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spk04: And to all locations currently on hold, we thank you for your patience and we ask that you continue to stand by. Your conference will begin momentarily. Please stand by. Your conference is about to begin. Should you require operator assistance, please press star and one. Or rather, may I correct myself, ladies and gentlemen, star and zero. Should you require operator assistance today. Thank you.
spk11: Good day, everyone, and welcome to this innovative
spk04: third quarter earnings conference call. At this time, all participants are in a listen-only mode, but later you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing the star and one on your touchtone phone. I will be standing by should you need any assistance. And it's now my pleasure to turn the floor over to Mr. Bob Yeted. Please go ahead, sir.
spk07: Thank you, Jim, and good afternoon, everyone. Thank you for joining today's quarterly conference call within the TIVS 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 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 it is 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, 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, .initivco.com, and is also available in the form 8K, filed with Securities and Exchange Commission. 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 me today from Initiv are Bob Leeser, President and Chief Executive Officer, and Beth Taylor, Chief Financial Officer. John Sagards, Chief Strategy Officer, will join us for the question and answer portion of this call. Bob will begin with some opening remarks, after which Beth will provide a summary of the company's financial results for the third quarter of fiscal 2024 and the nine months ended June 30, 2024. And then we'll open the call for questions. With those remarks, it's my pleasure to turn the call over to Bob Leeser, CEO. Bob, please go ahead.
spk02: Thank you, Bob, and good afternoon to everyone joining our call today. Our third quarter was very productive for Initiv. There were several critical events and accomplishments since our last quarterly call, which we believe will advance us towards our goal of being the leading mid-size preclinical CRO in the marketplace. I'm going to outline some of these for you now. These include, first, we reached a resolution of the Virginia DOJ investigation and related settlement, which we announced earlier. Second, we're announcing for the first time that on July 23, 2024, the U.S. Attorney's Office for the Southern District of Florida informed the company that it was no longer investigating the company or its subsidiaries with respect to the procurement of NHPs from foreign suppliers or NHP importation practices. Third, we completed the UK site construction in Hillcrest and consolidation projects in our NRMS segment as of the end of July and further reducing our expenses and allowing for additional contracts to start up in the UK to enhance our revenue. Fourth, further integrating and optimizing our transportation operations, from which we are now seeing the benefits, including improved service levels, reduced cost through streamlined processes and increased efficiencies, producing faster response times and better experiences for our clients. Fifth, achieving -to-date and -over-quarter sales increases and margin improvements in our diet business globally. Sixth, achieving -to-date and -over-quarter sales increases and margin improvements in our European and UK RMS business lines with the exception of NHPs. Seventh, achieving an approximate -over-year, -to-date, 32% increase in NHP boarding and breeding service revenues. Eight, our newer safety assessment service offerings, including genetic toxicology and a bio-therapeutic, bio-analytical service lines, we saw -over-year growth in revenues and backlog -to-date fiscal 2024 compared to -to-date fiscal 2023. Ninth, we implemented further integration initiatives and organizational changes, which allowed us to further reduce general administrative expenses. Tenth, we are beginning to see early signs of recovery of the NHP market and increase existing purchase orders. If we deliver on these orders, we could double the volume of NHPs sold in Q4 2024 compared to those sold in Q3 of 2024. And estimate this volume would also exceed those we sold in Q4 of fiscal 2023. Eleventh, we believe we are developing a solid foundation for a potential recovery in the NHP business starting in calendar year 2025. A key feature of some of the negotiations currently underway is a migration to long-term reoccurring contracts, and we will seek to continue to diversify our customer base, a critical shift we initially announced in our February earnings call. Twelfth, we amended our loan agreement with our senior debt holders for the DOJ settlement, received a waiver for noncompliance with our financial covenants as of June 30, 2024. And lastly, we finalized the sale of the assets we had listed for sale. All these positive items notwithstanding, we also still have headwinds which we are watching closely and working to overcome. These include pricing pressures in our DSA business which has impacted revenue growth and margins. -over-year declines and sales in our discovery business which are due to the softness of the market. We did implement a reduction in workforce related to our discovery business while increasing our sales and marketing efforts. The sales of the NHPs has come down along with the cost of acquiring them. The sale price of our NHPs, I should say, has come down along with the cost of acquiring them. We expect pricing to remain in line with Q3, which is about 35 to 40% less than it was Q4 of 2023. However, we still have some higher cost HPs in inventory to sell. We will sell these higher cost HPs and as we sell these, our margins in Q4 of 2024 will be impacted within the RMS segment. NHP sales and margins for Q2 and Q3 of fiscal 2024 were down significantly compared to the same periods in fiscal 2023. NHP profits are down approximately $36 