Inotiv, Inc.

Greetings and welcome to Innotive's fourth quarter and full year 2023 earnings 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 a conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Bob Yeted, Investor Relations. Thank you. You may begin.

Great. Thank you very much, Doug. And thank you, everyone, for joining today's call with InnoCiv's management team. Before we begin, I'd like to remind everyone that some of the statements that manage 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 achievement to be a materially different from those projected. Any such statements represent management's expectations as of today's date. You should not place any undue reliance on these forward 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. Definition of these non-GAAP measures and reconciliations to the most comparable GAAP measures are included in the company's earnings release, which has been posted to the Investors section of the company's website, and is also available in the form 8K, filed with the Securities and Exchange Commission today. If you haven't obtained a copy of today's press release yet, you can do so by going to the Investors section of the company's website. Joining us from the company today are Bob Leisure, President and CEO, Beth Taylor, Chief Financial Officer, and John Sagard, 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 your questions. With those prepared remarks, it's now my pleasure to turn the call over to Bob Leisure, CEO. Bob, please go ahead.

Thank you, Bob, and good afternoon, everyone. As we head into the end of the year and the holiday season, on behalf of the Unitip team, I want to wish everyone a warm welcome to our Q4 earnings call. I can confidently say that 2023 has been a year of operational success and transformation. The Unitip team collectively expanded our full-service preclinical CRO service capabilities, offering a growing customer base, nimble solutions, and custom capabilities. In addition, we also executed on a plan to integrate and optimize our research models facilities, which provide a stronger foundation for future operational efficiencies and performance of that business. Since 2018, we believe that the best course of action for generating strong long-term shareholder returns was to transform and build our business with aspirations to become a competitive leader in the industry as a global preclinical CRO. Now in less than six years through both acquisitions and adding new services organically, we've expanded our discovery and safety assessment or DSA capabilities as well as the RMS business, growing the top line from 24 million to 572 million with annual revenues and annual revenues, which is where it stands today, reducing a compounded annual growth rate of nearly 70% in this time period. Today, amidst market challenges across the CRO and biotech industries, we continue advancing our businesses, integrating our acquisitions, and right-sizing our operational footprint, all while expanding into the global service offerings. We understood that achieving our goals would not happen overnight, and we've been able to maintain focus on our long-term vision. We've made significant investments, and our businesses continue to build on the comprehensive suite of products and services we can offer to our customers across the drug development continuum from early discovery through bringing a new medicine and products to market. We understand market conditions and external factors are constantly changing, and we feel we've been able to pivot as market conditions require. We continue to be guided by eight pillars building market share and cash flow, including right-sizing our infrastructure, reducing dependency on third-party providers for external services in order to become a full-service provider, making strategic capital investments, growing our sales and market share, building our brand and brand awareness, fostering workplace satisfaction and a positive work environment, obtaining and maximizing supply chain synergies, and investing to be a leader in animal welfare. On this last point, since our expansion into the research model business, we have prioritized improvements in animal care and welfare by enlarging our veterinary team and consolidating facilities, which allows us to make significant infrastructure improvements in the remaining facilities. Ultimately, we believe these efforts will allow us to increase our margins and remain competitive with regards to new business development by continuing our key strategic objective of enhancing animal welfare. Through our journey in 2023, we were also very proud to announce that Innotive was the recipient of InterGage's Top Workplaces USA Award, and we have been very focused on recruiting and retaining people this year. Additionally, in terms of awards, we were recently recognized and named to Deloitte's 2023 technology Fast 500 list, recognizing the fastest growing companies between 2019 and 2022. Before we dive into our operational review, let's quickly get to the highlights of our financial results, which Beth will go into more detail shortly. We ended fiscal 2023 with revenues of $572.4 million, up 4.5% versus 2022. With increasing DSA revenues and margin dollars included revenue for our DSA business grew 6 million or 13.6% in Q4 2023 over 2022 and 12% overall in fiscal 2023 versus fiscal 2022. Operating income for DSA improved $7.4 million in Q4 2023 versus Q4 2022. We have begun to see research models and services expenses go down as our site optimization initiatives get completed. The DSA business gross book to bill for the year was 1.11 and 0.91 for Q4. and the net book-to-bill was 0.92 for the year and 0.65 for Q4. The lower net book-to-bill in the latest quarter was primarily due to high cancellations in Q4. We saw increased conversion rates from 30% in Q4 of 22 to 33% in Q4 2023. In the fourth quarter, the number of NHPs we imported increased versus the other quarters this year, and we've had our first shipments from one of our newly qualified farms. The fourth quarter was the first quarter in fiscal 2023 that we imported approximately the same number of NHPs as we sold. The average selling price of the NHP in Q4 increased approximately 5%. which is the lowest quarterly increase we have seen in the last three quarters. Cash balance this quarter also improved, and we finished the year with $35.5 million in cash and nothing drawn on a revolver of $15 million. This is a meaningful improvement as compared to $18.5 million in cash and $15 million drawn on the revolver at September 30, 2022. We are now well into the Q1 fiscal year 2024 quarter. And over the last four months, we have seen positive trends for requests for quotes and awards so far for Q1 of fiscal 2024, plus a reduction in cancellations this quarter compared to Q4 of 2023. Some of the increases in quotes and awards year over year are related to the new services we have introduced, and some rebound in our discovery and translational science business. We are pleased with our process of selling some of the assets we've identified for sale. We continue to validate new facilities and equipment in the businesses we've recently expanded or built. We would like to see growth in our DSA backlog but are comfortable