Inotiv, Inc.

Hello and welcome to Initive Inc's first quarter fiscal 2023 financial results conference call and webcast. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Devin Sullivan. Please go ahead.

Thank you, Kevin, and thank you everyone for joining us today for INITIB's fiscal 2023 first quarter financial results call. Before we begin, I'd like to remind everyone that some of the statements that management will make on this call are considered forward-looking statements, including statements about the company's future operating and financial results and plans. Such statements are subject to risks and uncertainties that could cause actual performance or achievements to be materially different from those projected. Any such statements represent management's expectations as of today's date. You should not place undue reliance on these forward-looking statements and the company does not undertake any obligation to update or revise forward-looking statements, whether as a result of new information, future events, or otherwise. 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. A definition of these non-GAAP measures and reconciliation to the most comparable GAAP measures are included in the company's earnings release, which will be posted in the investor section of the company's website at innovativeco.com and is also available in the form AK filed with the Securities and Exchange Commission today. Joining us from the company this afternoon are Bob Leisure, President and Chief Executive Officer, Beth Taylor, Chief Financial Officer, and John Sagart, Chief Strategy Officer. Bob will begin with some opening remarks, after which Beth will present a summary of the company's financial results, and then we'll open the call for questions from our analysts. It is now my pleasure to turn the call over to Bob Leisure, President and CEO of Innotip. Bob, please go ahead.

