can do so by going to the Investor section of Inotiv's website. Joining us from the company this afternoon are Bob Leasure, President and Chief Executive Officer and Beth Taylor.

Steve Halper: Joining us from the company this afternoon are Bob Leasure, President and Chief Executive Officer, and Beth Taylor.

Steve Halper: Chief Financial Officer, John Sagart's Chief Strategy Officer will join us for the question and answer portion of the call. Bob will begin with some opening remarks, after which Beth will present a summary of the company's financial results for our second fiscal quarter of 2025, and then we'll open the call for questions.

Steve Halper: Chief Financial Officer, John Stegart's Chief Strategy Officer, will join us for the question and answer portion of the call.

Speaker Change: Bob will begin with some opening remarks after which Beth will present a summary of the company's financial results for our second fiscal quarter of 2025 and then we'll open the call for questions. It is now my pleasure to turn the call over to Bob Leasure, CEO , Bob, please go ahead.

Bob Leasure: It is now my pleasure to turn the call over to Bob Leasure, CEO. Bob, please go ahead. Thank you, Steve. Good afternoon, everyone. During the second quarter, there were some announcements and events which are likely to impact our industry and our business. Over the last past five years, Inotiv has been evolving and has embraced challenges and changes we've seen in our business. We believe we are a better company because of the changes we have faced. We have also made significant investments to better prepare us for the future. These include acquisitions, the businesses that we have started, the RMS site optimization plans, and the RMS and DSA site investment.

Speaker Change: Thank you, Steve. Good afternoon, everyone. During the second quarter there were some announcements and events which are likely to impact our industry and our business.

Speaker Change: Over the last past five years, Inotiv has been evolving and has embraced challenges and changes that we've seen in our business. We believe we are a better company because of the changes we have faced. We also, we have also made significant investments to better prepares for the future.

Speaker Change: These include acquisitions, the businesses that we have started, the RMS Site Optimization Plans, and the RMS and DSA Site Investments.

Bob Leasure: This quarter, we stayed focused on our plans and continued to execute on many of the objectives, including continuing to focus on client satisfaction, client relationships, continued integration of our scientific services, and efforts as one company. Moving forward and improving upon the next phase of our RMS site optimization plan and expanding our NHP Boarding and Colony Management Services. We also had the opportunity to settle open litigation related to a 3-year-old case in which we were a plaintiff, which we inherited with the InVigo acquisition. We settled this case for approximately $7.6 million, and the proceeds were received in I'll spend a few minutes.

Speaker Change: This quarter we stayed focused on our plans and continued to execute on many of the objectives including continue to focus on client satisfaction, client relationships, continue the integration of our scientific services and efforts as one company.

Speaker Change: Moving forward and improving upon the next phase of our RMS Site Optimization Plan and it's expanding our NHP Boarding and Colony Management Services.

Speaker Change: We also had the opportunity to settle open litigation related to a three-year-old case in which we worry plaintiff, which we inherited with the Envigo acquisition. We settled this case for approximately $7.6 million, and the proceeds were received and

I'll spend a few minutes.

Bob Leasure: on our second quarter results and highlights. For the second quarter of fiscal 2025, total revenue was $124.3 million, compared to $119.9 million in Q1 of fiscal 2025, and $119 million in Q2 of fiscal 2025. 2024 representing a year-over-year increase of 5.3 million dollars or 4.4 percent. The year-over-year increase was mainly due to an increase in RMS segment revenue of $6.6 million, partially offset by a decrease in DSA segment revenue of $1.3 million. The RMS revenue growth was primarily due to higher NHP revenue. As I mentioned in our call in February, we continue to see geopolitical and macroeconomic risk and uncertainties for our company, as do many other companies and industries do at this time.

on our second quarter results in highlights.

Speaker Change: For the second quarter of fiscal 2025, Total Revenue was 124.3 million compared to 119.9 million in Q1 of fiscal 2025 and 119 million in Q2 of fiscal

Speaker Change: 2024, representing a year-over-year increase of $5.3 million or $4.4%

Speaker Change: The year-over-year increase was mainly due to an increase in RMS segment revenue of 6.6 million, partially offset by a decrease in DSA segment revenue of 1.3 million. The RMS revenue growth was primarily due to higher NHP revenue.

Speaker Change: As I mentioned in our call in February , we continue to see geopolitical and macroeconomic risk in uncertainties for our company, as do many other companies and industries do it this time.

Bob Leasure: At this time, we expect to continue to see year-over-year revenue and adjusted EBITDA growth for the next two quarters of fiscal 2025. Our RMS second quarter revenue saw year-over-year growth and some of this was due to a very light Q2 of fiscal year 2024. We believe we do have some momentum in 2025 that we did not see in 2024 and as a result believe we will continue to see year-over-year RMS growth in fiscal 2025 versus 2024. Our overall RMS operating margins improved and were the strongest operating margins since Q1 of fiscal year 2024. We believe we have further opportunity to drive margins higher as we complete the next phase of the RMS site optimization plan, which we announced in December of 2024.

Speaker Change: At this time we expect to continue to see year-over-year revenue and adjusted EBITDA growth for the next two quarters of fiscal 2025.

Speaker Change: Our RMS second quarter revenue, so year over year growth, and some of this was due to a very light cue to a fiscal year of 2024.

Speaker Change: We believe we do have some momentum in 2025 that we did not see in 2024, and as a result we will continue to see year-over-year RMS growth in fiscal 2025 versus 2024.

Speaker Change: Our overall RMS operating margins improved and were the strongest operating margins since Q1 of fiscal year 2024.

Speaker Change: We believe we have further opportunities to drive margins higher as we complete the next phase of the RMS Site Optimization Plan which we announced in December of 2024.

Bob Leasure: We also indicated this expansion plan was expected to be approximately $5 million investment with the intent to use tenant improvement dollars along with proceeds from the sale of owned facilities to pay for this consolidation project. We originally estimated completion was expected to be before the end of fiscal year 2026. Also, we estimated this plan would have an annual cost savings of approximately $4 to $5 million a year from reduced repair and maintenance expense on facilities and lower cost of production, along with improved service for clients, while production capacity would be unchanged. We have continued to refine our optimization plan and related timing for this project and have further revised this plan.

Speaker Change: We also indicated that this expansion plan was expected to be approximately a $5 million investment with the intent to use tenant improvement dollars along with proceeds from the sale of owned facilities to pay for this consolidation project.

Speaker Change: We originally estimated completion was expected to be before the end of fiscal year 2026.

Speaker Change: Also, we estimated this plan would have an annual cost savings of approximately $4 to $5 million a year from reduced repair and maintenance expense on facilities and lower cost of production along with improved service for clients while production capacity would be unchanged.

Speaker Change: We have continued to refine our optimization plan and related timing for this project and have further revised this plan.

Bob Leasure: We now anticipate net annual savings of $6-$7 million on a capital investment of approximately $6.5 million . . which will be paid for with the use of tenant improvement dollars and a portion of the settlement dollars received this month. In connection with our revised plan, we continue to have two properties under contract to be sold and the proceeds will be used to repay principal on our term loan. This project is now anticipated to be completed by March of 2026, which is approximately six months earlier than our original plan, and we anticipate beginning to see savings benefits as soon as Q4 fiscal 2025.

Speaker Change: We now anticipate net annual savings of $6-7 million on a capital investment of approximately $6.5 million.

Speaker Change: which will be paid for with use of tenet improvement dollars and a portion of the settlement dollars received this month.

Speaker Change: In connection with our revised plan, we continue to have two properties under contact to be sold and the note proceeds will be used to repay principle on our term loans.

Speaker Change: This project is now anticipated to be completed by March of 2026, which is approximately six months earlier than our original plan, and we anticipate beginning to see savings benefits as soon as

Bob Leasure: As with previous projects we have executed in RMS, these additional investments will help modernize our existing footprint while allowing us to close old facilities. This revised plan will reduce capacity and we believe will create operating efficiencies and continue to support our animal welfare objectives. Additionally, we believe this plan allows us to remain agile and to increase capacity in the future if needed. We also continue to integrate and improve our North American transportation distribution systems, which we brought in-house in the first half of fiscal 2024. Over the past three years, and including the current optimization plan, these initiatives have upgraded our operating facilities, improved efficiencies, decreased expenses, and improved margins, all while enhancing animal welfare, quality, and delivery for our clients.

