Inotiv Q1 2025 Earnings Report

Inotiv EPS Results

• Actual EPS: -$0.42
• Consensus EPS: -$0.32
• Beat/Miss: Missed by -$0.10
• One Year Ago EPS: N/A

Inotiv Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $121.83 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Inotiv Announcement Details

• Quarter: Q1 2025
• Date: 2/5/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, February 5, 2025
• Conference Call Time: 4:30PM ET

Inotiv (NASDAQ:NOTV) provides nonclinical and analytical drug discovery and development services to the pharmaceutical and medical device industries. It operates through two segment: Discovery and Safety Assessment (DSA), and Research Models and Services (RMS). The DMS segment manufactured scientific instruments for life sciences research and the related software for use by pharmaceutical companies, universities, government research centers, and medical research institutions under the Company's BASi product line. The RMS segment engages in commercial production and sales of research models, diets, bedding, and bioproducts. The company offers research and discovery services, including computational toxicology, disease pharmacology, DMPK, safety pharmacology, discovery bioanalysis, exploratory, surgical models and medical device, and cell and molecular biology; non-clinical safety assessment includes general and genetic toxicology, regulated bioanalysis, carcinogenicity studies, and development and reproductive toxicology; pathology services, such as histology, digital, clinical, and medical device pathology; bioanalysis includes nonregulated discovery bioanalysis, biotherapeutics, and regulated preclinical and clinical bioanalysis; proteomics; and consulting services, as well as model and research services. The company operates in the United States, the Netherlands, and internationally. The company was formerly known as Bioanalytical Systems, Inc. and changed its name to Inotiv, Inc. in March 2021. Inotiv, Inc. was incorporated in 1974 and is headquartered in West Lafayette, Indiana.

Inotiv Q1 2025 Earnings Call Transcript

Presentation

[Operator]

Good day, everyone, and welcome to today's Innovative First Quarter Fiscal twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. Later,

[Operator]

you

[Operator]

will have the opportunity to ask questions during the question and answer session. Please note this call may be recorded and I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Mr. Stephen Halper. Please go ahead, sir.

[Steven Halper, Managing Director at LifeSci Capital, LLC]

Thank you, Jess, and good afternoon, everyone. Thank you for joining today's quarterly call with Innovative'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 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.

[Steven Halper, Managing Director at LifeSci Capital, LLC]

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, including risks and uncertainties that could cause results to differ from forward looking statements. Management will also discuss certain non GAAP financial measures in an effort to provide additional information for investors. Definitions 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, www.innative.com, and is also available in the Form eight K filed with the 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 Inancis' website.

[Steven Halper, Managing Director at LifeSci Capital, LLC]

Joining us from the company this afternoon are Bob Lazier, President and Chief Executive Officer and Beth Taylor, Chief Financial Officer John Siggardt's Chief Strategy Officer

[Steven Halper, Managing Director at LifeSci Capital, LLC]

will join us for the

[Steven Halper, Managing Director at LifeSci Capital, LLC]

question and answer portion of the call. Bob will begin with some opening remarks, after which Beth will present a summary of the company's financial results for our first fiscal quarter of twenty twenty five and then we'll open the call for questions. It is now my pleasure to turn the call over to Bob Lieter, CEO. Bob, please go ahead.

[Robert Leasure, CEO, President & Director at Inotiv]

Thank you, Steve, and good afternoon to everyone joining our call today. During the first quarter, we moved forward with many of our objectives, which included improving the company's liquidity position, reducing revenue volatility, reduce or continuing to focus on client satisfaction and client relationships and continued integration efforts as one company. I'll spend a few minutes on our first quarter results and highlights. To enhance liquidity, our recent equity offering provided net proceeds of $27,500,000 We're very pleased with the investor interest and now committed this offering. The additional equity will help reduce liquidity risk going forward, allow us to continue to make long term strategic decisions, provide additional stability.