million for the first nine months of fiscal year 2024 versus the same period in 2023. Overall, our adjusted EBITDA is down roughly $29 million -to-date over the same period. As financial improvements in many other areas of our business are being recognized and some of the optimization projects are being completed. Now I'll give some comments on what we are seeing in the market today. In the DSA segment, the improved funding levels for biotech companies in the first half of calendar 2024 have been positive. We are seeing project awards by some clients that have recently raised capital. However, we expect biopharma companies in the short term to continue to take a restrained, conservative approach to the preclinical pipeline products in order to prioritize the use of limited capital to their most important projects. So far in fiscal 2024, our discovery and safety assessment business has not seen the growth we have seen in recent years due to weakness in the discovery market and related pricing pressures which have impacted sales and margins. Our goal is to take advantage of our size and agility and continue to focus on quality delivery and service. We are still a young company which can grow with its existing customer base and attract new customers to gain market share. For the nine months into June 30, 2024, net new orders for DSA are running ahead of last year's by approximately 5%. Even with the industry price pressures we have seen in fiscal 2024, an approximately 10% decline in both revenue and orders in the early stage discovery business. We believe many of our NHP customers have been depleting the NHP inventories they accumulated last year. As we discussed on our last call, their on-hand inventory levels are now returning to more normalized levels so we expect to see increased demand from these customers going forward as evidenced with the level of current purchase orders for Q4 of fiscal 2024 to date. The most significant challenge we have faced financially this year and in fiscal 2023 has been related to the volatility of sales and margins in our RMS business segment and more specifically our NHP business. As we have discussed in the past, the clinical testing industry faced challenges and volatility resulting from the U.S. Attorney's Office criminally charging a Cambodian government official on alleged charges of conspiracy to illegally import NHPs to the U.S. and the subsequent industry ban on the importation of Cambodian NHPs into the U.S. in late 2022. This ultimately resulted in heightened concern among customers regarding their ability to access NHPs to develop the pipeline projects which together drove higher NHP pricing in fiscal 2023. The uncertainty and available supply in the U.S. also resulted in some discovery and pre-clinical studies moving to other countries which further impacted drug discovery and development and overall demand for NHPs in the U.S. We previously indicated this year could be choppy as it relates to NHP sales reflecting the after effects and volatility caused by the NHP market dynamics at the end of 2022 through 2023 and into the first half of fiscal 2024. We continue to evaluate options to reduce this volatility and in addition to our qualified and existing suppliers, we continue to expand and work with multiple suppliers in multiple countries. Critically as we evaluate new potential sources of NHPs, we continue to audit them rigorously for animal welfare and health standards and will not source from suppliers who do not and cannot meet those standards. This year we have seen NHP customers work towards reducing some owned inventory and aligning their NHP purchases more closely with their immediate needs. As we enter long-term supply contracts for NHP starting in calendar 2025, we will hopefully be increasing and restoring the reliability consistency of our RMS revenues. Within our non-NHP RMS business, over the last quarter we have enjoyed solid demand in our small animal and service business in the U.K. and Europe and globally for our diets and vetting business. Before turning the call over to Beth, I'd like to provide a review of our recent operational challenges and a broader strategic view of how the company has progressed over the last few years. Over the past four years, NHP has dramatically grown and added multiple new products and service offerings while also integrating and optimizing the business we have acquired. Our operating goals included the company's effort to integrate and optimize facilities, improve our operations, take costs out of the business while improving service levels. We also completed significant investments to grow our service and to introduce ourselves to the market to obtain new customers and grow existing customers. And it's to this faith some unexpected challenges over the past two years as discussed above, but we continue to adapt and develop our business model for the long-term success. We believe we have improved our competitive position as a mid-size full-service CRO and provider of research model and diet. We have made progress in consolidating our facility footprint over the past three years while also expanding and improving our existing facilities and operations. As a result, we have seen lower cost and improved service and efficiencies from our operations. We remain committed to building a business that can create value for our customers, employees, and shareholders. As we have addressed some of the legal challenges and industry-related headwinds, we recognize our liquidity has been negatively impacted. We will continue to evaluate our opportunities to improve our balance sheet and enhance our liquidity. In summary, starting in fiscal 2025, we expect to see a full-year impact of the positive changes and cost efficiencies achieved to date as we are positioning ourselves to not be dependent solely on a potential market recovery to improve our operating results and cash flow. With that, I will turn the call over to Beth who will provide a more detailed synopsis of INITI's results for the quarter.