Speaker Change: As with previous projects, we have executed in RMS, these additional investments will help modernize our existing footprint while allowing us to close old facilities.

Speaker Change: This revised plan will reduce capacity, and we believe will create operating efficiencies and continue to support our animal welfare objectives. Additionally, we believe this plan allows us to remain agile and to increase capacity in the future if needed.

Speaker Change: We also continue to integrate and improve our North American transportation distribution systems, which we brought in house in the first half of fiscal 2024.

Speaker Change: Over the past three years, and including the current optimization plan, these initiatives have upgraded our operating facilities, improved efficiencies, decreased expenses, and improved margins, all while enhancing animal welfare, quality, and delivery for our clients.

Bob Leasure: In aggregate, we believe these projects have delivered and will continue to deliver for Inotiv and for our clients, and are improving the competitive positioning of our RMS business.

Speaker Change: In aggregate, we believe these projects have delivered and will continue to deliver, for additive and for our clients and are improving the competitive positioning of our RMS business.

Bob Leasure: Moving now to DSA revenue for fiscal Q2. We're slightly down versus the prior year quarter and ahead of Q1 2025. We recognize we have had a deterioration of DSA margins over the last two quarters, which we are addressing. We had several expenses that were higher than normal, such as higher cost-based NHPs being used in toxicology studies, plus we saw increased overtime and labor costs, additional utility costs, and increase in operating supplies. Some of this margin deterioration can also be attributed to a mix in business and lower general toxicology service revenues and some related to pricing.

Speaker Change: Moving now to DSA, Revenue, and for fiscal Q2, we're slightly down versus the prior year quarter and ahead of Q1 2025.

Speaker Change: We recognize we have had a deterioration of DNA margins over the last two quarters, which we are addressing.

Speaker Change: We had several expenses that were higher than normal, such as a higher cost-based NHP's, being used in toxicology studies, plus we saw increased over time in labor cost, additional utility cost, and increasing operating supplies.

Speaker Change: Some of this margin should variation can also be attributed to a mix in business and lower general toxicology service revenues and some related to pricing.

Bob Leasure: We will be focused on these variables and efforts to improve margins in future quarters. On a positive note, DSA quoting and awards remain in line with the last nine months as our book-to-bill in the second quarter of fiscal 2025 remained at 1.01 to 1 and our new orders were 27% ahead of Q2 of fiscal year 2024. Again, the start of this quarter saw strong quoting activity with awards picking up towards the end of the quarter. So far in the current quarter, we remain pleased with the level of quoting and award. Discovery Awards for the first half of the year are still running 6.2% ahead of the six months ended March 31st, 2024, and we expect Discovery revenue to begin to see sequential and year-over-year improvements in the second half of fiscal 2025.

Speaker Change: We will be focused on these variables in efforts to improve margins and future quarters.

Speaker Change: On a positive note, the essay quoting and awards remain in line with the last nine months as our book to bill in the second quarter of fiscal 2025 remained at 1.01 to 1 and our

Speaker Change: Again, the start of this quarter saw strong coding activity with awards picking up towards the end of the quarter.

Speaker Change: So far in the current quarter, we remain pleased with the level of coding and awards.

Speaker Change: Discovery Awards for the first half of the year are still running.

6.2% ahead of the 6-month ended March 31, 2024.

Speaker Change: And we expect Discovery Revenue to begin to see sequential and year-over-year improvements in the second half of fiscal 2025.

Bob Leasure: We consider one of our foundational attributes as a contract, service, and research model provider to be our commitment to our clients having a high-quality experience when they choose us as a partner. Our focus is to meet and exceed our clients' needs and expectations. We believe we accomplish this through scientific talent and speed we can bring to bear on the projects and the care and efficiency which we produce and distribute our feed, bedding, enrichment products, and research models to them. At Critical Steps, along our clients' journeys with us, we monitor metrics of the quality of our product, our delivery, and the satisfaction of our client base.

Speaker Change: We consider one of our foundational attributes as the contract, service, and research model provider to be our commitment to our clients having the high quality experience when they choose us as a partner. Our focus is to meet and exceed our clients' needs and expectations.

Speaker Change: We believe we accomplish this scientific talent and speed we can bring to bear on the projects and the care and efficiency which we produce and distribute our feed, bedding and original products and research models to them.

Speaker Change: At critical steps along our client's journeys with us, we monitor metrics of the quality of our product, our delivery and the satisfaction of our client base.

Bob Leasure: We've been very pleased with the efforts of our teams on all of these fronts, and we continue to see improvements in these metrics we use to track the quality of the client experience. We believe this ongoing focus is critical to building confidence for both our new and existing clients and leads our clients to choose Inotiv as their preferred provider.

Speaker Change: We have been very pleased with the efforts of our teams on all of these fronts, and we continue to see improvements in these metrics. We used to track the quality of the client experience.

Speaker Change: We believe this ongoing focus is critical to building confidence for both our new and existing clients and leads our clients to choose Inotiv as a preferred provider.

Bob Leasure: Now let me provide some comments on what we are seeing in the market today and on recent activities that have generated questions related to our industry. There's no doubt this has been an interesting time for our industry with recent announcements by the U.S. administration on tariffs to be levied on our international trading partners and more recently by the FDA on the future direction of drug development and the active discussion surrounding changes within the NIH funding and objectives First, on the FDA announcement, we broadly support the FDA's stated goals of reducing animal testing and the desire to reduce the time and cost required to bring new medications to market.

Speaker Change: Now let me provide some comments on what we are seeing in the market today and on recent activities that have generated questions related to our industry.

Speaker Change: There's no doubt this has been an interesting time for industry with recent announcements by the U.S. Administration on tariffs to be levied on our international trading partners and more recently by the FDA on the future direction of drug development and the active discussions surrounding changes within the NIH funding and objectives.

Speaker Change: First, on the FDA announcement, we broadly support the FDA's state of goals of reducing animal testing, and the desire to reduce the time and cost required to bring new medications

Bob Leasure: In their recent official statement, the FDA noted the potential critical role that new approach methodologies or NAMs could have in achieving these goals. Such NAMs include technologies such as computer modeling, using cell and organoid-based methods, and the use of human tissues ex vivo as a contributory model for drug safety and efficacy. At Inotiv, many of our acquisitions and investments have been implemented, at least in part, if not sometimes wholly, with the intent to help position us for the future, which is in line with the goals outlined in the 2022 FDA Modernization Act 2.0. Examples of some of our current service offerings, which are in line with these goals, include predictive computer software, computational toxicology, bioinformatics, proteomics, ex vivo and in vitro cell-based assays, and assays we run in human cells and tissue.

Speaker Change: In their recent official statement, the FDA noted potentially critical wall that new approach methodologies, methodologies or names could have an achieving these goals.

Speaker Change: Such NAMS include technologies such as computer modeling, using cell and organoid based methods and use of human tissues, XVivo, as a contributory model for drug safety and efficacy.

Speaker Change: At Inotiv, many of our acquisitions and investments have been implemented at least in part, if not sometimes wholly, with the intent to help position us for the future, which is in line with the goals outlined in the 2022 FDA Modernization Act 2.0.

Speaker Change: Examples of some of our current service offerings which are in line with these goals include predictive, computer, software, computational toxicology, bioinformatics, proteomics,

Speaker Change: Xvivo and Inditro, star-based assays, and assays we run in human cells and tissues.

Bob Leasure: I want to remind everyone that we have been building these capabilities over many years and we consider the continuation of development of them to be critical for the future of smarter drug development. and our role in this initiative. As we adopt these advanced new technologies... We see these potentially reducing the need for using animals in some circumstances and over some time period, but we do not yet foresee the complete replacement of the use of animals in bringing safe and effective new medicines to humans and animal patients. Indeed, on April 29th, the NIH also made an announcement on the future of NAMS and their intent to prioritize the use of human-based research technologies.

