Inotiv, Inc.

Greetings and welcome to the Innotive first quarter fiscal year 2024 earnings call. At this time, all participants are in a listen-only mode. A brief 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Bob Yedin. Thank you. You may begin.

Thank you, Camilla, and thank you for everyone for joining today's quarterly call with Initiv's management team. 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 results, operating and financial results, and plans. Such statements are subject to risks and uncertainties that can cause actual performance or achievements to be materially different from those projected. Any such statements represents 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 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 financials 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 today with the Securities and Exchange Commission. If you haven't obtained a copy of today's press release, you can do so by going to the Investors section of INATO's website. Joining us from the company today are Bob Leisure, President and CEO, and Beth Taylor, Chief Financial Officer. Bob will begin with some opening remarks, after which Beth will present a discussion of the company's financial results, and then we'll open up the call to your questions. With that said, it's my pleasure to turn the call over to Bob Leisure, CEO. Bob, please go ahead.

Thank you, Bob, and good afternoon to all of you joining us on our call today. As you saw from today's financial news release, Initive began its fiscal 2024 making progress against important financial and operational metrics while continuing to develop and solidify its business model. As noted in our year-end conference call last quarter, our promise to shareholders, customers, and employees has been to guide Initive towards becoming a leading mid-sized CRO in the marketplace through transformative acquisitions and build-up of new services, which ultimately will expand upon our contract research service capabilities. We continue to enhance and build an organization delivering innovation and solutions for drug discovery and development. It is significant that in the past 18 months, we have optimized our operational footprint from 33 to 23 locations by closing now nine RMS facilities and one DSA facility and transferring the work to existing facilities, which have been recently renovated and expanded, while simultaneously expanding three DSA existing facilities. This will allow us to better service our customers' demand and new complimentary services and create a platform which will support growth and allow us to leverage our fixed cost structure and enhance margins. Further, as noted in our prior quarter, we have also been restructuring our transportation services and logistics operations. As a result of all of these initiatives, once they are completed, Initive will have eliminated 20 million of annual operating expenses from the business. Approximately 5 million of these reductions were realized in fiscal 2023, and the remainder should be completed in the fourth quarter this year. In addition to the decrease in operating expenses for the site optimization restructuring of our transportation, we have seen reductions in G&A expenses as well. We have also expanded our service offerings and capacity. As we near the completion of these infrastructure projects, we have shifted to a renewed focus on sales and marketing by adding additional salespeople and focusing on improving our brand awareness. We believe that our strategic efforts will enable us to broaden our customer base and better serve these customers through innovation and development of nimble solutions and custom offerings. We have remained focused and accomplished a significant transformation while our industry has faced headwinds over the past two years. As we go forward, we are focused on executing our plan to become a stronger company by increasing sales and margins. Now let us turn to the highlights of our financial results. Beth will go through these in more detail shortly. We are pleased to report revenue of $135.5 million for Q1 of fiscal 2024, up 10.3% compared to the same period a year ago. It's worth noting that all year over year growth is now organic, as we have not completed an acquisition in the past 18 months. These top line results consisted of DSA revenues $44.7 million, were up 8.8% in Q1, 2024 compared to 41.1 million in the prior year period. Revenue from RMS was 90.8 million in Q1, an increase of 11.1% from the prior year period. Overall adjusted EBITDA was 9.6 million as compared to consensus 8.3 million An adjusted EBITDA improved $15.1 million compared to a negative adjusted EBITDA in Q1 fiscal 2023, which, as a reminder, was primarily driven by the initial negative impact on revenue and gross margins from the company's decision to refrain from selling or delivering any of its Cambodian NHPs, seldom U.S. in Q1 2023 until our staff and external experts could reasonably determine those NHPs and inventory from Cambodia for purpose spread. The year-over-year improvement in adjusted EBITDA of 15.1 million is important as our bank loan covenants is calculated on a trailing 12-month basis, and therefore, INITIB has further improved its financial flexibility for the quarter starting January 1, 2024. Our net book-to-bill ratio for DSA business for the first quarter of 2024 was 1.46 to 1, as net new order bookings were up to 63.8 million versus 40.7 million a year ago. This represented a 57% year-over-year increase in net new business signings. Cancellation rates in Q1 2024 were less than half of that we observed in the immediately prior quarter and the lowest we have seen since Q3 of fiscal 2022. We are still seeing some projects get delayed, which can impact our quarterly revenue. And it's conversion rate was up to 32.5% in Q1 fiscal 2024 versus 27% in Q1 of last year. Our backlog at December 31st, 2023 was 152.3 million versus a prior year backlog of 147.9 million and a September 2023 backlog of 132.1 million. Our DSA operating income was down for the quarter compared to the same quarter in 2023. due to increased costs associated with the development of new services. These new services are not yet seeing positive gross margins and therefore have created a headwind for overall margins. As revenue for those services increases, we expect to see an associated margin improvement. For research model services, revenue increased over Q1 2023 mainly due to pricing in the NHP business. first fiscal quarter of 2024, the total number of NHPs we sold was down 20% compared to the same period a year ago. However, pricing for NHPs was still much stronger, so overall NHP sales and margins, and therefore RMS sales and margins, remained higher than a year ago. In last quarter's conference call, we indicated that NHP prices were expected to come down from the highs we saw in Q4 of fiscal 2023. We did see the NXP pricing on average come down roughly 18% in Q1 of fiscal 2024 versus Q4 of fiscal 2023, with Q1 of 2024 closer to