spk06: Thank you, Bob, and good afternoon, everyone. For the fiscal 2024 third quarter, total revenue was $105.8 million compared to $157.5 million during the prior year period, a decrease of 33% primarily due to a decrease in the number of NHPs sold and an approximate 35% reduction in NHP average price in the current quarter compared to the prior year period, the sale of the Israeli businesses in August 2023, and lower safety and discovery services revenue. For the nine months into June 30, 2024, consolidated revenue was $360.3 million, down .5% compared to $431.7 million for the same period last year due to the decrease in NHP sold and the sale of the Israeli businesses in August of 2023. DSA revenues in the 2024 third quarter decreased by approximately 6% to $44.2 million when compared to the prior year period of $46.8 million. The decrease in the DSA revenue was primarily driven by a decrease in general toxicology services due to a change in the mix of studies conducted in the 2024 third quarter compared to the 2023 third quarter and a decrease in DSA products and discovery services revenue. These impacts were partially offset by increases in genetic toxicology and biotherapeutic analysis revenue in connection with our newer service lines at our Rockville facility. DSA revenues for the nine months into June 30, 2024, were $135.5 million, which was slightly higher compared to the prior year period of $134.9 million. Overall, net new DSA orders this quarter were $40.4 million versus $48.6 million in the same quarter last year. For the year to date period ending June 30, 2024, we booked net new orders of $139.2 million versus $133.3 million for the nine months into June 30, 2023. The conversion rate this quarter was 31% versus 30% in the prior year. The DSA cancellations in Q3 were consistent with the prior year period and in the first nine months of fiscal 2024, they were slightly less than the same period in fiscal 2023. RMS revenue for the fiscal third quarter was down .4% to $61.6 million compared to $110.7 million the same quarter last year due primarily to the lower NHP-related product and service revenue, mainly as a result of product volumes and pricing. In addition, there was a decrease in revenue of $3 million as a result of the sale of our Israeli businesses in August of last year. For the nine months into June 30, 2024, RMS revenue was down .3% to $224.8 million compared to $296.8 million in the same period last year. The decrease was due primarily to the negative impact of lower volumes of NHP sales, lower revenue as a result of the sale of our Israeli businesses in fiscal 2023. The remaining decrease in RMS revenue was due primarily to decreases in small animal sales and RMS services in the U.S., partially offset by an increase in diet and bedding sales on a global basis. Regarding NHP pricing, we indicated on our last conference call that NHP prices were expected to come down from the highs we saw in Q4 of fiscal 2023 and the first two quarters in fiscal 2024. We did see the average sales price of NHPs in Q3 of fiscal 2024 on average come down roughly 23% sequentially from Q2 of 2024. This was an approximate 35% decrease to the comparable period of fiscal 2023. As we are selling higher cost NHPs that were purchased in late calendar 2023 and early calendar 2024, we are realizing lower margins in fiscal year 2024. The current costs and anticipated costs in future contracts for the acquisition of NHPs are expected to be lower, which should favorably impact future margins. As we work through the higher cost NHPs in our inventory, RMS margins in the short term will continue to be depressed. Operating loss for the third quarter fiscal 2024 was $20.8 million compared to operating income of $8.8 million from last year's fiscal third quarter, primarily due to a lower volume of NHP sales and lower margins on these sales. An additional $2 million charge related to the settlement agreement on June 3rd with the DOJ to adjust our estimate that was recorded in Q2's fiscal 2024 and the impact of lower margins following the sale of our Israeli businesses. These items were partially offset by decreases in our provision of expected credit losses, restructuring costs, severance, remediation costs, and legal and third-party fees. Consolidated net loss attributable to common shareholders