Speaker Change: I want to remind everyone that we have been building these capabilities over many years and we consider the continuation of development of them to be critical for the future of smarter, drawn development.

and our role in this initiative.

As we adopt these advanced new technologies,

We See

Speaker Change: These potentially reducing the deed for using animals in some circumstances and over some time period.

Speaker Change: But we do not yet foresee the complete replacement of the use of animals and bringing safe and effective new medicines to humans and animal patients.

Speaker Change: Indeed, on April 29, DNA H, also made an announcement on the future of NAMS and their intent to prioritize the use of human-based research technologies.

Bob Leasure: In their announcement, they made clear their hope that NAMS could enable drug discovery and development to be smarter and more efficient in the future. But they also noted, and I quote, traditional animal models continue to be vital to advancing scientific knowledge. We plan to continue our role helping develop and validate the NAMS alternatives, but until they are sufficiently predictive of complex human biology and are fully accepted as alternatives by regulatory authorities, we believe animal-based safety and efficacy testing will remain critical.

Speaker Change: In their announcement, they made clear their hope that NAMS could enable drug discovery and development to be smarter and more efficient in the future. But they also noted, and I quote, traditional animal models continue to be vital to advancing scientific knowledge.

Speaker Change: We plan to continue our role in helping develop and validate the names of alternatives, but until they are sufficiently predictive of complex human biology and are fully accepted as alternatives by regulatory authorities, we believe the animal-based safety and efficacy testing will remain critical.

Bob Leasure: Since the FDA announcement, I've also been asked specifically what percentage of our business comes from monoclonal antibodies as they were a major focus of that announcement as the first wave of drugs that would be focused on for NAMS-based test We do not track our business at this time in a way that enables us to specifically identify that data. However, from publicly available data, we know that around 15% of all medicines in development are monoclonal antibodies.

Speaker Change: Since the FDA announcement, I've also been asked specifically what percentage of our business comes from Monteclonal antibodies as they were a major focus of that announcement as the first wave of drugs that would be focused on for an M space testing.

Speaker Change: We do not track our business at this time, and a way that enables us to specifically identify that data. However, from publicly available data, we know that around 15% of all medicines and development are monoclonal antibodies.

Bob Leasure: Moving now to U.S. government's recent introduction of tariffs on virtually all of our international trading partners. and a potential for those tariffs to meaningfully increase. if the U.S. cannot reach specific trade agreements with each of those partners. Let me address the potential direct impacts of the tariffs currently in place. for the majority of our business, the primary components of our products and services. are sourced within the same geographies. That is, most of what we need to deliver our products and services in the U.S., we source within the U.S., and the same is true for outside of the U.S.

Speaker Change: Moving now to U.S. government's recent introduction of tariffs on virtually all of our international

Speaker Change: and the potential for the tears to meaningfully increase if the US cannot reach specific trade agreements with each of those partners.

Speaker Change: Let me address the potential direct impacts of the terrace currently in place.

Speaker Change: for the majority of our business, the primary components of our products and services.

Speaker Change: our source within the same geographies, that is most of what we need to deliver our products and services in the U.S. We've sourced within the U.S. and the same is true for outside of the U.S.

Bob Leasure: A material exception to this rule is the sourcing of NHPs, which we bring into the U.S. from certain Asian and African countries. For these, based upon current tariff levels, we will be paying the 10% tariffs, and we will be working with suppliers and customers to mitigate the financial impact of these additional costs. should the much higher tariff rates that have been talked about previously come to pass. We also expect to work with suppliers and customers to mitigate those potential additional costs as the NHPs are mission critical to the safety testing of new medicine. If the higher tariffs are put into place and exist for some time, we are not in a position at this juncture to predict if or how our clients may prioritize studies or how our supply suppliers may prioritize and allocate their supply going forward.

Speaker Change: A material exception to this rule is the sourcing of NHPs which we bring into the US from certain Asian and African countries.

Speaker Change: For these based upon current tariff levels, we will be paying 10% tariffs and we will be working with suppliers and customers to mitigate the financial impact of these additional costs.

Speaker Change: Should the much higher tariff rates that have been talked about previously come to pass, we also expect to work with spires and customers to mitigate those potential additional costs as the HPs are mission critical to the safety testing of new medicines.

Speaker Change: If the higher tariffs are put in the place and insist for some time, we are not a position of this juncture to predict if or how our clients may prioritize studies or how our suppliers may prioritize and allocate their supply going forward.

Bob Leasure: Based upon current tariffs announced, we have not yet seen any material change in demand. We believe we are beginning to see some cost inflation that is being linked to tariffs, for example, quotes for certain lab equipment and materials for construction projects. We are working to adapt our sourcing and planning strategies to largely mitigate these costs. Should higher tariffs come into play and or be imposed for extended periods of time, we will continue to assess the financial impact and consider whether we will try to pass a long sum, if not all, of these costs to our client.

Speaker Change: Based upon current tariffs announced, we have not yet seen any material change in demand.

Speaker Change: We believe we are beginning to see some cost inflation that is being linked to terrorists, for example, quotes for certain lab equipment and materials for construction projects. We are working to adapt our sourcing and planning strategies to largely mitigate these costs.

Speaker Change: Should higher tariffs come into play and or be imposed for extended periods of time, we will continue to assess the financial impact and consider whether we will try to pass along some of that all of these costs to our client base.

Bob Leasure: Overall, we remain confident going into the second half of fiscal 2025 and are also now preparing for 26 and 27. As I said earlier, the geopolitical and macroeconomic conditions, risks, and uncertainties will remain with us as they do for all companies. We continue to improve, and we remain committed to building a business that will create value for our clients, employees, and our shareholders, and look forward to our future.

Speaker Change: Overall, removing confident going into the second half of fiscal 2025 and are also now preparing for 26 and 27.

Speaker Change: As I said earlier, the geopolitical and macro-economic condition risk and uncertainties will remain with us as they do for all companies.

Speaker Change: We continue to improve and we remain committed to building a business that will create value for our clients, employees, and our shareholders and look forward to our future. I will now hand things over to Beth to provide a financial review.

Beth Taylor: I will now hand things over to Beth to provide a financial overview. Thank you, Bob, and good afternoon, everyone. For the second quarter of fiscal 2025, total revenue was $124.3 million, compared to $119 million in the second quarter of fiscal 2024. This was a $5.3 million or 4.4% increase in revenue from the prior year quarter, and as Bob said earlier, most of this increase was a result of increased NHP revenue within our RMS sector. RMS revenue for the second quarter of fiscal 2025 increased $6.6 million, or 9.1%, compared to Q2 of fiscal 2024. The increase in RMS revenue was primarily due to the higher NHP volume sold, partially offset by lower average selling price for NHPs compared to the prior year quarter.

Beth Taylor: Thank you, Bob, and good afternoon, everyone. For the second quarter of fiscal 2025, total revenue was $124.3 million, compared to $119 million in the second quarter of fiscal 2024.

Beth Taylor: This was a $5.3 million or 4.4% increase in revenue from the prior year quarter and as Bob said earlier, most of this increase was a result of increased in HP revenue within our RMS segment

Beth Taylor: RMS revenue for the second quarter of fiscal 2025 increased $6.6 million or 9.1% compared to Q2 of fiscal 2024.

Beth Taylor: The increase in RMS revenue was primarily due to the higher NHP volume sold, partially offset by lower average selling price for NHPs compared to the prior year quarter.

Beth Taylor: DSA revenue in the fiscal 2025 second quarter was $45.3 million compared to $46.6 million in Q2 of fiscal year 2024. The year-over-year decrease in DSA revenue was primarily driven by a decrease in general toxicology services revenue. Overall, net new DSA orders this quarter were $44.5 million, which is a 5% increase over last quarter and a 27% increase over Q2 of fiscal 2024. The conversion rate in the second quarter of fiscal 2025 was 34.1%, up from 30.1% in the prior year period. The DSA cancellations and negative change orders in the second quarter of fiscal 2025 were approximately 28% lower compared to the prior year's second quarter.

