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spk03: Good afternoon and welcome to the Innative Second Quarter Fiscal 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note that this conference is being recorded. I will now turn the conference over to our host, Devin Sullivan, of the Equity Group. Thank you. You may begin.
spk05: Thank you, Diego, and thank you, everyone, for joining us today for INITIB's fiscal 2023 second quarter financial results conference 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 will also 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 has been posted to the investor section of the company's website, www.initiveco.com. and is also available in the Form 8-K filed with the Securities and Exchange Commission. Joining us from the company this afternoon are Bob Leisure, President and Chief Executive Officer, Beth Taylor, Chief Financial Officer, and John Sagarts, the company's 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, Bob, please go ahead.
spk02: Thank you, Devin, and good afternoon, everyone. We appreciate you taking the time to join us today. Our results for the second quarter reflected growth across both of our business segments. The total revenues increased 8% to $151.5 million from $140.3 million in last year's second quarter, with revenues at our DSA and RMS business segments increasing 20%, 20.2%, and 3.3% respectively from last year's second quarter. Our DSA business is benefiting from the targeted investments we have made and continue to make to expand our service offerings. And we are excited about the progress that we're and what these enhancements can deliver for our clients, our industry and our shareholders. As we continue to make progress as planned and filling our growing capacity, we expect improvements revenue and margins as we continue through the year. In our RMS business, in the second quarter, we did ship some of the NHPs in our inventory after verifying their origin as purpose-bred. Although NHP volumes were significantly below historical levels, we realized benefits from the favorable pricing we implemented during the second quarter. We have also continued to implement various consolidation and optimization activities in our RMS operating footprint, which are expected to improve production efficiencies and animal welfare as they come online and are completed. We returned to a positive adjusted EBITDA in the second quarter, achieving $17.1 million, which was below the $25.3 million we reported in the same period last year, but represented a significant improvement from the negative $5.5 million we reported in the first quarter of fiscal 2023. Adjusted EBITDA included an increase in G&A expenses in the second quarter of $7.7 million compared to the same period last year. G&A expenses in Q2 included $6.7 million of legal and third-party fees primarily related to Cambodian NHP matters, the Cumberland, Virginia ongoing investigation, the third amendment to our credit agreement, and defense on pending securities litigation. By way of comparison, the legal and third-party fees in Q1 were $3.4 million. These legal and third-party expenses are not being adjusted out of the adjusted EBITDA. Based on current information, we expect legal and third-party fees to be lower in the third quarter fiscal 2023. Let's move on to a discussion on performance over DSA and RMS business segments. I'll then turn things over to Beth for review of our results. Our DSA business generated second quarter revenues of $47 million, up 20.2% from revenue of $39.1 million in last year's second quarter. Our performance rebounded as expected from what is typically a seasonally slow first quarter. The improvement in our DSA business driven by increasing revenue within the existing operating structure, plus we are beginning to see new customers and increasing sales in the genetic toxicology services we brought online at our facility in Rockville, Maryland. Our facility build-out at Rockville is now substantially complete, and we are continuing to validate the equipment and assays required to support growth in both the genetic toxicology and biotherapeutic businesses. We also have seen increasing quoting and activity related to recently expanded areas in our discovery and histopathology service lines. The expansion of our Fort Collins facility remains on track and should be operational towards the end of fiscal 2023. The book to bill ratio at DSA in the second quarter was 0.95 times. Our backlog was 145.7 million. up from $133.6 million in Q2 of 2022. Turning to RMS revenues rose 3.3% to $104.5 million from $101.2 million in last year's second quarter. Revenues at RMS increased nearly $23 million from the first quarter of fiscal 2023. As a reminder, we closed the Invico transaction on November 5th, 2021. So for comparative purposes, we are for the first time since the acquisition comparing full quarter over quarter operational results. The increase this quarter was driven by favorable pricing for multiple product lines, including NHPs, mall research models, and TechLad diet, which helped offset lower NHP volumes, as well as increased expenses which we discussed in