in the third quarter of fiscal 2024 totaled $26.1 million or a $1 loss for diluted share. This compared to consolidated net income attributable to common shareholders of $1.8 million or 7 cents of earnings per diluted share in the third quarter of fiscal 2023. For the third quarter adjusted EBITDA was $0.1 million or less than 1% of total revenues compared to $30.5 million or .4% of total revenue for last year's third quarter. For the nine months into June 30, 2024, adjusted EBITDA was $12.8 million or .6% of total revenues compared to the prior year period of $42.1 million or .8% total revenue. Non-GAAP operating income for our DSA segment in the third quarter was $7.8 million or .6% of segment revenue compared to $10.2 million or .8% of segment revenue in last year's third quarter. As our new DSA services come fully online and we begin to spill newly added capacity, we believe we will see margin improvement through operating leverage. The -to-bill ratio for DSA in the third quarter was .94 to 1. Our nine-month -to-date fiscal 2024 -to-bill was 1.06 to 1 and our trailing 12-month net -to-bill was .95 to 1. -to-date for the nine months into June 30, 2024, we booked net new orders of $139.2 million versus $133.3 million for the nine months into June 30, 2023. The DSA cancellations in the third quarter were consistent with the prior year period and -to-date for the last nine months were slightly less than the period in the prior year. DSA backlog was $139.4 million at June 30, 2024 compared to $149.1 million at June 30, 2023. In our RMS segment, non-GAAP operating income in the third quarter of fiscal year 2024 was $6.5 million or 10% of segment revenues compared to $35 million or .6% of segment revenues in last year's period. The lower non-GAAP operating income in Q3 fiscal year 2024 was primarily the result of a decrease in NHB sales and margins in the sale of our Israeli businesses in August of last year. And that was partially offset by favorable cost reductions related to legal and third-party fees, remediation costs, impairment charges, severance, and a decrease in our provision for expected credit losses and restructuring costs. Interest expense in Q3 of 2024 increased to $12.1 million up from $10.8 million in the last year's third quarter due to higher interest rates. Our balance sheet as of June 30, 2024 included $14.4 million in cash and cash equivalents as compared to $35.5 million on September 30, 2023. Total net of debt issuance cost as of June 30, 2024 was $382.4 million, relatively consistent with the $377.7 million as of September 30, 2023. This includes $115.3 million of our convertible notes as of June 30, 2024. Net cash used by operations for the nine months into June 30, 2024 was $4.4 million compared to cash provided by operations of $9.1 million in the same period last year. Cash provided by operations for the trailing 12 months was $14.3 million. During the quarter ending June 30, 2024, the cash used in operations included $6.5 million paid under the settlement with the DOJ for the investigation related to the Cumberland facility that we closed in 2022. As of June 30, 2024, we were not in compliance with the financial covenants under our credit agreement. However, we received a waiver from our lenders. Capital expenditures in the third quarter were $4.4 million or .2% of total revenue. For the nine months into June 30, 2024, capital expenditures were $17 million or .7% of total revenue as compared to $21.3 million or .9% the -to-date period for 2023. The capital expenditures reflect investments in facility improvements, site expansions, enhancements to laboratory technology, improvements for animal welfare, and system enhancements to improve the client experience. In terms of our capital improvements and site optimization plans, I'm pleased to report that we have completed many investments and initiatives started in mid-calendar year 2022. We expect these investments will be reduced further in the next two quarters and until we see a further recovery in revenue. Let's now turn to our guidance. We withdrew financial guidance last quarter for fiscal 2024. We expect to provide guidance for fiscal 2025 once we have greater clarity on the market and customer demand. And with that financial overview, we will turn the call over to our operator for your question.
