Inotiv, Inc.

Greetings and welcome to Innitiv Inc's third quarter fiscal 2021 financial results conference call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If you would like to ask a question during today's event, please press star 1 on your telephone keypad. If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Callie Aul of the Equity Group. Thank you. Please go ahead.

Thank you, Donna, and good afternoon, everyone. Unitive Inc.' 's third quarter fiscal 2021 financial results were released today after the market closed. A copy of the earnings release can be found in the investor section of the company's website at www.unitiveco.com. As a matter of formality, I need to remind you 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 risk 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. Please refer to the company's SEC filings for further guidance on this matter. Management also will discuss certain non-GAAP financial measures in an effort to provide additional information for investors. The definition of these non-GAAP measures and reconciliation to the most comparable GAAP measures is included in the company's financial results press release in corresponding Form 8K. Joining us from the company this afternoon are Bob Leisure, President and Chief Executive Officer, Beth Taylor, Chief Financial Officer, and John Sagarts, Chief Strategy Officer. Bob will begin with some opening remarks, after which Beth will present a summary of the company's financial results. Then we will open the call for questions. Now it's my pleasure to turn the call over to Bob.

All right. Thank you, Callie, and good afternoon to everyone. Thank you for joining us today. This quarter we continue to make significant progress executing our strategy to build a complete suite of contract research services that span the entire drug discovery and preclinical development continuum. With expanded in-house capabilities, we increasingly are engaging clients earlier in the drug discovery process and serving their needs more comprehensively during the full journey to clinical development. Our recent success has been supported by three strategic growth pillars. One is the acquisitions of strategic assets. Two, the expansion of existing operations and services. And three, focus of startup of new operations and services. First, I'll talk about the acquisitions. Regarding the acquisitions, this quarter, we meaningfully enhanced our service offerings and scaled into business with the acquisitions of Histotox Labs and Boulder Biopath, which closed on April 30th and May 3rd, respectively. These acquisitions now comprise our Boulder, Colorado operations. and both delivered strong debut performances for Intative, contributing approximately $4.3 million of combined revenue during May and June of 2021, which corresponds to an annualized revenue run rate of approximately $25.8 million. Strategically, the Boulder Acquisitions Expander histopathology and non-clinical pharmacology services are bringing us highly complementary client base, predominantly consistent of emerging biopharma companies, many of which focus on cell and gene therapy. We are pleased with the progress of the integration of HISTATOX and Boulder Biopath. We are already capitalizing on existing cross-selling opportunities that will further bolster NXIV's overall growth. We are very optimistic that these acquisitions will create substantial value for our clients and shareholders. much like we accomplished with the purchase of Seventh Wave in July of 2018, Smithers of Vons in May of 2019, and Preclinical Research Services in December of 2019. After the quarter ended, we also announced the acquisition of Missouri-based Gateway Pharmacology Laboratories. While Gateway's annual revenue run rate is relatively small at approximately two million, it brings us key talent and expertise to assist clients early target validation activity, and to help evaluate the efficacy and safety of new molecular entities designed for the treatment of kidney and heart disease. Strategically, gateway acquisition does tell well into our St. Louis operations and will be part of our St. Louis operations. Regarding the expansion of existing operations, in May of 2021, We purchased the previously leased St. Louis facility for approximately $4.7 million. In June, we commenced the construction on the unfinished shell space at the 50,000-square-foot facility. The expansion will add office and laboratory capacity to accommodate our growing client base and diversity of service offerings. In particular, the expansion will include laboratories for increased DMPK technology and capability, as well as new cell and molecular equipment biology tools capable of delivering in vitro solutions in pharmacology and toxicology early in the drug discovery phase. We expect the St. Louis expansion to add approximately 20,000 square feet of capacity to support our future growth, including new business opportunities. They're being derived from Histotox and Boulder Biopath, and we are targeting project completion in at the beginning of the second quarter of fiscal year 2022. Out of Fort Collins facility, we invested more than a million dollars over the last year to make improvements, expand capacity, and broaden our services. And we're currently evaluating further expansion opportunities at this location. And Evansville, we recently initiated design planning for another expansion We're very pleased with the last expansion in Evansville, which went to operation in March of 2020. We plan to add additional capacity there. We expect the design, build, and validation to be completed within 24 months. In Boulder, they expanded the facilities last year just prior to the acquisition. In addition, We are increasing the lease space by an additional 9,000 square feet beside our existing site to support the additional strong demand that we are receiving for our services since the acquisition. Finally, in Gaithersburg, we are actively looking for additional space to address new growth opportunities and start-up operations at that location. Regarding the start-up of new operations and services, over the last two quarters, we announced key initiatives to deliver additional services. In January, we announced initiating SEND data reporting in-house. In February, we announced starting clinical pathology services. In March, we announced the launch of in-house cardiovascular safety pharmacology capabilities. Each of these three development initiatives