Seoul in Q1 fiscal 2023. Our site optimization plan for the RMS segment remains on track. We made good progress during our second quarter of 2023. We completed the plan shutdowns of Hazlet, Michigan and Boyertown, Pennsylvania facilities and their consolidation into a newly renovated facilities in Denver. The consolidation of two additional facilities in Indianapolis to other operating facilities is underway, and that activity will be completed by the end of the current quarter. The relocation of our RMS facility in France to the recently updated operations in the Netherlands is now underway. We expect to have this process completed by the end of this current third quarter. We have also completed the consultation and planning process to relocate our Blackthorn UK facility to our other existing operations in the UK and currently expect this relocation to be completed in the third quarter of fiscal year 2024. During Q2 of fiscal year 2023, we announced that we will be closing the small RMS facility in St. Louis and relocating its operation into existing facilities in St. and other facilities. This will be completed by the end of this quarter, the third quarter. In connection with these closures and relocations, we are in the process of revising our product distribution plans, including our delivery route and warehousing, and this will allow us to further improve efficiencies, elevate customer service, and enhance margins. With respect to the NHP situation, as we indicated in previous calls, sent a five-member team to Cambodia in early February 2023 to conduct an audit of the two facilities owned and operated by Vanny's Science Development Limited. The audit consisted of a review of select animal history and health records, diet composition logs, water testing results, breeding records, animal treatment records, animal welfare practices. The audit was conducted on a sample basis for a select number of NHPs. There were zero critical findings. They did demonstrate commitment to future genetic testing for parentage with an investment in laboratory analytical and support equipment aimed at supporting future exports of NHPs from Cambodia. We'll continue to work in concert with our suppliers and scientists both inside and outside our organization to develop a new long-term standard for DNA testing to verify the origins of NHPs and ensure ourselves and our clients will continue to only import and sell purpose-bred NHPs. I will remind you that also any such testing we develop may be subject to review and acceptance by government agencies, including U.S. Fish and Wildlife Service. We will not be in a position to respond to any questions on any open matters concerning our suppliers, our competitors, or any ongoing government investigation. In the meantime, we are continuing to identify import and sell NHPs from sources other than Cambodia suppliers, and we believe that we have an adequate supply of NHPs to meet our internal DSA client demands to support the ongoing discovery of life-changing and life-saving therapies. As it relates to our outlook, we expect margin and earning improvements from the combined effective of our DSA expansions, integrations, synergies, and RMS site optimization initiatives once completed and fully operational. We believe the additional capacity and services being added should eventually allow for an annualized 50% increase in DSA revenue compared to fiscal year 2022 revenue, and DSA gross margins could increase from approximately 30% to the mid to high 30s. We also believe once we complete all of our DSA NRMS site optimization integration synergy initiatives, we should produce approximately 20 million of annualized cost savings compared to fiscal year 2022. We expect to begin realizing more of these benefits early in the fourth quarter of fiscal year 2023. We are reiterating our full year fiscal 2023 revenue guidance of at least 580 million in revenue. And as a result of the increased legal and third party fees incurred during Q2, we are updating our guidance for adjusted EBITDA to be at least 70 million down from the previous guidance of 75 million. We continue to expect that we will remain in compliance with our financial covenants for fiscal year 2023. We continue to expect that capital expenditures should moderate from 2022 and be no more than 5% of sales during fiscal year 2023. As a reminder, this guidance is based on the assumptions that we continue shipping NHPs from Cambodian origins that had been recently confirmed to be purpose-bred from our existing inventory for the remainder of fiscal year 2023. In closing, I want to emphasize again how pleased I am with the progress being made to optimize our operations, our continuing response to the NHP situation, and the performance of our employees. Despite lingering headwinds in our RMS business, I'm convinced that we are headed in the right direction via investments, innovation, hard work. We remain committed to maintaining our leadership role and helping our clients discover and develop life-changing therapies. With that, I'll turn it over to Beth Taylor, our Chief Financial Officer. Beth? Please go ahead with the financial overview.