spk04: Thank you. And to our phone audience joining today, if you would like to ask a question at this time, simply press star and one on your telephone keypad. Pressing star and one will place your line into a queue and will take your questions one at a time. Once again, ladies and gentlemen, that is star and one. If you would like to ask a question, we'll hear first
spk11: from
spk04: Matt Hewitt
spk11: at Craig Hallam.
spk04: Or sir, actually, we have a problem with the conference, the Q&A. Please re-signal with star and one, sir. Dave Windley at Jeffries. Your line is open. Please go ahead.
spk12: All
spk04: right. Mr. Hewitt, is your line open, sir? Can you hear us?
spk09: I can hear you fine. Apparently, he couldn't hear me.
spk04: But please go
spk09: ahead. All right. A lot to unpack there, obviously, but it sounds like you're starting to see some signs of progress. Maybe first up regarding the NHP business. One, it's great to hear that the Florida DOJ situation is resolved. And I'm just curious, what does that mean from a legal expense standpoint? That goes down, goes away. And I guess in general, it sounds like your legal expenses are going to drop pretty dramatically. Is that fair?
spk02: Beth, you want to address that, what we've seen so far in legal expenses?
spk12: And yesterday,
spk02: I hope it would begin to see those
spk12: significantly reduce.
spk06: Yeah. In regards to this particular matter, we hadn't received a subpoena since, I believe, June of 2021. But we were incurring some expenses in obviously monitoring the situation. So between that and the legal expenses for the Cumberland matter, I mean, we should see expenses, legal expenses come down for those matters by about, probably about 2 to 3 million a quarter.
spk02: That's
spk12: fair.
spk02: Can you tell them how much we spent over that on those cases in the last two years?
spk06: Yes. On the one Cumberland case, in the last two years to address the legal inquiries and the closure of the site, we have spent, and to close, yeah, before the settlement, it was approximately 21 million.
spk09: Wow. All right. Well, it's great to have that. Yeah, that's great to have that behind you finally. And it sounds like you're starting to see some signs of recovery. Do you expect that with Q4, we start to see the signs that that's improving, or is it really 25 with the contracts in place, the kind of the pricing reset, both on the sale side as well as on the cost side? I'm just trying to triangulate when that really starts to impact the numbers.
spk02: And
spk09: we're
spk02: going to see, obviously, an improvement in Q4. We're going to sell potentially 120, 130 percent more NHPs in Q4 than we did Q3. As a matter of fact, I think we'll probably sell, potentially sell 20 percent more than we did in Q4 of last year. So, this will be one of the first -over-quarter improvements we have seen in several quarters. The pricing will be in line with what it was last quarter and probably closer to what it was again in 2022 and early 2023 before all this started taking, you know, before the Cambodian issues started taking place in late 22. I believe that our margins, since we have higher cost NHPs in inventory right now for some we bought at the end of last year, we'll sell most all of those out in the Q4 period. So, we'll start to see some of the margin improve going into 2025. And then I think we'll see much more consistency as we start to sell off the contracts in 2000, in calendar 2025. But, you know, I believe the bump that we're seeing in Q4 is very encouraging, somewhat of a whiplash almost from where we've been in the last two quarters. And so, that's probably an encouraging sign.
spk09: Mike Foss You know, that's fantastic to hear. It's been a tough slog, but it's nice to see the light at the end of the tunnel there. One of your peers reported yesterday and was talking a little bit about some of the headwinds that I think they were implying the industry is facing regarding not only small pharma and I think you spoke to this a little bit, but small and medium-sized pharma and biopharma companies kind of holding that capital tight, even if they recently raised, but then also even large pharma being a little more focused on clinical or later stage programs versus earlier stage. It doesn't sound like you're necessarily seeing that some of the seeing, given some of the commentary you made, but do you want to discuss that a little bit, what you're seeing in the market?