[Robert Leasure, CEO, President & Director at Inotiv]

To reduce RMS volatility, we have expanded our NXP client base for calendar twenty twenty five and pre sold much of our NXP inventory, which we anticipate should deliver more consistent revenue streams. In addition, we also expect to continue to see an increase in our revenue from Colony Management Services in calendar twenty twenty five as we did in 2024 and we continue to invest in our HP facilities in order to maintain this momentum. We continue to make progress integrating and improving our North America transportation distribution systems, which we brought in house about a year ago. We believe this has helped to improve the client experience as well as our efficiency. Last quarter, we announced that we continue our site optimization program in North America for the RMS business, which included closing three additional sites of which two are owned and one is leased, while expanding an existing lease location.

[Robert Leasure, CEO, President & Director at Inotiv]

We continue to execute on this initiative. This expansion is expected to be approximately $5,000,000 investment and we intend to use tenant improvement dollars along with proceeds from the sale of the two owned facilities to pay for this consolidation project. Once completed, we expect to be which we expect to be at the end of fiscal twenty twenty six. We estimate approximately $4,000,000 to $5,000,000 a year in cost savings from reduced repair and maintenance expense on facilities, lower cost of production along with improved service for clients while production capacity is expected to be unchanged. For the first quarter of of fiscal twenty twenty five, total revenue was $119,900,000 compared to $135,500,000 in the first quarter of fiscal twenty twenty four, representing a decrease of $15,600,000 or 11.5%.

[Robert Leasure, CEO, President & Director at Inotiv]

This decrease was mainly due to a $13,500,000 reduction in the NHP revenue, which was driven primarily by pricing. The lower pricing and some lingering high cost inventory again negatively impacted NHP margins during Q1 of fiscal twenty twenty five. In Q2 of fiscal twenty twenty five, we expect to see these margins improve compared to Q4 fiscal year twenty twenty four and Q1 fiscal year twenty twenty five. DSA revenue decreased slightly from $44,700,000 in Q1 of fiscal twenty twenty four to $42,800,000 in Q1 of fiscal twenty twenty five. While DSA operating margins have remained stable, the decrease in DSA revenue was mainly due to a decline in our Discovery Services revenue.

[Robert Leasure, CEO, President & Director at Inotiv]

We had a strong quarter for new DSA GSA awards, which was partially offset by cancellations. We saw a continued trend of strong awards for our new safety assessment services that were added over the last two years and we saw a 16% increase in discovery service awards in Q1 of fiscal twenty twenty five versus Q1 of fiscal twenty twenty four. This was the first quarter of reported growth we saw for discovery service awards in the last two years. For the trailing 12, Discovery Service Awards are still down 17% compared to the prior twelve month period. So it's still too early to say whether this is truly a trend, but it is encouraging and we believe that some of the changes we've made to our Discovery Services sales team and marketing team and their sales approach a year ago are beginning to have an important impact.

[Robert Leasure, CEO, President & Director at Inotiv]

Now let me provide some comments on what we are seeing in the market today and some forward looking thoughts on our different business segments. Going into calendar year 2025, we will continue to focus on process optimization innovation, seeding client expectations. We expect to see year over year revenue and adjusted EBITDA growth each quarter for the remainder of fiscal twenty twenty five as well as reduced NHP revenue volatility as compared to fiscal twenty twenty four. In the DSA business, we are emphasizing growing our existing client base through cross selling our broad portfolio of products and services and attracting new clients to gain market share. We believe the additional investments we've made in our sales team in 2024 and planned investments for 2025 will continue to benefit us in fiscal twenty twenty five and 2026.

[Robert Leasure, CEO, President & Director at Inotiv]

In the RMS segment, we've added new clients and based on our NHT presales, per purchase orders and demand for quality management services, we are optimistic about our goals for increasing RMS revenue in calendar twenty twenty five. Overall, we remain confident going into 2025. We're also preparing for 2026 and 2027. The geopolitical and market condition, risk and uncertainties will remain with us as they do for all companies. However, we are committed to building a business that will create value for our clients, employees and our shareholders and look forward to our future.

[Robert Leasure, CEO, President & Director at Inotiv]

I'll now turn the call over to Beth, who will provide a more detailed synopsis of Innos' results for the quarter.