spk00: Thank you, Bob. And good afternoon, everyone. Total revenue for the 2023 second quarter rose 8% to $151.5 million from $140.3 million in last year's second quarter, driven by a 20.2% or $7.9 million revenue increase in our DSA segment. and 3.3% or 3.3 million revenue increase in our RMS segment. Higher DSA segment revenue was primarily driven by increasing revenue within the current operating structure and continued increases of our genetic toxicology services at our new business facility in Rockville, Maryland. The increase in revenue at RMS was due primarily to favorable pricing across several of our animal models specifically NHPs but also including tech-led diet. The favorable pricing helped partially offset the negative impact of lower volumes of our NHP cells. Total gross profit improved slightly to $44.9 million or 29.6% of total revenues from $44.7 million or 31.9% of total revenues in last year's second quarter. Gross profit for our DSA segment improved to $15.1 million or 32.1% of segment revenue from $12.3 million or 31.5% of segment revenue in last year's second quarter. The 600 basis point increase in margin was driven by higher sales within our current operating structure. RMS segment gross profit in the second quarter of fiscal 2023 was $29.8 million or 28.5% of total revenues compared to $32.4 million or 32% of revenues last year. The decrease in margin in the current quarter was driven by several factors, including product mix, inflation, and the absorption of duplicate costs as we implement our site optimization plan as noted. We expect to begin seeing a decline in these duplicate duplicative cost and margin expansion in early Q4 fiscal year 2023. The margin decrease was partially offset by favorable pricing for certain of our product lines and some initial benefit from the closures of our Cumberland and Dublin facilities. General and administrative expenses rose to $29 million in the second quarter of fiscal 2023 from $21.3 million in last year's second quarter. G&A expenses for the second quarter reflected $6.7 million in legal and third-party fees primarily related to Cambodian NHP matters, the Cumberland, Virginia ongoing investigation, the Third Amendment to our credit agreement, and defense on pending securities litigation. Based on current information, we expect legal and third-party fees to be lower in the third quarter of fiscal 2023. Operating loss for the quarter was $2.1 million, down from $7.9 million of operating income in last year's second quarter, reflecting both the $7.7 million higher G&A expenses and a $2 million increase in amortization expense. Interest expense increased to $10.5 million, up from $7.5 million in last year's second quarter reflecting our higher debt balance for borrowings obtained for the acquisitions and capital investments and higher interest rates. Consolidated net loss attributable to common shareholders in the second quarter of fiscal 2023 totaled $10 million or a negative 0.39 per share. This compared to consolidated net loss attributable to common shareholders of $6.1 million or a negative 24 cents per diluted share in the second quarter of 2022. Adjusted EBITDA was $17.1 million or 11.3% of total revenue as compared to adjusted EBITDA of 25.3 million or 18% of total revenue in last year's second quarter and a negative 5.5 million in Q1 of fiscal year 2023. DSA backlog was 145.7 million compared to 133.6 million at March 31, 2022. Net cash provided by operations was 5.4 million compared to cash provided from operations of 4 million in the same period last year. The increase in cash provided by operations was primarily driven by improved net working capital compared to the same period last year. CapEx in the second quarter was $8.5 million, or 5.6% of total revenue, and reflected investments in completing our DSA capacity expansions in Boulder, Colorado, Rockville, Maryland, and Fort Collins, Colorado, enhancements in laboratory technology, and improvements for animal welfare. For the first six months of fiscal year 2023, capital expenditures totaled $16.8 million, We continue to expect that our fiscal 2023 CapEx will not exceed 5% of projected revenue. Our balance sheet as of March 31 included $24.6 million in cash and cash equivalents, up from $4 million from December 31, 2022. And we maintained a $0 borrowing on our $15 million revolving credit facility. Total net of debt issuance costs as of March 31, 2023, was $374.1 million compared to $373.2 million at December 31, 2022. The company extended by one year the maturity of a $3.7 million unsecured seller payable pursuant to the stock purchase agreement with Orient Bio, Inc. The payable, which was originally due on June 27, 2023, is now due July 27, 2024. We were in compliance with our debt covenants as of March 31, 2023, and continue to expect that we will remain in compliance for fiscal year 2023. We remain pleased with our financial performance and the progress that we are seeing in higher revenue from the additional capacity investments in our DSA segment And we remain optimistic as we continue to grow and capture a significant portion of the opportunities in our market. And with that financial overview, we will turn the call over to our operator, Diego, for questions.
spk03: Thank you. And ladies and gentlemen, at this time, we will conduct our question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star followed by two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from Matt Hewitt with Craig Hallam. Please state your question.
spk01: Good afternoon, and thank you for taking the questions. Maybe first up, regarding the NHP situation, I realize you can't answer many questions, but one I'm curious about, once you have the test in place, how quickly can you get things geared up from, you know, importing? I'm not sure what the exact quarantine period is, but how quickly, once that test is in place, can you kind of get things turned around where you're starting to record revenues from that market?