the average unit price for all of fiscal 2023, including the fiscal quarter, the first fiscal quarter of last year. We believe it is important to understand that we expect to see a transition in the marketplace by customers seeking more long-term supply contracts for NHPs versus buying on the spot market as we experienced last year. This means that over time, we could sell fewer NHPs on the spot prices and more under fixed contract pricing. We believe this shift would be favorable for our NHP business as we could increase the predictability of our NHP revenue and improve the management of our working capital. However, in the near term, we may experience some variability in our NHP revenue quarter to quarter. We believe the level of these fluctuations will depend on our customers' current inventory of NHP, changes in the amount of their preclinical work, and when they transition to these supply agreements. For SG&A in Q1 of 2024, we did see the benefits of some of the changes we have implemented such that G&A expenses were $3.7 million less than Q4 of fiscal 2023, and approximately 16% expense reduction sequentially, and $18.4 million, or approximately 30% less, than the same quarter a year ago. Controlling our SG&A in line with our overall revenue is another significant area of focus as we integrate and improve our business model. Last year, we made substantial efforts towards increasing our focus on execution, site optimization, and integration. Additionally, the planned closures of alum facilities over the last 18 months created substantial severance costs, significant startup costs related to transfer production between sites, starting new services, and expanding facilities. However, these are vital projects to our future. We were pleased with how these projects were executed generally in line with the original budgets and timeframes. We look forward to completing the last major consolidation and expansion efforts still in process. We believe we are now positioned more strongly for the current macro environment and well positioned to participate in a wider recovery in our industry, which will allow us to further accelerate our growth and improve margins on an incremental basis. To briefly update on the recent major projects activity from the end of fiscal 2023, spilling over into fiscal 2024. These projects include the sale of our French and Spanish facilities, which were completed and the quarter ended December 31st, 2024. Our facilities in Hazlett, Michigan, Dublin, and Cumberland, Virginia, and Blackthorn UK are now currently all under contract to be sold. Our original Hillcrest expansion is in process and is on track with our original timeframe. However, we are pleased to have entered into two new customer contracts, which will require further expansion at Hillcrest Operations. In order to accommodate one of these customers in early fiscal Q3 of 2024, we are planning to move the transfer of work from Blackthorn to Hillcrest to fiscal four of 2024. We estimate that once the expansion of Hillcrest with the consolidation of Blackthorn and the renovations for the two new customer contracts are complete, we expect a small research model and services in Europe to see annual revenue growth of approximately 15, annual revenue growth and approximately 15% improvement in our margins. We have now completed the expansion of our Fort Collins facility. We did experience some delays during Q1 in completing this expansion and validating this new facility. We also experienced client delays and studies for this facility and therefore did not realize any revenue from the expanded facility in fiscal Q1 of this year. We anticipate beginning to realize revenue from this facility during fiscal Q2 of this year. We have continued to complete new assays and are pleased with the continued growth and startup of our new genetic toxicology and biotherapeutics business in Rockville, in a Rockville, Maryland facility. Although these startup services still carry negative margins, these new services help drive our growing backlog in fiscal Q1. At the end of fiscal Q1, we also announced we entered into a transition service agreement with Vanguard Supply Chain Solutions, the company's main outsource provider of transportation services, to enable the in-house integration of Innative's North America transportation operations. We have now completed this transition. By taking direct control of our transportation operations, we expect to further reduce cost and achieve key efficiencies to strengthen internal operations, improve our outgoing supply chain, and further improve service quality for clients. In fiscal 2024, we'll continue with critical improvement projects. These include the conclusion of our site optimization plan, continuing site infrastructure and animal welfare improvements in our RMS business, continuing to evaluate and improve our RMS transportation operations and service based on our new site footprint, which should allow us to further reduce expenses and improve client services, further expand our the supply and customer base, focus on expanding our customer base while continuing to improve and provide exceptional client services, continuing to further leverage our scale and capabilities to reduce outsourcing costs, to enhance our competitive profile, and increase the speed of innovation for the discovery and development process for our customers. We see our ability to expand our service business and take advantage of recent expansion efforts and leveraging our fixed cost structure as one of the biggest opportunities for future margins and earning improvements. We have put in DSA capacity to accommodate approximately a 40% increase in DSA revenue, or up to $70 million in additional revenue compared to our current run rate annualized. In fiscal 2024, we will continue to grow our DSA sales team by dedicating resources to increase our market share. As I said on our last call with the recent capacity and new services that have been added, we are growing our customer base by increasing our sales effort in chemical and crop protection markets, recently adding medical device sales person, increasing our discovery and translational sciences services sales team, and building our drug development and safety assessment sales team. While we believe we are in a much better position than we were a year ago, we feel we can continue to make further improvements. We believe we are well positioned to increase our sales volume in 2024, driven by greater cross-selling to our existing customers, expanding our sales team, focusing our market efforts, building our brand recognition. Our first corridor saw some very good awards and positive momentum. And the improvements in the DSA backlog exceeded our expectations. We expect some of this may reflect a pent-up demand after a slow summer, but we do remain encouraged. We look forward to our future and seeing the next two quarter trends. And with that, I'd like to turn the call over to Beth to review NHTSA's financial results in detail.