Beth Taylor: DSA revenue in the fiscal 2025 second quarter was $45.3 million compared to $46.6 million in Q2 of fiscal year 2024. The year-over-year decrease in DSA revenue was primarily driven by a decrease in general toxicology services revenue.

Beth Taylor: Overall, Met new DSA orders this quarter were $44.5 million, which is a 5% increase over last quarter and a 27% increase over Q2 of fiscal 2024.

Beth Taylor: The conversion rate in the second quarter of fiscal 2025 was 34.1% up from 30.1% in the prior year period.

Beth Taylor: The DSA cancellations and negative change orders in the second quarter of fiscal 2025 were approximately 28% lower compared to the prior year's second quarter. Cancelations in the trailing 12 month period were approximately 7% less than the prior period.

Beth Taylor: Cancellations in the trailing 12-month period were approximately 7% less than the prior period.

Beth Taylor: The overall operating loss for the second quarter of fiscal 2025 decreased $40.2 million from $43.1 million in the second quarter of fiscal 2024 to $2.9 million in Q2 of fiscal 2025. primarily due to the $26.5 million charge related to the agreement in principle and subsequent resolution agreement and plea agreement with the Department of Justice that was incurred in the second quarter of fiscal 2024 and the $7.6 million settlement payment we received during the second quarter of fiscal 2025 in addition to the $5.3 million increase in revenue previously mentioned. Consolidated net loss attributable to common shareholders in the second quarter of fiscal 2025 totaled $14.9 million or a $0.44 loss per diluted share.

Beth Taylor: The overall operating loss for the second quarter of fiscal 2025 decreased $40.2 million.

Beth Taylor: from $43.1 million in the second quarter of fiscal 2024 to $2.9 million in Q2 of fiscal 2025.

Beth Taylor: Primarily due to the $26.5 million charge related to the agreement and principle and resolution agreement and employee agreement with the Department of Justice that was incurred in the second quarter of fiscal 2024.

Beth Taylor: And the $7.6 million settlement payment we received during the 2nd quarter of fiscal 2025, in addition to the $5.3 million increase in revenue previously mentioned.

Beth Taylor: Consolidated net loss attributable to common shareholders in the second quarter of fiscal 2025 totaled $14.9 million or a 44-cent law for diluted share.

Beth Taylor: This is compared to consolidated net loss attributable to common shareholders of $48.1 million or $1.86 of loss per diluted share in the second quarter of fiscal 2024. For the second quarter of 2025, adjusted EBITDA was $8 million, or 6.4% of total revenue, compared to $3.1 million, or 2.6% of total revenue for the second fiscal quarter of 2024. Non-GAAP operating income for our DSA segment in the second quarter was $5 million, or 4% of total revenue, compared to $8.2 million, or 6.9% of total revenue in the last fiscal year's second quarter. As Bob mentioned, we are focused on our DSA margins, and we expect to see improvement in future quarters.

Beth Taylor: This is compared to consolidated net loss attributable to common shareholders of $48.1 million or $1.86 of loss for her diluted share in the second quarter of fiscal 2024.

Beth Taylor: For the second quarter of 2025, adjusted EBITO was $8 million or 6.4% of total revenue compared to $3.1 million or 2.6% of total revenue for the second fiscal quarter of 2024.

Beth Taylor: non-GAAP Operating Income for our DSA segment in the second quarter was $5 million or 4% of total revenue compared to $8.2 million or 6.9% of total revenue in the last fiscal year's second quarter.

Beth Taylor: In addition, as we experience an increase in Discovery Service revenue and continue to fill recently added capacity, We believe we will see margin improvement through operating that. The book-to-bill ratio for DSA in the second quarter of fiscal 2025 was 1.01 to 1. Our trailing 12-month book-to-bill was 0.93 to 1. DSA backlog was $130.8 million at March 31, 2025, compared to $130.4 million at December 31, 2024, and $142.1 million at March 31, 2024. In our RMS segment, non-GAAP operating income in the second quarter of fiscal 2025 was $15.6 million, or 12.5% of total revenue, compared to $8.2 million, or 6.9% of total revenue in the second quarter of fiscal 2024.

We believe we will see margin improvement throughout purging leverage.

Beth Taylor: In our RMS segment, non-GAAP operating income in the second quarter of fiscal 2025 was $15.6 million or $12.5% of total revenue compared to $8.2 million or $6.9% of total revenue in the second quarter of fiscal 2024.

Beth Taylor: Interest expense in Q2 of fiscal 2025 increased to $13.4 million dollars from $11.1 million dollars in the second fiscal quarter of 2024 primarily due to interest incurred in relation to the second lien notes issued in September of 2024. Our balance sheet as of March 31, 2025 included $19.3 million in cash and cash equivalents as compared to $21.4 million on September 30, 2024 and $38 million on December 31, 2024. In the second quarter of fiscal 2025, we saw significant fluctuations in our working capital based on the timing of NHP deposits required by our suppliers and when we get paid for sales of NHPs by our clients.

Interest expense in Q2 of fiscal 2025.

increased to $13.4 million. $13.4 million.

Beth Taylor: from $11.1 million in the second fiscal quarter of 2024, primarily due to interest incurred in relation to the second-line notes issued in September of 2024.

Beth Taylor: Our balance sheet as of March 31, 2025 included $19.3 million in cash and cash equivalence as compared to $21.4 million on September 30, 2024 and $38 million on December 31, 2024.

Beth Taylor: In the second quarter of fiscal 2025, we saw significant fluctuations in our working capital based on the timing of NHP deposits required by our suppliers and when we get paid for sales of NHPs by our clients.

Beth Taylor: Total net of debt issuance costs as of March 31st, 2025 was $399.5 million compared to $393.3 million on September 30th, 2024. This includes $113.1 million of convertible notes as of March 31, 2025, and our second lien notes of $20.5 million. Cash used in operating activities was $17.3 million for the first six months ended March 31, 2025, compared to $10.4 million of cash provided by operations for the six months ended March 31, 2025. Capital expenditures in the second quarter of fiscal 2025 were $5.5 million, or approximately 4.4% of total revenue. The second quarter fiscal 2024 capital expenditures were $7 million or 5.9% of revenue.

Beth Taylor: Total debt that of debt issuance cost as of March 31st, 2025 was $399.5 million compared to $393.3 million on September 30th, 2024

Beth Taylor: This includes $113.1 million of convertible notes as of March 31, 2025, and are a second 20.5 million dollars.

Beth Taylor: Cash used in operating activities with $17.3 million for the first six months ended March 31st, 2025, compared to 10.4 million of cash provided by operations for the six months ended March 31st, 2024.

Beth Taylor: Capital expenditures in the second quarter of fiscal 2025 were $5.5 million or approximately 4.4% of total revenue.

Beth Taylor: The second quarter of fiscal 2024 capital expenditures were $7 million or 5.9% of revenue. We continue to expect our annual stem for CAPEX for fiscal year 2025 to be less than 4% of revenue.

Beth Taylor: We continue to expect our annual spend for CapEx for fiscal year 2025 to be less than 4% of revenue.

Beth Taylor: We have not provided formal financial guidance for fiscal year 2025. While we continue to feel positive about the progress we have made in recent quarters, we are not providing formal fiscal 2025 guidance at this time. As we stated previously, we hope to provide guidance once we have greater clarity on the market and client demand and clarity on any impact to our business once there's more information on tariffs.

Beth Taylor: We have not provided formal financial guidance for fiscal year 2025, while we continue to fill positive about the progress we have made in recent quarters. We are not providing formal fiscal 2025 guidance at this time.

Beth Taylor: As we stated previously, we hope to provide guidance once we have greater clarity on the market and client demand and clarity on any impact to our business once there's more information on tariff.

Beth Taylor: Our current operating plan forecasts compliance with the updated covenants under our latest amendment to the credit agreement entered into in September 2024.

Beth Taylor: Our current operating plant, forecast compliance with the updated covenants under our latest amendment to the credit agreement entered into in September 2024.