spk02: Mike Foss Well, I'll remind everybody that that in our DSA sales, less than 5% is to large pharma and the top pharma. So, we are, you know, over 95, 97% of our sales is biotech. We still believe we've been able to differentiate ourselves on service and we still are taking advantage of some of the services that we've built that we're still, I think, developing and gaining some market share. So, some of that, I think, has helped offset that and I think still has the opportunity, again, to help us in the future. And remember, if you're comparing this to other public companies in our space, we are still much smaller than they are. So, again, we're $182 million of DSA business. We can move the needle a little bit more with a $20 million increase in sales. We can also lose it a little bit more if we lose that $20 million. But so far, I think that we're focusing on what we can do to make sure we gain new accounts and grow with accounts that we have. And yes, I do think that we have seen a little bit of pricing pressure. And we've responded in case by case where we have to. But for the most part, I think we still, we feel we're in a pretty good position for what we see in the back half of this year. So, we'll see what happens.
spk09: Well, that's great to hear as well. Congratulations on some of the progress that you've made here in a rather tough environment.
spk02: Thank you. Yes, we're looking forward to maybe controlling our destiny a little bit more next year.
spk04: And once again, to our phone audience, that is star and one, if you would like to ask a question. Our next question today comes from the line of Frank Takinen at Lake Street Capital Markets.
spk08: Hey, great. This is Nelson Cox on for Frank. Good to hear you're starting to see some normalcy starting to return. Can you kind of touch on the end customer NHP inventory a bit more? I know it's maybe hard to quantify, but how do you think about that kind of reaching the normal inventory level? And is that kind of still six months out? Is it a year out or is it sooner than that was was kind of the comments you've made?
spk02: Well, I think there are a couple of things that impact our customers demand. One is their inventory level. Two is what volumes they have internally. Many of these are CROs that have and some of the CROs are, you know, as you can see from the reporting are down or flat. So I think both of those things can impact us. But I believe many of them last year bought more than they needed and saw sales less than they expected. Those results had a lot more NHPs. Right now we've got good inquiry, good amount of POs in house, I think people are being a little bit more cautious. But what we also don't have very good visibility to is what all of our competitor situation is. But right now we feel like we're in a pretty good position. And I like two things. One, I like the current POs we have in house. I like the momentum I see towards our 2025 contracts. And three, I really like the fact that we're diversifying our customer base. I think at one point we had our customer base, we had 25, what one customer represented over 25% of our business. I think right now in this quarter, we don't have anybody over 10% of our sales. Is that correct, Beth? Make sure I say that right. Yes, that's
spk12: correct.
spk02: All right. And so I think we've done a really good job of also diversifying our customer base, which is helping us a little bit.
spk08: That's great. And then maybe just quickly one more, can you just talk a bit more about the investments you've made in the Salesforce and maybe the fruits you're starting to see from that so far?
spk02: Well, yes, I think last year we announced that we've, about this time last year, we did not have a really early stage discovery, separate discovery Salesforce. And we started building that last year and really through the end of the calendar, we started to see that we were able to do that. And then in the end of the calendar, 24 and into 2025, we were building that early stage discovery Salesforce to go out and try to gain some market share. And as we continue again to add to our services, our scientific talent and getting our scientists also more involved in the sale process. So that doesn't happen overnight as we're developing relationships, but I think we're the fruits of our labor there. Again, in the DSA business, we continue to look for ways to improve the way that we approach the market and how to grow our customer base. And we have to balance that in line with our ability to add capacity, hire people and our equipment and brick and mortar and making sure that we can provide a great customer experience. So this goes hand in hand and then not deliver. So we've been focusing on again, our operations, our metrics, our systems to make sure we can deliver that client experience and we feel comfortable, then we go out and try to grow. So to date, I think that some of the growth that we've had this year is not showing up because of some of the decrease in pricing. And a lot of the decrease in pricing, by the way, is in the NHP market because a lot of those are past due costs. We obviously, with the NHP costs being down, we're not passing that on as aggressive. But I think that we still have the opportunity to continue to grow. I think we have a great team, a great group of scientists, believe in our team and we'll look forward to seeing what we can do in 2025.
spk12: Great. Thanks, guys. Appreciate it.
spk04: Our next question today will come from the line of Dave Wendley at Jeffries.