spk02: Well, we've made great progress in our testing and platform for being able to import. I think the bottleneck may be when U.S. Fish and Wildlife will again consider allowing imports from Cambodia, and if they'll consider allowing imports from Cambodia, that could be a longer lead time. That is unknown to us. But once we have that, I think we could We can move very quickly. We have relationships. NHP is available to bring in. There's transportation available, and we have quarantine space available. Now, there's a normal length of normal quarantine time, but I don't think that there needs to be a – there won't be a large time between the time somebody says, you may move forward and we can begin importing. Ever since November 16th, we have really focused on two goals for us. One is to be ready to import Cambodian NHPs when and if they do allow us to import NHPs. The other is to make sure we have a business model which is not dependent on importing NHPs from Cambodia. And we've made great progress in both of those. We'll be ready for either event.
spk01: That's great. Thank you. And then regarding the general business environment, Obviously a lot of questions about the health of small pharma and biotech companies, but maybe what are you seeing from customers? I know the last couple quarters cancellations were maybe a little bit elevated relative to historical levels, but has that come down? What are you hearing from customers? Thank you.
spk02: Well, I think our customers have been and will continue to be very cautious in spending their money. And as a result, they may choose to continue to cancel orders as they look and see what is best for them. Overall, last quarter, we grew our awards were up 20% over the prior quarter. And we had a book to go close to one to one, but our sales were up 20%. Our new orders were up 20%. Our quoting activity because of our new services has been up even much higher than that. So again, we're a, We are a small business compared to the size of our industry. And when we're looking at trying to increase 10, 20, 30, whatever it is we're trying to increase, it's a small percent of the market share. And what we're trying to do is continue to increase our market share during this time. But I don't think we have to be limited to what the macro is. So as a result, to change that, we've added sales, we've added marketing, and we've added new services. And those bring in new customers, and those new customers try us for one service, and then, again, they expand to multiple services. So I'm pleased with what we're seeing, and I'm not underestimating the need to be aggressive in increasing our market share. But I do think that customers will continue to be very cautious, and, you know, we're not expecting this to be given to us without hard work.
spk01: Understood. Maybe one last one, then I'll hop back into Q. As far as the staffing is concerned, as you continue to roll out some of these new services, consolidate some of your sites in different locations, do you feel like you're at the right level from a headcount perspective? And what are your expectations from a hiring perspective over the course of the year?
spk02: I think we're in much better shape. Last year, we had to hire 850 people, and we onboarded a lot of people. We're fine-tuning our organization all the time. I don't think we've net increased our headcount probably since the end of the fiscal year last year, and I think we can see a lot of our growth without a significant increase in headcount going forward. I think we've done a good job of bringing people on board, training them. They're helping us develop the assays, validate the equipment, and I think we're making good progress. And one of the things notable in last quarter is that we increased our sales, what, maybe $28 million. And of that, you know, if you back out that increase in legal fees, we probably saw 25, 26 million go to the bottom line, almost 90 cents on the dollar go to the bottom line. Because we had already brought in some of those people, we were prepared for that. So I think it was, you know, it was a great performance by our people. And I think that we've got a great team in place, and I don't see a need to, you know, significantly add to that for the growth that we're projecting.
spk01: That's very helpful. Thank you.
spk03: Thank you. And a reminder to the audience, to queue up for a question, press star 1 on your telephone keypad. To remove yourself from the queue, press star 2 on your telephone keypad. Our next question comes from Dave Windley with Jefferies. Please state your question.
spk06: Okay, good. Hi, it's Dave. Good afternoon. I was not hearing the confirmation tone, so I wasn't sure if I was in the queue. Thanks for taking my questions. I was wondering if you could overall or in maybe an RMS more specifically break down for us the differences or the contributors in terms of volume and price. I know the growth was relatively smaller there, but I guess I'm just trying to understand the moving parts, probably volume down and price up. But if you could put numbers on that, that would be great.
spk02: I'll try to do the best I can. Actually, the volume of NHPs we sold in this quarter, in Q2, was actually less than the numbers, than the amount of NHPs we sold in Q1, and significantly less than the numbers we sold in Q2 of last year.
spk06: Okay.
spk02: So, I think that indicates, you know, fairly significant change in our business model.
spk06: Right, right. And so appreciate that. I think you had talked last quarter that included in some of your strategies to try to mitigate the limited availability of NHPs. you were taking price or the price environment had increased in NHP, but you were also going to take some price in small animal. I think, Bob, I heard you mention that, but I didn't hear Beth mention that. I wanted to make sure I heard that right. And how is the small animal price increase sticking?