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

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

Operator: At this time, if you would like to ask a question, please press the star and 1 on your telephone keypad. You may withdraw yourself from the queue at any time by pressing star 2. Again, that is star and one for your question.

Speaker Change: At this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may withdraw yourself from the queue at any time by pressing star 2.

Again, that is star and one for your questions.

Matthew Hewitt: And we'll take our first question from Matt Hewitt with Craig Hallam Capital Group. Your line is open.

Speaker Change: And we'll take our first question from Matt Hewitt with Craig Hallum Capital Group. Your line is open.

Matthew Hewitt: Congratulations on a good quarter and the progress that you've made, Bob and Beth. Maybe first up, and thank you for providing the details on some of the movement you've seen here with the FDA and NIH, but regarding the FDA, I'm just wondering, and you provided some of the services that you're already providing that kind of address what the FDA is seeking or looking for. But I guess since that announcement came out, have you changed your marketing to make sure that your customers understand how you can help them navigate these changing times? And what are you hearing from customers on that front?

Matt Hewitt: Congratulations on a good quarter in the progress that you've made, Bob and Beth, maybe first up, and thank you for providing the details on some of the movement you've seen here with the FDA and NIH, but regarding the FDA, I'm just wondering, and you provided some of the services that you're already providing that kind of address what the FDA is seeking or looking for, but...

Matt Hewitt: I guess since that announcement came out have you changed your marketing to make sure that your customers understand how you can help them navigate these changing times and what are you hearing from customers on that front are you are you are you are they are already coming in and saying boy we like that you offer this we want your help anything along those lines will be helpful thank you.

Matthew Hewitt: Are they already coming in and saying, boy, we like that you offer this, we want your help? Anything along those lines would be helpful. Thank you.

Bob Leasure: Matt, thank you for the question. We have been integrating these services, some of them we've acquired over the last couple of years, into our business over the last two or three years. We mainly sell these as part of our discovery sale process and discovery and translational sciences, I should say. And I would say that They've been out there, and we're including them more and more, and we have seen some of those increasing, but not at the pace people may expect. You know, the computational toxicology, the proteomics are things that we're including in our quotes, and people are becoming more educated about it, and we have some great capacity available, and I think it will take off, and we are seeing some growth right now, actually, in those areas, but it's not taking off as much as maybe we'd expect it to start from looking back in 2022, but yes, we have been including those.

Matt Hewitt: Matt, thank you for the question. We have been integrating these services, some of that we've acquired over the last couple of years.

Matt Hewitt: into our business over the last two or three years. We mainly sell these as part of our discovery sale process and discovery and translational sciences, as I should say, and I would say that

They You

Matt Hewitt: They've been out there and we're including them more and more and we have seen some of those increasing but not at the pace people may expect.

You know, the computational toxicology, David.

Matt Hewitt: The proteomics are things that we are including in our quotes and people are becoming more educated about it.

Matt Hewitt: But and we have some great capacity available as and I think it will take off and we are seeing some growth right now actually in those areas, but it's not taken off as much as maybe we would expect to start from looking back in 2022.

Matt Hewitt: But yes, we have been including those. I think we're becoming much more educated. Our customers are becoming educated. And I think some people are changing their approach.

John Segert: I think we're becoming much more educated, our customers are becoming educated, and I think some people are changing their approach, but I think it's mainly right now in the discovery and translational sciences more than probably we're seeing in the safety and efficacy segment, and I'll ask John.

Matt Hewitt: I think it's mainly right now in the Discovery and Translational Sciences more than probably we are seeing in the Safety and Effective Sea.

John Segert: John, do you want to add anything to that?

Speaker Change: Segment, and oh, as John , John , you want to add anything to that John Tegger just on the phone and he may have a better insight to this. John , do you want anything you want to add?

John Segert: John Segert is on the phone, and he may have a better insight to this. John, do you have anything you want to add? Well, I would just echo what you've said about not really seeing an impact immediately. But, you know, I struggle a little bit with what NAMS really means, because many of these are old approach methodologies. They've been around for decades, but they obviously continue to evolve. And, of course, you can point to examples of genetic toxicology testing, computational tox, quantitative structural activity relationship, primary cell cultures using animal or human cells, cell lines, patient-derived xenografts.

John Segert: Well, I would just echo what you've said about not really seeing an impact immediately, but

John Segert: I struggle a little bit with what NAMS really means because many of these are old approach methodologies. They've been around for decades, but they obviously continue to evolve.

John Segert: And of course you can point to examples of genetic toxicology testing, computational talks, quantitative structure, or activity relationship

that primary cell culture is using animal or human cells, salines.

John Segert: These have all been part of our toolkit. And I think what the FDA announcement has given us the opportunity to do is to really collate and describe the contributions that they're making to the company and to our industry. As I mentioned, these continue to evolve. We're looking for opportunities to participate in that evolution. But in terms of feedback from clients, customers, not really seeing that emerge at this point. I think, you know, one thing I would just mention is that the headlines that came out after the FDA announcement I don't think really match what was in the communication.

John Segert: Patient Horizon University. These have all been part of our toolkit and I think what the FDA announcement has given us the opportunity to do is to really collate and describe the contributions that they're making to the company and to our industry.

John Segert: As I mentioned, these continue to evolve. We're looking for opportunities to participate in that evolution but in terms of feedback from clients customers.

John Segert: Not really seeing that emerge at this point. I think, you know, one thing I would just mention is that the headlines that came out after the F.K.A. announcement.

I don't think really match what was in the communication.

John Segert: And many of the changes that FDA is proposing are things that can be celebrated by innovators, because for certain therapeutic modalities, they reflect an ability not to have to check boxes, but to use a weight of evidence approach to evaluating the safety and efficacy of the compound.

and many of the changes that FDA is proposing.

John Segert: are things that can be celebrated by innovators because for certain therapeutic modalities they reflect an ability not to have to check boxes but to use a weight of evidence approach to evaluating the safety and efficacy of compounds.

Operator: That's really helpful.

Operator: Thank you.

Matthew Hewitt: Maybe shifting gears a little bit, Bob, you kind of spoke to the refined optimization plans for your RMS business or RMS sites that you're kind of going through. It sounds like you're trying to get closer to the customers, if I heard you correctly.

Speaker Change: That's really helpful. Thank you. Maybe shifting gears a little bit, Bob, you kind of spoke to the refined optimization plans for your RMS business, or RMS sites that you're kind of going through. It sounds like you're trying to get closer to the customers if I heard you correctly. Are there one, two, or three items in particular that you're really focused on with that kind of the revised plan?

Bob Leasure: Are there one, two or three items in particular that you're really focused on with that kind of revised plan, or is it more broad than that? Well, we announced the plan originally back in December, the revised plan. came about a couple of ways. One, we are looking at how to improve our efficiencies and optimize our facilities quite a bit. And also, we can see increasing costs, and we don't see necessarily that the small animal market is increasing in size. The number of animals that are being sold are not increasing. So, I don't know that we need, you know, we have the ability to grow, but I don't know that we need to build out that capacity right now.

More, is it more broad than that?

Speaker Change: Well, we announced the plan of Rooster Back in December , the Revires Plan.

Kimber, a couple of ways. [inaudible]

Speaker Change: We are looking at how to improve our efficiencies and optimize our facilities quite a bit. Also, we can see increasing costs and we don't see necessarily that the small animal market is increasing in size, the number of animals that are being sold are not increasing.

Speaker Change: So I don't know that we need, you know, we have the bill to grow, but I don't know that we need to build out that capacity right now.

Bob Leasure: In addition, we've, you know, with the transportation system that we've been able to develop after we acquired it a year and a half ago, 18 months ago I guess, we've become much more efficient of transporting, and I don't think we need as many facilities, you know, all over the world. So we considered all that and thought about, you know, how can we really maximize these dollars? If you look at the dollars that we have already achieved and then you look at the dollars that we hope to achieve on that segment of our business, it's a pretty good size turnaround for that business and it's starting to contribute.

Speaker Change: In addition, with the transportation system that we've been able to develop after we acquired it and a year and a half ago, about 18 months ago, I guess.