with our current DSA backlog and increasing conversion rates. So we would expect DSA sales in Q1 2024 to show growth over Q1 2023. For example, at September 30, 2022, we had a backlog of 147 million compared to 132 million backlog at September 30, 2023. In Q1 fiscal 2023, we converted 28% of that backlog into sales. In Q1 fiscal 2024, we'd expect our conversion rate to be in the low to mid-30s. As noted earlier, we pivoted our strategy in 2023 to reduce focus on M&A activity and increase focus on execution. We recognized there was uncertainty surrounding the third-party sales of NHPs, so we focused on aggressively improving margins from our small research models, diet, and discovery and safety assessment businesses, while at the same time working to maintain our NHP business margins during 2023. Our focus in 2023 helped us to restructure and integrate many of our acquisitions and startup initiatives to enhance margins and decrease expenses going into 2024. which also reduces our dependency on NHP margins from third-party sales for 2024. The majority of INITI's ARM-S site optimization plans have been completed. In total, our plans included the closure of 11 sites, along with investments in existing sites, and we have successfully concluded 10 site closures to date. We have brought on additional capacity at multiple discovery and safety assessment sites, adding complimentary service offerings, and we believe these investments will expand our range of services, generate higher revenue growth, increase margins, and improve our ability to recruit and retain talent. These include the finishing of our new facility build-out in Rockville, Maryland, and we have now also completed much of the validation process for assays and equipment. We completed site improvements and expansion projects in Boulder, Colorado for our discovery operations and further integration and operation improvements to that business. The expansion activities at Fort Collins, Colorado were completed by the end of October, 2023, and the expanded site is completing the validation of the facility and equipment and plans to be operational early in second quarter of fiscal 2024. We expanded our project management safety pharmacology operations, reporting capabilities, and histopathology capacity in teams. We have also initiated the expansion of our internal archiving space and capabilities. We have aggressively moved to reduce the number of software platforms while upgrading our hardware and software. We continue to improve, recruit, and build and develop our teams. And through today, we have sold two of the six closed locations we owned with four left to sell. We also closed on the sale of our Israeli businesses and now own our previously leased feed mill facility in Wisconsin. As a result, we are much better than we were 12 months ago. We still have much more to build upon in 2024. Moving forward, projects which we have announced for 2024 include Continuing site infrastructure and animal welfare improvements. Continuing to evaluate and improve our RMS transportation system and network based on our new site footprint, which should allow us to further reduce expenses and improve the client experience. Further expand our NHP supply base and customer base. Completing final site consolidations and expansion plans in the UK. Validation and growth of our new services and added capacity for existing services. focus on expanding our customer base or continuing to improve and provide exceptional client experience. And lastly, as we validate new services, we plan to further reduce outsourcing costs and increase the speed of discovery and development processes for customers. In 2023, DSA sales grew 12% over 2022, driven by new services and growth in safety assessment business, primarily related to price increases. partially offset by a decrease in our discovery service revenue in 2023 versus 2022. With the investments we have made in the DSA business, we believe we will have the physical capacity to ultimately expand our sales by an additional 40% over the $185 million in revenue recognized in 2023. We think growing DSA sales another 10 to 12% in 2024 is achievable. This would represent DSA sales of at least 200 million. This would also drive operating leverage and enable us to improve upon the DSA margins we saw in 2023. Overall, we are pleased with the annual progress from 165 million in revenues in 2022 to 185 million in DSA revenues in 2023. As I mentioned earlier, for the past few months, we have seen an increase in discovery quotes and awards and are optimistic we may see a reversal of the decrease in discovery sales going into fiscal 2024 and actually see growth in these services. Our DSA margins in Q4 were significant and demonstrate the leverage we have in our business model as revenues grow. Q4 also shows that the DSA business can currently achieve a run rate of approximately 200 million in sales with significantly improved margins. While the DSA business is still developing and growing, we think we are directionally headed in a positive direction. In fiscal 2024, we will continue to expand our DSA sales team, dedicating resources to expanding our market share. With recent expansion services that we have added, we are now expanding our customer base by increasing our sales efforts in the chemical and crop protection markets, recently adding a medical device salesperson, increasing our discovery and translational service sales team, and continue building our drug development and safety assessment sales teams. In our RMS segment, we grew modestly in 2023 amidst industry challenges with NHP imports and the focus on our site optimization efforts, which were mainly centered around our small research model facilities, our diet business, and the related transportation systems. As outlined in prior discussions, we believe we will ultimately achieve approximately $20 million of expense reduction, mainly coming from the RMS business. We realized roughly 5 million of that target this year and we expect the remainder to be achieved during 2024. Moving into fiscal 2024, we believe we will be a much more operation efficient and we'll be able to increase our focus on growing our RMS business. We don't currently have any updates from U.S. Fish and Wildlife related to future imports of Cambodian NHPs and we remain focused on expanding and validating our supplier network for the import of purpose-bred NHPs. We continue to have sufficient NHP supply to meet our internal DSA requirements. For 2023, the volume of NHPs we sold to third parties was down 37% from fiscal 2022. And specifically Q4 of 2023, the volume was down 60% from Q4 of 2022. We expect Q1 volumes in fiscal 2024 to be less than Q1 fiscal 2023. Even with increased pricing in 2023 and the fact that we acquired some of our NHP businesses during the fiscal 22, overall NHP sales dollars for 2023 were approximately 5% lower than 2022. For 2024, we will again seek to maintain overall sales and margins as we did in 2023. But due to uncertainties in the NHP market, initially our guidance projects reduced NHP sales and margins for 2024. And with that, I'd like to turn the call over to Beth to review INITI's financial results in detail, as well as provide the outlook for 2024. Thank you, Bob.