spk10: Let's try this again. Can you hear me this time? Sure. Okay. Fantastic. Glad to hear it. I want to pick up on Frank's question there on your answer, Bob, on the NHP business. So if I understood what you were getting at was, I think what you were saying is the DSA price compression was attributable to NHP pricing coming down to the extent that that passes through the study price. I was under the impression that your DSA business didn't do a lot of NHP testing. So maybe give us a sense of that mix. Is that shifting and is your improving stability of NHP supply influencing your ability to do more NHP study work?
spk02: We do NHP toxicology safety assessment studies. And that business has stayed for us at a very high level of occupancy, maximizing our occupancy for the last two or three years. So we've seen good demand. Every once while we may see a difference in revenue because of mix in some of the projects or because of some of the NHP pricing. But we've seen that safety assessment business stay fairly consistent and fairly busy for us. We probably used about 10% of our NHPs historically for our own internal use. So we're not near as big as our competitors in that business, but we are in the safety assessment business and do large animal safety assessment.
spk10: Right. Okay. Okay. That's helpful. I appreciate that. On the long-term contracts, can you give us a sense of, you know, say how many customers, what percentage of your RMS revenue roughly that these long-term contracts might engage and cover?
spk02: It's anywhere, it's probably going to be anywhere between one year and five years. And some of these involve boarding and investments so that we've made or they will be making and deposits. And so many of them are longer term in nature.
spk10: Okay. But in terms of like, I was thinking about your NHP customer base, is this one or two customers that are willing to enter into these long-term contracts? Is it 10 or 20 customers that are, and then
spk02: when you think- No, no. It's more than two. But I don't know that we have, there aren't really 20 reoccurring buyers out there. I think we're talking of, you know, in more than range of a half dozen to a dozen that would make up, you know, 80% of our sales. Got it. But I do think we will see, I do think we will see, you know, a significant portion of our sales committed to long-term contracts. We'll also have spot market sales and others that we're selling, but we'll have over 50%, probably over 75% be in long-term contracts and look for that, look forward to the reoccurring revenue.
spk10: Sure. And for clarity- Sorry, go ahead. Sorry.
spk02: I've said in the past, we will give up some margin dollars to have reoccurring
spk10: consistent
spk02: revenue.
spk10: Got it. And that just for clarity, 80% of your NHP sales, is that right? Not total RMS sales, but NHP sales. That is correct. Okay. And then in terms of- That's
spk02: the goal, Dave. We're not there yet, but that is-
spk10: Understood. Understood. In terms of cost structure, you've done some, quite a bit of side consolidation. You've talked, you know, for at least a couple of quarters about your transportation in housing, your transportation and streamlining that. Are there other targets that you have in mind for, you know, potential efficiency or cost takeout?
spk02: No, not at this point. We have been focused on this since 2022, and in order to close sites and optimize sites, it costs us money. We've made large investments to get there too. But I think we have accomplished a lot of the major brick and mortar changes we need to make. I think that we will see more of those benefits come out this quarter and in the next quarter, because some of them are still coming to fruition. But we don't have any- Where I'm going to tell you that we have the ability to make a 20, $30 million cost improvement.
spk10: Got it. Okay. Maybe last question is for Beth. Beth, you and your comments talked about you'll provide guidance, FY25, I believe you said guidance at a later date when you have more visibility. Are we to interpret that as at the normal time for FY25, which I assume would be on your fourth quarter call for 24? Or could it actually be further into FY25, you know, in air quotes, as you get greater visibility?
spk06: Well, we will certainly, you know, focus and try to provide some guidance as early as we can. So we'll have to see where we are with primarily the NHP contracts, because that's going to provide us, you know, really some more stable guidance going forward. So if we can certainly do it on our next quarterly call, we can, but we'll just- we'll have to take that as the contracts are finalized.
spk10: Okay. All right. Great. Thank you.
spk04: We'll hear next from the line of Eric Caldwell at Baird. Please go ahead.
spk03: Thanks. Good afternoon. I have a few around TechLad, and I was hoping- I'm sorry, I'm not as familiar with all of the input to some of the earlier guys on the call here, but can you remind me the growth that you quoted this quarter, and then whether or not that was against an easier comparison last year, or so it's a recovery, or is it really an acceleration off of a stabler performance in the diet and bedding business last year?