Speaker Change: We've become much more efficient of transporting and I don't think we need as many facilities all over the place.

Speaker Change: So we considered all of that and thought about how can we really maximize these dollars. If you look at the dollars that we have already achieved.

Speaker Change: And then you look at the dollars that we hope to achieve.

Speaker Change: on that segment of our business. It's a pretty good sized turnaround for that business and it's starting to contribute. So we think this is a much better animal welfare plan.

Bob Leasure: So we think this is a much better animal welfare plan. And much better for our clients, and allows us to be much more efficient, it'll press us to be much more efficient, and I think that's a much better job planning. And I think we, as we have evolved, we've found that we have the ability to do that. And I think that, you know, I think this is a great move. I applaud our team for coming up with this. I think it was a much better plan than what we originally are, and I'm glad that they're always evaluating and looking for opportunities to do a better job, and I think this was significant on their part.

Speaker Change: and much better for our clients and allows us to be much more efficient, it will process to be much more efficient and I think that's a much better job planning and I think we as we have evolved we found that we have the ability to do this.

and I think that

Speaker Change: I think it was a much better plan than what we originally are and I'm glad that they're always evaluating and...

Speaker Change: and looking for opportunities to do a better job. And I think this was significant on their part, not only did we...

Bob Leasure: Not only did we increase the annual benefit, we also accelerated the time in which we can get it implemented, and we'll start seeing some benefits immediately. So I think it was really a win-win all the way around, and I just applaud them for continuing to find ways to be smarter and better about everything we do.

increase the annual benefit.

Speaker Change: We also accelerated the time in which we can get it implemented.

Speaker Change: and we'll start seeing some benefits immediately. I think it was really a win-win all the way around it. I just applaud them for continuing to find ways to be smarter and better about everything we do.

Matthew Hewitt: That's great. And maybe one last one for me. But I think you mentioned during your prepared remarks, that you saw a kind of an increase in demand in Q1 from the beginning of the quarter to the end of the quarter. How have things started off here this quarter? Has that increased demand that you exited Q2 with? Has that kind of contributed or increased here in Q3? Or where do we sit today? Thank you. Yes, Matt, I think, you know, we remember we started this quarter, we had a, you know, we had a lot of weather related issues.

Speaker Change: That's great. And maybe one last one for me, but I think you mentioned during your prepared marks that you saw kind of an increase in demand in Q1 from the beginning of the quarter to the end of the quarter.

Speaker Change: How are things started off here at this corridor? Has that increased demand that you exited Q2 with? Is that kind of contributed or increased here in Q3? Or do we sit today? Thank you.

Matt Hewitt: Yes, Matt, I think, remember we started this quarter, we had a lot of weather related issues.

Bob Leasure: If you recall, we had a lot of ice, we had a lot of facilities that had ice, we had people spending the night at facilities, and I think some things seemed to start a little slow in January, if you ask me. Quoting was good, but people weren't making decisions yet because I think they were fighting some of the other weather-related issues out there, but whatever, after it picked up towards the end of the quarter, and so we were able to have a positive book-to-bill, which I thought was expected. And I would say this quarter, we're now six weeks, I guess, into it, five, six weeks into it.

Matt Hewitt: If you recall, we had a lot of ice, we had a lot of facilities at ice, we had people spending the night at facilities, and you know, and I think some, you know, some...

Matt Hewitt: Things seemed to start a little slow in January if you ask me. Quoting was good but you know people weren't making decisions yet but I think they're fighting some of the other weather related issues out there but whatever after it picked up towards the end of the quarter

Matt Hewitt: And, you know, so we're able to have a positive book to build.

which I thought was, was um...

Matt Hewitt: You know, we expected. And I was at this quarter. We're now six weeks, I guess, into it. Five, five, six weeks into it. Yes, I've been very pleased with the level quoting and closing. We've had a great start to this quarter.

Bob Leasure: Yes, I've been very pleased with the level of quoting and closing. We've had a great start to this quarter.

Bob Leasure: That's great. Congratulations. Thank you very much. Yeah, and I think it indicated, I think we'll see year-over-year improvement in revenue over the next two quarters for this fiscal year. And I also think that we'll start to see a reversal in the decline of the discovery business that we've seen for the last two or three years. I think we'll start to see that reverse in the next six months. So I'm optimistic on both of those fronts. That's great.

Speaker Change: That's great. Congratulations. Thank you very much. I think we'll see year over year improvement in and revenue over the next two quarters for the fiscal year.

Speaker Change: and I also think that we'll start to see a reversal in the decline of the discovery business that we've seen for the last two or three years. I think we'll start to see that reverse in the next six months. So I'm optimistic on both of those fronts.

Frank Takkinen: Thank you.

That's great. Thank you.

Nelson Cox: Frank Takkinen with Lake Street Capital Market, your line is open. Great. Hey, this is Nelson Cox on for Frank and congrats on all the progress this quarter.

Speaker Change: We'll move next to Frank Takkinen with Lake Street Capital Market. Your line is open.

Nelson Cox: Great. Hey, this is Nelson Talks, I'm from Frank, and congrats on all the progress is quartered.

Nelson Cox: Maybe just starting on the NIH side, maybe talk a bit more about any potential impacts you're seeing out there or not seeing and what the feedback is you're hearing. And then I guess more broadly, how insulated do you believe your current customer mix is from potential fluctuating, from potentially fluctuating NIH funding? Well, I think, like the rest, we've heard a lot about the NIH funding, we've heard about proposed budgets. I think that's, and I think that, you know, I heard in the news today people were debating that, whether that's healthy or not, so I think there's ways to go before we determine what NIH funding is going to do.

Speaker Change: Maybe you're starting on the NIH side, maybe talk a bit more about any potential impacts you're seeing out there or not seeing and what the feedback is you're hearing and then I guess more broadly, how inflated do you believe your current customer mixes from potential fluctuating from potentially fluctuating NIH funding?

Thank you.

Speaker Change: Well, I think, like the rest, we've heard a lot about the NIH funding, we've heard about proposed budgets, I think that's...

Speaker Change: and I think you know, I heard news today, people are debating that whether that's healthy or not, so I think there's a ways to go before we determine what NIH funding is going to do.

Bob Leasure: We've also had, you know, at times we hear concerns from universities about their funding, but overall, I would say that we've not seen a dramatic impact yet in our business. We do have sales to the government and we do have sales to universities. And I'd have to ask Beth exactly what percent that is. So we're keeping a close eye on that, but right now, I don't know that we've seen any significant changes as a result of the NIH funding. We may have had one or two customers that said they're not doing anything, but also on the other hand, we may have one or two customers that are picking up and increasing their orders.

Speaker Change: We've also had, you know, at times we hear concerns from universities about their funding but overall I would say that we've not seen a dramatic impact yet in our business.

Speaker Change: We do have sales to the government and we do have sales to universities.

Speaker Change: That is, and I have to ask Beth what exactly what percent that is. So we're keeping a close eye on that, but right now I don't know that we've seen any any significant changes as a result of...

Speaker Change: The NIH funding. We may have had one or two customers that said they're not doing anything but also on the other hand. We may have one or two customers that are picking up and increasing the orders. That's not unusual. That's normal in the ordinary course of business.

Beth Taylor: And that's not unusual, that's normal in the ordinary course of business. So I don't know if there's anything that I would say that's not ordinary yet.

Speaker Change: So I don't know if there's anything that I would say is, it's not ordinary yet. I bet that everything you want to add in terms of the mix of what percent we are.

Beth Taylor: Beth, do you have anything you want to add in terms of the mix of what percent we are? Yeah, for fiscal year 2024, our government revenue to total company revenue is approximately 7%. And I will say quarter over quarter for Q2, we've actually seen on the DSA side and on the RMS side, an increase in revenue in the government sector, US government. Thank you, Beth. Got it. Yeah, thank you. That's that's helpful.

Beth Taylor: Yeah, for fiscal year 2024, our government revenue to total company revenue is approximately 7%. And I will say quarter over quarter for Q2, we've actually seen on the DSA side and on the RMS side an increase in revenue in the government sector, US government sector.