spk02: We did increase the small animal price in January, and it is sticking. And And our volumes remain, I would say, in terms of numbers, fairly flat. I think we've been able to see some increase in our tech lab sales, but overall fairly flat maybe in terms of volumes, and prices are doing fine. You know, we're also, as you can imagine, we are holding those volumes, or we are significantly reducing our footprint and the number of facilities we have, which means the number of people we have, the transportation we have. So that's really our focus right now. We're now starting to also, right now, come back and focus on, now that we have these changes made and we have the capacity, how can we go ahead and start increasing our sales volume? And then we're coming back and we'll start focusing on that also. But those prices are held. And then the NXP prices, we did implement starting in January, and they continued to increase through the quarter. So our average prices that we were selling for in January and then increased again in February and increased again in March. But as to some of our expenses and third-party expenses.
spk06: Right. You mentioned the new business opportunities that you've invested in, you're building now. It sounds like you're getting some traction. You mentioned the genetic tox a couple of times. How much of the bookings in the quarter are representative of your biotherapeutics and genetic toxicology and those new businesses to the DSA segment? Can you quantify that?
spk02: Yeah, I mean, I wouldn't say we – so we had a 20% increase. I wouldn't say it's all because of that. We probably started booking those things in, you know, December, built in January, February, March, and it's ramping up. The quoting activity is ramping up. And the progress I'm seeing this quarter is continuing to build up. So, you know, but if you say – Where did the $7 or $8 million in DSA bookings increase come from? It would have to be less than 20% probably from that service.
spk06: I'm sorry, less than 20% of?
spk02: Less than 20% of the increase of bookings from our Q1 to Q2. Okay. Okay. Understood. Why this is so important, it has been important in all of our acquisitions, is this is really the old BioReliance customer base that we're bringing on board, which they've been waiting for. And the exciting thing for us is it brings new customers that we have not had. They're looking for the service. We can offer right now a really great lead time since we're just starting up, and I think that's helpful. We have great quality, great people that the customer base knows because they have experience with them. And when we bring on those new customers, once they start working with us, then they start looking at our other services. And that generally helps us across the board. That's why we're looking forward to this and seeing how this develops. And the same thing with safety pharmacology and some of the other things that we're bringing on board. It also significantly reduces our outsourcing, helps us control speed to market, and the service aspect for our customers.
spk06: Great. Thanks for the answers. I'll drop back in the queue.
spk02: Thank you, Dave.
spk03: Our next question comes from Frank Takanan with Lake Street Capital Markets. Please say your question.
spk04: Yep. Thanks for taking the questions. I was hoping to start with one on the plus minus around the net bookings in the, in the quarter. Could you just walk through how the demand has been, how gross bookings have trended? And then I know cancellations have came up in the past. So maybe if you could touch on cancellations and if there's anything to note a change in that area, the plus minus.
spk02: Plus minus. Cancellations, I would say, in Q2 were probably less than Q1. Could be significantly less, actually. But I'm not going to sit here and assume that cancellations won't exist in the future and that that trend will continue. I think people are going to be very cautious of how they spend their money. We need to be very aware of that and not underestimate what that impact may have, which is why we need to be very aggressive in our sales and marketing efforts right now and make sure we have a high degree of customer satisfaction reoccurring customer base. So, you know, I think we'll hope that continues, but I'm not going to sit here and expect it to continue. I think we're in the midst of making sure that people are very careful with their dollars. So we'll continue to work with them. Sometimes they want to delay projects, we work with them there. So we try to be a company that people can work with.
spk04: Okay, fair enough. Second one for me on the income statement was hoping you could kind of bridge us to how you're thinking about, well, I guess beyond the income statement, the free cash flow profile for the back half of the year. And what I'm really looking to get at is just do we expect to generate cash through year end? And can we continue to continue on the trend of putting a little bit more push in between where we are and where those covenant calculations are?
spk02: Yes. I mean, remember for our covenant calculations, we have a lot of ad backs that may not be an adjusted EBITDA. So some of the legal fees I outlined, for example, are ad backs for covenant purposes. Um, so I think that, um, Right now, we're in good shape, and I'm looking forward to, you know, from the guidance that we've given, you can tell we're a fairly positive outlook for Q3 and Q4. We do think that would generate significant cash, and as these projects, you know, as the site optimization projects and some of these growth projects wind down, I think that will also help generate additional cash. So, you know, we've been in this process of the site optimization growth for two years since it's part of the integration, and it's part of what needed to be done to really, you know, improve margins, really address animal welfare, address things that we wanted to address. So I'd be excited to see those come to an end. We're about 90-plus percent done. I'd also add that, you know, six months ago, even three months ago, I think I had people concerned that we were just doing too much at once. Too many variables, too many moving parts. So I think that hopefully everybody should get some confidence in the fact that we have actually brought these things in according to plan, on time, if not ahead of time. And we're now down to the end of some of these things where we can really now focus on optimizing what we have left and delighting the customer. So I look forward to the next couple months. Yes, I do think it should be very positive. Okay, perfect.