spk12: I don't know. The growth that we're seeing
spk02: in our diet business has been pretty consistent growth. We started seeing two years ago, and we're seeing growth in volume and in pricing, and been very pleased with that. So that was the business that, as we look at our segments, that it's probably seen a pretty significant turnaround, and what- and its profitability, some of that because we're using up a higher level capacity, some of that because we're doing much better in transportation, some because we're doing much better in buying the commodities, and some because we're gaining market share, we're picking up new customers, and we're doing a great job of delivering a quality product. So I don't know what the- I think that we've had consistent growth since we've been involved in business since 2022, so I don't think we've ever had a down year, but again, I've only been in the business two and a half years now.
spk03: I think what I'm trying to get to, Bob, is whether there's more to learn about the global model market as opposed to your company outperforming on a number of fronts, and you mentioned some of these items, which included better transport, gaining share, better buying, pricing. I'm not sure how much it really tells us about the broader market. Have to admit, I was sort of hoping you'd say, no, no, the overall animal research models market's growing faster, and maybe that's a part of it at some level, which maybe seems a bit hard to digest after some of the updates we've seen recently from your peers, but I was hoping maybe you could give us a better sense on whether there were certain geographies, animal models, diets for certain animal models that maybe were standing out in terms of demand? Well, I
spk02: see what you're saying. I will say that our growth, I believe, is outpacing what we're seeing in small animals and outpacing what we're seeing in large animals. So I think we're picking up market share. I don't think we're seeing the growth because the market is growing.
spk03: That's
spk02: where I was trying to go. Yeah, pretty much. We look at a lot of metrics, our speed quoting, our percent we deliver on time, our customer complaints, a lot of things related to transportation and delivery. All those metrics, customer service metrics we're looking at and our delivery are all really seeing a lot of improvements in the last two years. I think we're just doing a much better job of delivering. I think our customers are pleased and I think that's why we're getting more work.
spk03: That's exceptionally helpful. Then I'm not sure what level of transparency you're providing on the number of NHPs. We've heard all the growth and the recovery and demand here in the next couple of quarters, but are you sharing any numbers on actual volume?
spk02: In terms of NHPs that you're
spk03: selling,
spk02: yeah. We've never actually shared volume. I can't tell you that in terms of our volume, again, Beth, we were down this quarter volume. Price was down and our volume was down another 30% from last quarter, which we thought was low. We now think that our volume, we could see next quarter up 120, 130% from this quarter in terms of volume alone. We think it could be literally another 15%, 20% more than we saw even a quarter a year ago. As I said, that would be the first quarter over quarter increase that we have seen in quite a while. I know you have questions, is that a macro? Well, I think one, we are seeing some customers that need some inventory and two, what we can't see is what other competitors have in terms of their inventory and what that general market is. Are we picking up market share because of the volatility market, maybe some other people are out of inventory? Some of those are good questions we don't have the answer to, but I know that we're seeing a nice increase and we're seeing a good response to our desire to work with this in 2025.
spk03: That's a good update. Thank you very much for that.
spk04: That is all the time we have for questions today. Mr. Leisure, I'm happy to turn it back to you, sir, for any additional or closing remarks.
spk02: Thank you everyone for joining the call today. I think our restructuring and integration, reorganization, news customer contracts are providing us the ability to address some of the past industry and economic challenges. We're also pleased to see the conclusion of certain government investigations. It's now critical that we do not compare ourselves to where we have come from, but remain focused on where we need to go to from here. I want to close today by reiterating our confidence in the future of our industry, our company, and the investments we've made to position ourselves for the future. We'll continue building ourselves as a high-touch flexible provider is really attractive to our customers who appreciate the personal service and attention to the customer service. Our metrics related to customer service quality and delivery are continuing to improve. We continue to get better every day in all aspects of our business. We're still a very young company in our industry and believe our best days are ahead. Thank you for your time today.
spk04: Ladies and gentlemen, this does include today's teleconference and we thank you for your participation. You may now disconnect your lines.
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