Speaker Change: Thank you, Beth. Got it. Yeah, thank you. That's helpful. And then the positive book to build in line with last quarter, you know, last quarter talked about there being a kind of one large project that drove cancellations higher. I mean, were there any one time events like that this quarter that may have impacted those metrics or anything to call out there?

Bob Leasure: And then the positive book to build in line with last quarter, you know, last quarter talked about there being a kind of one large project that drove cancellations higher. I mean, were there any one time events like that this quarter that may have impacted those metrics or anything to call out? No, I think Beth indicated that our cancellations were down quite a bit this quarter, weren't they Beth? Yes, we were. So, you know, I think that that was encouraging, but that, you know, again, we had a big cancellation in the last quarter. We didn't have any really big cancellations in our Q1.

Speaker Change: Now I think Beth indicated that our cancellations were down quite a bit this quarter, weren't a bit of a difference.

And when that is, we'll use word.

Speaker Change: So, you know, I think that was encouraging, but that, you know, again, we had a...

Speaker Change: A big cancellation in the last quarter. We didn't have any really big cancellations in our Q1. We didn't have any big ones in Q2. Not saying we will or won't have any in Q3, we'll wait and see how that trend develops. But as you look back over 12 months...

Beth Taylor: We didn't have any big ones in Q2. I'm not saying we will or won't have any in Q3. We'll wait and see how that trend develops. But, you know, as you look back over 12 months, I think, as Beth indicated, our cancellations have started to decrease, while our quoting and awards have started to increase. So, I think that's overall a good trend. Yeah, quarter over quarter, we saw a 28%. And the awards were a 27% increase over the last quarter, so I think that's a pretty good indicator of some momentum. Yep, yep. Perfect.

Beth Taylor: I think Beth is as Beth indicated, our cancellations have started to decrease while quoting in awards have started to increase, so I think that's overall a good trend.

Yeah, quarter over quarter. We saw a 28% decrease.

You got it.

Beth Taylor: and the awards were a 27% increase over the last quarter, so I think that's a pretty good indicator of some momentum.

Bob Leasure: And then maybe just one last one. I mean, from an adjusted EBITDA perspective and heard the commentary on for our panelists. No, I think that, in my remarks, I commented on the one area I think we need to improve upon, which is our DSA margins that deteriorated a little bit over the last two quarters. We gave some reasons for that. Some of those jobs are jobs that are coming through that were probably quoted a year ago, and I think a year ago, there were some more discounts offered than probably there are in more recent months.

Yeah. Yeah.

Speaker Change: Perfect, and then maybe just one last one. I mean, from the Justice EBITDA perspective and heard the commentary on expecting continued growth, 8 million in the Justice EBITDA this quarter and understand you're not providing formal guidance, but given all the moving pieces, is there any other color you can maybe provide directionally that may be helpful as we work on our models?

Speaker Change: No, I think that in my remarks I comment on one area, I think we need to improve upon, which is our DSA margins.

Speaker Change: The deteriorated a little bit over the last two quarters. We gave some reasons for that. Some of those jobs or jobs that are coming through that were probably quoted a year ago. And I think a year ago, probably some was it was.

There are some more...

Speaker Change: More discounts offered and probably there in more recent months.

Bob Leasure: But we're evaluating that and making sure that we're going to focus on that. I would like to see us really pick up those margins in the future months. I have a lot of confidence we can do that. Between that and leveraging some of the growth that we have going on and the discovery, I think we have some opportunities to do a better job on the margins there. But I think overall, our G&A costs and some of the things that we're doing, we indicated we thought those would be coming down. I think right now, those are coming down, and we're in pretty good shape.

Speaker Change: But we're evaluating that and making sure that we're going to focus.

Speaker Change: on that I would like to see us really pick up those margins in it.

Speaker Change: in the future months. I have a lot of confidence we can do that between that and leveraging some of the growth that we have going on and the discovery. I think we have some opportunities to do a better job on the margins there, but that's I think overall our G&A costs and some of the things that we're doing.

Speaker Change: We indicated we thought those would be coming down. I think we're right now that those are coming down and we're in pretty good shape.

Nelson Cox: Perfect. Thanks again, guys, and congrats. Thank you.

Perfect. Thanks again, guys, and congrats.

Dave Windley: We'll take our next question from Dave Windley with Jeff. Your line is open. Hi, thanks. Good afternoon. Thank you for taking my questions. On the last one, Bob, is that...

Thank you.

Speaker Change: We'll pick our next question from Dave Windley with Jeffries. Your line is open.

Speaker Change: Hi, thanks. Good afternoon. Thank you for taking my questions on the on the last one, Bob, is that are those steps that you've identified in the areas in DSA on margin things that you think you can?

Bob Leasure: Are those steps that you've identified in the areas in DSA on margin things that you think you can impact quickly, or should we assume that that's a two, three-quarter horizon? I think, well, first of all, I would say that we just didn't identify them with this quarter's results. I think it's been something we've been concerned about for, you know, three or four months. So we have been addressing it, and I think we should start to see some of the benefits sooner than later. As a matter of fact, during the quarter, I think we saw improvement between January, February, and March.

Speaker Change: Impact quickly, or should we assume that that's a, you know, two, three quarter horizon?

Bob Leasure: I think, well, first of all, I would say that we just didn't identify them with this court

Bob Leasure: I think it's been something we've been concerned about for three or four months so we have been addressing it.

Bob Leasure: and I think we should start to see some of the benefits sooner than later. As a matter of fact, during the quarter, I think we saw improvement between January , February and March.

Bob Leasure: So, um, you know. I think... Some of it is in growth, and some of it will come in pricing, and some of it will come in, we know that, you know, we had some higher cost NHPs, if you recall, last, in the end of 20, or Q1 of 25, we had low margins in RMS because we had higher cost NHPs that were going through that, and those higher cost NHPs were still going through those studies on the DFA side. So that's kind of what related to some of the higher animal costs, and then we had additional utilities and supplies that come with some of the weather-related issues.

So, you know,

I think...

Bob Leasure: or Q1 of 25, we had low margins in RMS because we had higher cost NHPs that were going through that, and those higher cost NHPs were still going through those studies on the DSA side.

Bob Leasure: So that's kind of what related to some of the higher animal costs, and then we had to...

Bob Leasure: We have different utilities and supplies to come with some of the weather related issues. I think we'll see some

Bob Leasure: So I think we'll see some immediate benefit, and I'm looking forward to see what we can do as we get that focus. But I'm confident we'll get where we need to be.

Bob Leasure: We'll see some immediate benefit and I'm looking forward to what we can do as we get that focus, but I'm confident we'll get where we need to be.

Bob Leasure: So a couple of clarifications. So the point you're making on the higher-cost NHPs, I understand historically the pointing was to RMS, but you're saying N2Q, those higher-cost NHPs were still a factor in DSA cost structure? Yeah, so they would be, they would still be on studies that were floating into the first three or four months of calendar 25. So, you know, I think as we go into May, most of those are behind us, but we had some of those, you know, still in the system through, through April. Okay.

Speaker Change: So, a couple of clarifications. So, the point you're making on the NH, higher cost NHPs understand historically the point, the, the, the pointing was to RMS, but you're saying

Speaker Change: Yeah, so they would be, they'd still be on studies that were floating into the first three or four months of calendar 25. So, you know, I think as we go into many most of those are behind us, but we had some of those, you know, still in the system through April .

Okay.

Bob Leasure: We were together at SOT and I talked to a number of other folks there as well as I'm sure you did. One of the themes that I thought was pretty prevalent was an intensification of price discounting, and that was, call it mid-March. Has that dramatically changed that quickly? David, I think we heard someone say, I think the price discounting. Six to twelve months ago was bigger than it is today. I think that... I think that some of the... I don't know that it's as prevalent as it was before. I know we don't hear as much about it, but we have some pretty good reoccurring clients that have been, you know, that haven't pushed, and I think we're offering a very, very fair price right now, too, by the way.

Speaker Change: We were together at SOT and I talked to a number of other folks there as well as I'm sure you did. One of the themes that I thought was pretty prevalent.