were launched in our fiscal second quarter and have now been validated and have incoming orders, and all should begin to contribute to our revenue in the fiscal fourth quarter. In our fiscal third quarter, we have commenced three additional startup initiatives, which we've announced that we believe will deliver significant long-term revenue and value for Initiv. We've recruited leaders to manage these three new initiatives, and we are moving to accelerate these startups. In summary, in June, we announced the establishment of in-house medical device histology and pathology services, which we previously had outsourced to third parties. Of note, we recruited Nicolette Jackson, an expert in medical device pathology, to spearhead this new business. In July, we acquired key assets from Millipore Sigma's BioReliance portfolio to start up our own in-house genetic toxicology business. Under sales-based royalty agreement that did not require any upfront funding from us, we acquired standard operating procedures, stock cultures, historical control data, and client list. Of note, we recruited Dr. Kapala Krishna, pharmaceutical industry veteran with experience in drug discovery and clinical safety evaluation to lead our entry into genetic toxicology arena. In support of this new offering, We expect to lease space near Millipore Sigma's current facilities in Rockville, Maryland. Also in July, we purchased the physical assets of a tenancy-based laboratory service provider that ceased operations. These assets, which include state-of-the-art cell molecular biology instrumentation, stock consumables and chemicals, lab bench work, and office furniture, will accelerate the completion of a new regulated laboratory operation that we plan to build in support of our broadening biotherapeutics client base. We acquired these assets for approximately $1.3 million, which we believe is a substantial discount to our estimate of fair market value, and currently are exploring locations for the operations, as well as building the scientific and business teams that will execute on ENTA's expanded biotherapeutics initiative. Of note, we appointed a new Vice President, Biological Services, Kenneth Schwartz, who will be responsible for building our regulated biotherapeutics operation. Dr. Schwartz joins us with more than three decades of global experience, supporting all aspects of clinical development, including recent tenure for Rexel, where he led and influenced a 20-year evolution and bioanalytical sciences and translational pharmacology, as well as developing genomic and individualized medicines. Simultaneously, across our organization, we have continued to make broad expansion investments in GNA, including our people, our infrastructure, systems, and services. So in summary, during our fiscal third quarter and beginning Our fiscal fourth quarter, we made significant investments in our business through acquisitions, internal expansion, and embedded operational startups, all designed to augment our future growth. Moreover, we continued to invest in our talent and benchmark infrastructure systems across the entire organization. The successful equity and debt financings we completed in April 2021 provided us with net proceeds of approximately $49 million and $17 million, respectively, facilitating our ability to make these critical investments in the near future. We thank our new shareholders and the team at First Internet Bank of Indiana for their support. I'd like to note that after the quarter ended, we did receive notice that our PPP loan totaling $4.9 million has been forgiven. Moving to a few of our third quarter fiscal 2021 financial highlights. Initiz revenue grew by approximately 45% year-over-year to $22.9 million, driven by internal growth of $2.9 million, combined with a $4.3 million of incremental revenue from Crystal Talks and Boulder Biopath during the months of May to June. Gross profit increased approximately 51% year-over-year to $7.6 million due to higher revenue. Our strategic growth investments we made this quarter drove higher operating expenses, including incremental acquisition and integration costs related to histotoxic-folded BioPath, incremental startup costs for internal investments and new service offerings, and higher recruiting and retention-related expenses. However, our adjusted EBITDA increased approximately 148% to 2.2 million from 894,000 in the prior year quarter, demonstrating the underlying leverage in our business as we scale. Finally, we are pleased that after a 45% growth in revenue, we were able to achieve a book-to-bill ratio in the third quarter of 1.53 times for our services business. and we ended the period with a backlog of 62 million, which is up 15% compared to 53.9 million in March 31st of 2021, and up 68% from 36.9 million at June 30th, 2020, indicating current strength of our business. We're pulling several levers to improve longer-term profitability, including making scalable investments reducing outsourcing by bringing key capabilities in-house, driving cross-selling initiatives, taking advantage of purchasing opportunities, lowering our client acquisition costs as a percent of revenue, leveraging existing direct fixed costs, and reducing corporate overhead as a percentage of revenue. In the third quarter, adjusted unallocated corporate G&A was approximately $3.1 million, or 13.5% of revenue compared to 16.6% of revenue for the same period last year. And we believe we'll continue to see this figure decline as we continue to grow. In closing, we've been assembling highly complementary assets and an extremely talented team under one roof, all dedicated to providing a white-glove service to our clients. We believe that we can grow faster than the broader CRO market due to our ability to cross-sell newly created and acquired solutions, our success for retaining clients, our ability to identify and complete attractive acquisitions, our access to the capital markets, and our efforts to assemble talent to complete, support, and integrate all of our businesses. We have continued to significantly transform Inventive. and believe that our best is yet to come. We will strive to outperform our CRO peers with service, flexibility, innovation, and attention to the details, creating a unique opportunity for us to accelerate our growth. With that, I will turn the call over to Beth Taylor, our Chief Financial Officer, to recap our fiscal 2021 third quarter financial results in more detail. Beth, please go ahead.