spk03: Thanks for taking the questions. Our next question comes from Dave Windley with Jefferies. Please state your question.
spk06: Hi. I was trying to drop out and not hog the mic in case there were other people that wanted to ask questions. I guess the list wasn't that long. So I did want to come back and ask if you could quantify the duplicative operating costs that I presume will, I think you've described a lot of those winding out of the business, maybe the end of this quarter and through the second half of the year. Is it possible to quantify all those?
spk02: I have not quantified those. It's hard. There are a lot of hidden costs in that, transporting duplicate and severance bringing on new people, training. And so we've not tried to – I don't know that I could do a very good job of quantifying that for you. We did, I think, and I did this time try to give an idea of the kind of costs we expect coming out now as a result of this. And I think that is significant, and I believe that people have seen our guidance and are concerned about how do we achieve that guidance. And I think that to give a little more color to it, to tell them what kind of costs were coming out and what we're expecting in sales increase and the kind of margin improvements we're seeing were important to be able to share why these investments have been so important to us.
spk06: So related to that last part, Bob, so EBITDA guidance was 75, now 70. Is the change strictly $5 million in increased legal and third-party investment Or is that number bigger than that netted down by something else?
spk02: No, it really is specifically related to we've incurred, you know, close to $9 million in legal and third-party expenses to address some of these, you know, what we'll call overhangs that are out there. You know, based on what we know today, I think we've done a lot to address some of those things. And so, hopefully, we will see that go down in the future. But that is higher than we expected when we gave guidance, and that is the change for guidance. Everything else is pretty much as we expected.
spk06: Okay. And to clarify, $9 million is the year-to-date amount, not the full-year guidance amount?
spk02: No. I was adding what was Q1 plus what we have seen so far in Q2 to talk about what the legal and third-party expenses have been.
spk06: Okay. So just through the first half.
spk02: Okay. Right. So that was higher than we said. Again, you know, as I think I was previously asked, some of that could be backed out for covenant purposes. Right. So we have not put that in our adjusted EBITDA.
spk06: Got it. So last question for me, and maybe too close to the fire on NHPs, but the two-parter, I guess, would be in light of, you know, the – kind of alleged wild catching of the animals by Vanny and that activity happening during periods when audits would have been able to have been completed by predecessors to you, so acquired entities. How do you think about stiffening, improving the audit procedures to better detect or said differently, how do you assure yourself that the animals are purpose-bred when, if the DOJ's allegations are correct, that slipped by previous audits? How do you get comfortable with that?
spk02: Well, one, I do not know what the DOJ... has exactly approved what is purpose bred and what is wild caught. And they've not shared that with us. So I can tell you going forward and over the last six to nine months, if we are going to import from anywhere, and we're not importing anywhere from Cambodia right now, and we did stop that immediately on November 16th. So there's not anything from there. We've audited there. We've worked with them. We've talked about how we would go forward. And that's what we're focused on. As far as anywhere else in the world that we're importing from, we have our veterinarians go out before anything comes over. We've been auditing several farms in touch with many people, learned quite a bit about the other farms, and we've done quite a bit of work in multiple locations to determine what farms we may be comfortable working with. So I think that's the best we can do right now, and we're really focusing on what we're doing going forward.
spk06: Got it. I appreciate the answers. Thanks a lot. Have a great evening.
spk02: Thank you.
spk03: Thank you. And there are no further questions at this time. I'll hand the floor back over to Bob Leisure for closing remarks.
spk02: All right. Thank you very much for your time and attention. challenges do remain, we're making excellent headway in transforming our organization. We have a number of investor conferences coming up beginning later this month. We'll look forward to. We'll be engaging with investors at Benchmark Virtual Healthcare Conference on May 23rd, Craig Halliam Conference on May 31st in Minneapolis, Jeffrey's Healthcare Conference in New York City, June 6th and 7th. We'll look forward to any follow-up questions or calls anybody may have. And I hope everybody has a good day. Thank you very much.
spk03: Thank you and that concludes today's call. All parties may disconnect. Have a great evening.
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