Thank you, Devin, and good afternoon, everyone. I appreciate you taking time to join us today. It wasn't that long ago that we got together to discuss our year-end financial results, so we'll try to keep remarks today brief. Our results for the first quarter came in as forecasted in our Q4 conference call. Revenues increased 45.8% to $122.8 million from $84.2 million in last year's first quarter, and revenues for DSA and RMS business segments increased from last year's first quarter, although results at the RMS business were impacted by our decision to temporarily pause shipping NHPs from Cambodia, following the recent allegations against our NHP supplier employees and government officials in that country. Adjusted EBITDA for the quarter was a negative 5.5 million as compared to an adjusted EBITDA of 10.1 million in Q1 of fiscal 2022. Given by the effects of the temporary halt of NHP sales, inflationary pressures on product expenses, energy and wages, and professional fees, expenses related to NHP issues during the quarter, which impacted audit, legal, and third-party professional fees, totaling approximately $1.3 million. The last two quarters have presented some challenges for Initive due to the pause of NHP imports and sales, closure of other facilities, and cost increases, and I remain grateful for the hard work of our team support of our shareholders, and the commitment of our customers. Although headwinds persist in certain aspects of our business, we believe the foundation we've set and the decisions and investments we have made during the last two quarters will make us stronger and a better company. We expect to see the benefits in our performance for the balance of this year and in future years. The business is positioned to achieve above-market revenue growth rates and expansion margins through a combination of price increases, increased organic sales growth, synergies from our acquisitions and expansions over the last 14 months, and the benefits from our ongoing site optimization initiatives. We continue to guide towards long-term revenue growth of high single to low double digits and long-term EBITDA margins of 18 to 22%. Before I move on, I also want to say we're very proud of the recent third-party acknowledgement by being recognized as one of the top – recognized as one of the 2023 top USA workplaces. Eligibility for this award is assessed via third-party anonymous questionnaire sent to all of our employees. So we are particularly proud that they feel we are creating a workplace environment that attracts, develops, rewards, and retains significant talent in our industry. Let's talk a bit about our DSA and RMS business segments. and then I will provide an update on how we are working to resolve and participate in advancing solutions to the NHP situation before turning things over to Beth. Our DSA business generated first quarter revenues of $41.1 million, up 25.3% from revenue of $32.89 in last year's first quarter. This first fiscal quarter has typically been our weakest quarter due to low seasonal bookings and less hours worked during the holiday season, in our DSA business and reduced research model demand in our RMS business. The increase in the DSA revenue was primarily driven by revenue generated from integrated laboratory systems LLC, which was acquired in January of 2022. The remaining increase was primarily driven by an increase in general toxicology services. In Q2, we expect to complete some of our previously announced expansion projects. As we complete fitting out laboratory space, validating the new equipment and establishing our processes, we'll add to the overall depth and breadth of our services portfolio and expand our client service capabilities, which are designed to enhance both overall quality and margins by reducing our reliance on third-party outsourcing. These include our Boulder, Colorado expansion, which was completed in December of 22. the opening of our Kalamazoo pathology site in January of 23, the continued work on our Rockville, Maryland site, which is in process of becoming operational and expected to be completed by the end of Q2 fiscal 2023. We're also progressing with plans to expand our Fort Collins facility, which we anticipate should be operational towards the end of fiscal 2023. Once completed, these expansions in total are estimated to increase our DSA capacity by 30% and expand our annual DSA revenue capacity by $50 million. Book-to-bill was flat again in Q1 of 2023. And again, we experienced a high level of cancellations, a higher level of cancellations than in Q1 fiscal 2022, and in line with previous quarter's cancellations. Our RMS business, we now have a full year of RMS operations under our belts and remain very optimistic about the prospects for this business. Our RMS segment revenue rose 58.9% to $81.7 million from $51.4 million in last year's first quarter. As a reminder, last year we closed the InVigo transaction on November 5th and therefore did not recognize a full quarter of sales. And then as stated earlier, the decision to temporarily pause shipping and importing of NHPs from Cambodia in mid-November of 2022 impacted our Q1 fiscal year 2023 RMS revenue. Our site optimization plan for our RMS segment remains on track, and we made good progress during our first quarter of 2023 and continue to do so this quarter. During the first quarter of fiscal 2023, we completed the shutdown of the Dublin, Virginia facility and initiated the relocation of our operations in Hazlett, Michigan and Boyertown, Pennsylvania to our newly refurbished facility in Denver, Pennsylvania. We expect the Hazlett and Boyertown facility closures to be completed towards the end of fiscal Q2, 2023. During the current Q2, we also initiated the relocation of two facilities in Indianapolis, which we hope to be completed during fiscal Q3. We have recently completed the previously announced consultation process and will be relocating this work to our recently updated Netherlands facility. This process will start immediately, and we look to be completed by the end of our fiscal Q3. We are still working through the consultation process as it relates to the potential site optimization plan in UK to consolidate our operations at Blackthorn UK to our other site in the UK. We expect to complete the consultation process with our employees by the end of this month. We believe that the optimization of our production network footprint will allow us to drive operating leverage to that segment of our business and reduce future capital expenditures required to service a smaller number of more efficient facilities. In addition, as the production of these facilities are relocated, we are taking the opportunity to revise our product distribution plans, including our delivery routes and warehousing, and this review is currently in process. We believe this will allow us to further improve efficiency, elevate customer service, and enhance margins. With respect to pricing, we did initiate price increases related to the RMS business. These new prices are going into effect during our fiscal Q2. These will help address the wage and operating expense increases we saw during 2022 and which impacted margins over the last two quarters. As for the NHP business update, as we outlined in our last call, we said we'd resume shipping HPs from Cambodia origins once we could reasonably confirm that they were purpose-bred. Subsequent to January 13, 2023, and after an internal analysis and review, the company has shipped a select number of its Cambodian NHP inventory. However, the company is not currently shipping Cambodian NHPs at the same volumes that it was prior to the events on November 16, 2022. In our call four weeks ago, we outlined the anticipated NHP pricing changes, mainly related to NHPs in the U.S., and we do not believe that there are any substantial changes since that call. In addition, in our call a few weeks ago, I also indicated that we plan to conduct on-site audits in Cambodia during Q2. These audits are currently underway, and we are working to establish even more robust procedures for future imports. I appreciate the ability to have our employees onsite in Cambodia. We will not make any further comments or set a timeframe for any resolution until we can complete the audits and agree to these new procedures. At this time, we are also focused on working with our suppliers and developing a long-term solution to establish additional procedures which we can be comfortable assuring ourselves and our customers we only import to provide purpose-bred NHPs from Cambodia. We expect to establish new procedures before we will resume Cambodian NHP imports. We also expect that future imports of NHPs from Cambodia will be dependent on working with third parties to establish additional procedures. We expect these procedures to go beyond the reliance of CITES documents, which has been relied upon in the past. We have scientists inside and outside of our organization working rapidly towards establishing new testing procedures for importing purpose-led Cambodian NHPs and meeting the needs of drug discovery and development in the U.S. In the meantime, we are still importing from other countries to satisfy demand of our DSA business segment to our RMS clients. I understand that there are questions as to the details of the procedures we are implementing to ensure the origin of these NHPs. Although I will not be providing specifics, the Testing we are developing aims at determining with a high degree of certainty that the animals we supply for biomedical research are purpose-bred NHPs. As it relates to our outlook, we are reiterating our full-year fiscal 2023 guidance of at least $580 million in revenue and at least $75 million of adjusted EBITDA with adjusted EBITDA margins of approximately 17% for fiscal 2023 nine-month period ending September 30th, 2023. We continue to expect that capital expenditures will moderate from 2022 and will be no more than 5% of sales during fiscal 2023. As a reminder, this guidance includes the resumption of shipping some of our existing Cambodian NHP inventory beginning in Q2 of fiscal 2023. Although we've had some unexpected events and headwinds over the last two quarters, I remain pleased with our response to these events over the last two quarters and our progress over the last five years. We are becoming a much better company. We've made significant investments in our people, process, and procedures. These investments are allowing us to integrate our acquisitions, streamline our operations, further improve our client service, and mind-material operating synergies. As we continue to improve, I want to again recognize the commitment and dedication of our innovative team. By working together and trusting in one another, we continue to play a vital role in helping our clients discover and develop life-changing therapies as we strive to be the best in the industry. With that, I'll turn it over to Beth, our Chief Financial Officer. Beth, please go ahead with the financial overview.