Speaker Change: was an intensification of price discounting. Has that, and that was called mid-March. Has that dramatically changed that quickly?

Speaker Change: David, I think we heard some of this. I think the price is discounting.

Speaker Change: 6 to 12 months ago was bigger than it is today.

Um, I think that, um,

I think that some of the

Speaker Change: I don't know that it's as prevalent as it was before.

Speaker Change: I know we don't hear as much about it, but on the other hand, we have some pretty good reoccurring clients that have been...

Speaker Change: You know, that haven't pushed. And I think we're offering a very, very fair price right now, too, by the way. So, we're not, I don't think we're at the pricing where we were two and three years ago.

Bob Leasure: So we're not, I don't think we're at the pricing where we were two and three years ago. So, compared to three years ago, yes, there's still some discounting, but I don't think it's the level it was six to 12 months ago. Okay.

Speaker Change: So, compared to three years ago, yes, there's still some discounting, but I don't think there's a level it was six to twelve months ago.

Bob Leasure: And you kind of answered the question, but I thought it worth asking just to make sure in RMS, the increase coming from NHP revenue, and I think Beth more specifically higher volumes of NHP sales at lower prices. I wanted to see if the NHP services had any part in that, and if so, how much. Yes, the NHP services actually are continuing to increase, and I will tell you we're actually bringing a lot of boarding capacity on board this quarter, actually. And so we'll continue to increase. But I know for the year, we were going to see about a 20 percent increase.

Speaker Change: Okay. You kind of answered the question, but I thought it worth asking just to make sure in RMS the increase coming from NHP revenue, and I think Beth more specifically said

Speaker Change: Higher volumes of NHP sales at lower prices. I wanted to see if the NHP services had any part in that and it's so how much.

Speaker Change: Yes, the NHP serves as actually our continuing increase, and I would tell you we're actually bringing a lot of boarding capacity on board this quarter, actually, and so we'll continue to increase, but I know for the year...

Beth Taylor: I don't know what it is quarter over quarter. Beth, do you have that immediately available? I don't know. We will. Yeah, we'll have it here in a few seconds.

Speaker Change: We were going to see about a 20% increase. I don't know what it is, quarter to quarter, but you have that immediately available.

Beth Taylor: I don't know who we will. Yeah, we'll have it here in a minute.

Bob Leasure: Okay, I'll ask you a last question then. So you mentioned in your prepared remarks continuing to integrate your scientific services. Is that just a reference to continuing to kind of better integrate the acquisitions that you've made over a number of years or is there something more specific there like you know, a consolidated client portal or, you know, technology stack or, you know, something like or say, you know, a go to market in the sales force that is pulling those together in a different way. I just wanted to explore your choice of words there. Right. I'll try to do the best I can to explain what I mean.

A few seconds.

Beth Taylor: Okay, I'll ask you a last question then. So you mentioned in your prepare marks continuing to integrate your scientific services. Is that just a reference to continuing to kind of better integrate the acquisitions that you've made over a number of years or is there something more specific there like.

Beth Taylor: You know, a consolidated client portal or, you know, technology stack or, you know, something like, or say, you know, a go-to market in the sales force that is...

Beth Taylor: Pulling those together in a different way. I just wanted to explore your choice of words there.

Beth Taylor: Right, I do do the best I can explain what I mean. We believe and I believe that our clients do value speed and time.

Bob Leasure: We believe and I believe that our clients do value speed and time. So we track very closely our ability to deliver what we say we're going to deliver on time. That's a really key component of our business. The other key component to speed is when we integrate our services, we can also help our and accelerate their speed in the product development. And integrating those services are really critical. But it doesn't, when we put 14 companies together, two and three years ago, we were 14 companies. We weren't integrated. So developing the project management systems that we have developed in-house has taken multiple years.

Beth Taylor: So we track very closely our ability to deliver what we say we're going to deliver on time. That's a really key component of our business.

Beth Taylor: The other key component to speed is when we integrate our services, we can also help our client and accelerate their speed and the product development.

Beth Taylor: And integrating those services are really critical, but it doesn't, when we put 14 companies together two and three years ago, we were 14 companies, we weren't integrated. So developing the project management systems that we have developed in-house has taken multiple years.

Bob Leasure: Changing the culture to get people to respect those project management systems and use them and have great data in and great data out has also been an important evolution of our company. So, as we have been able to integrate those services so that we can combine the science and what we learned in the development stage through the safety assessment stage, we can add more value for our clients and when we add more value and deliver on time and we accelerate speed, again, that's the value proposition that we are asking for. So when I say integrate, yes, it means being one company, but it is also how do we integrate and communicate that we create more value for our clients and more speed and improve the ability to interpret that data so we can improve their scientific development schedule.

changing the culture to get people to respect.

Beth Taylor: Those project management systems and use them and have great data, and so have great data out has also been an important evolution of our company.

Beth Taylor: So as we have been able to integrate those services so that we can

Beth Taylor: Combine the science of what we learned in the development stage through the safety assessment stage.

We can add more value for our clients.

Beth Taylor: and when we add more value and deliver on time, and we can accelerate speed, again, that is the value proposition that we are after.

Beth Taylor: So, when I say integrate, yes, it means being one company, but it is also how do we integrate and communicate that we create more value for our clients and more speed and improve the ability to interpret that data so we can improve their scientific development.

John Segert: And John, did I say that right? You've got it pretty close. It's a combination of making organizational realignments, providing the software tools to be able to track project movement, and creating accountability and expectation that on-time delivery is not an option. All right.

schedule. And John, is that, did I say that right?

You got it pretty close.

Thank you. It's a combination, David.

Beth Taylor: of making organizational realignments, providing the software tools to be able to track a project movement and creating accountability and expectation that on time delivery is not an option.

Operator: Thank you, David.

Beth Taylor: Beth, did you find that data? Thank you. Yes, yes, our NHP service revenue did increase quarter over quarter by about 10%. Okay, thank you. Thank you, David. Thank you.

Beth Taylor: All right. Thank you, David. Beth, did you find the data? Thank you [inaudible]

Beth Taylor: Yes, yes, our NHP service revenue did increase quarter over quarter by about 10 percent.

Okay, thank you. Thank you, David. Thank you You

Operator: And it does appear that we have no further questions at this time.

Speaker Change: And it does appear that we have no further questions at this time. I would now like to turn it back to Bob Leasure for any additional or closing remarks.

Bob Leasure: I would now like to turn it back to Bob Leasure for any additional or closing remarks. I'd like to thank everyone for joining today's call and obviously we're feeling optimistic with the level of DSA quoting and awards that we're seeing. We're pleased with our RMS results this past quarter, and we feel that there's a path to improving the DSA margins starting in Q3 of fiscal 25.

Bob Leasure: I'd like to thank everyone for joining today's call and obviously we're feeling optimistic with the level of DSA quoting and awards that we're seeing.

Bob Leasure: Stay back. We will continue building Inotiv as a high-touch, flexible provider with strong scientific capabilities that is focused on a client's needs and 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 these details to get better every day.

Bob Leasure: We will continue building Inotiv as a high-touch flexible fighter and strong scientific capabilities that is focused on the client's needs and a positive environment for employees to have a career and grow and generate positive returns for our shareholders.

Bob Leasure: We'll continue to pay attention to these details to get better every day Also, I'd like to add that we are going to be planning an investor day at our facility in Rockville, in Rockville, Maryland on Thursday, May 29th We'll continue to pay attention to these details to get better every day

Bob Leasure: Also, I'd like to add that we are going to be planning an investor day at our facility in Rockville, Maryland on Thursday, May 29th. We look forward to further expanding on our strategic plan and our focus on client excellence. Thank you for your time today.

Bob Leasure: We look forward to further expanding on our strategic plan and our focus on client excellence.

Thank you for your time today.

Operator: This does conclude today's program. Thank you for your participation. You may disconnect at any time, and have a wonderful evening. Thank you for listening. and Melissa Walbert. and John Coleman.

Bob Leasure: This does conclude today's program. Thank you for your participation. You may disconnect at any time and have a wonderful evening.

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