[Beth Taylor, Senior VP of Finance & CFO at Inotiv]

Thank you, Bob, and good afternoon, everyone. For the first quarter of fiscal twenty twenty five, total revenue was $119,900,000 compared to $135,500,000 in the first quarter of fiscal twenty twenty four. This was a $15,600,000 or 11.5% reduction in sales from the prior year's quarter. And as Bob said earlier, most of this reduction was a result of reduced NHP pricing in The U. S.

[Beth Taylor, Senior VP of Finance & CFO at Inotiv]

Within our RMS segment. RMS revenue for the first quarter of fiscal twenty twenty five decreased $13,700,000 or 15.1% compared to Q1 of fiscal twenty twenty four. As discussed earlier, the decrease in RMS revenue was due to the lower NHP related product and service revenue, mainly as a result of a lower average selling price for NHPs in The U. S. We sold approximately the same number of NHPs in fiscal Q1 twenty twenty five compared to fiscal Q1 of twenty twenty four.

[Beth Taylor, Senior VP of Finance & CFO at Inotiv]

However, the NHP average selling price in The U. S. In Q1 of fiscal twenty twenty five was approximately 30.3% lower than in Q1 of fiscal twenty twenty four and one point six percent lower than that in Q4 of fiscal twenty twenty four. We have indicated on previous conference calls that NHP sell prices declined from the highs we saw in Q4 of fiscal twenty twenty three and the first half of fiscal twenty twenty four. The lower pricing and higher cost inventory again negatively impacted NHP margins during Q1 of fiscal twenty twenty five and we believe RMS margins for the remainder of calendar twenty twenty five should improve from here.

[Beth Taylor, Senior VP of Finance & CFO at Inotiv]

GSA revenue in the fiscal twenty twenty five first quarter was $42,800,000 compared to $44,700,000 in Q1 of fiscal twenty twenty four. The quarter over quarter decrease in GSA revenue was primarily driven by a decrease in Discovery Services revenue. Overall, net new GSA orders this quarter were $42,300,000 versus $33,700,000 last quarter and $63,800,000 in Q1 of fiscal twenty twenty four. The conversion rate in the first quarter of fiscal twenty twenty five was 32.8%, slightly up from 32.6% in the prior year period. The DSA cancellations and negative change orders in the first quarter of fiscal twenty twenty five were approximately 54% higher compared to the prior year period, which had the lowest cancellations in the last two years.

[Beth Taylor, Senior VP of Finance & CFO at Inotiv]

Cancellations in the trailing twelve month period were approximately 1% less than the prior period. So overall, our operating loss for the first quarter of fiscal twenty twenty five was $15,500,000 compared to an operating loss of $9,400,000 in the first quarter of fiscal twenty twenty four, primarily due to lower NHP margins as previously discussed. Partially offsetting the decreases in NHP margins were decreases in restructuring costs, transportation costs and costs related to the site closed in connection with our optimization plan. There were slightly lower DSA sales, which resulted in relatively flat DSA operating margins. Consolidated net loss attributable to common shareholders in the first quarter of fiscal twenty twenty five totaled $27,600,000 or a $1.02 loss per diluted share.

[Beth Taylor, Senior VP of Finance & CFO at Inotiv]

This compared to consolidated net loss attributable to common shareholders of $15,400,000 or $0.6 of loss per diluted share in the first quarter of fiscal twenty twenty four. For the first quarter of twenty twenty five, adjusted EBITDA was $2,600,000 or 2.2% of total revenue compared to $9,600,000 or 7.1% of total revenue for the first fiscal quarter of twenty twenty four. Non GAAP operating income for our DSA segment in the first quarter was $7,100,000 or 5.9% of total revenue compared to $6,900,000 or 5.1% of total revenue in the last fiscal year's first quarter. As we continue to fill recently added capacity, we believe we will see margin improvement through operating leverage. The net book to bill ratio for DSA in the first quarter of fiscal twenty twenty five was 1.01x:one.

[Beth Taylor, Senior VP of Finance & CFO at Inotiv]

Our trailing twelve month book to bill was 0.87x:one. GSA backlog was $130,400,000 at 12/31/2024 compared to $129,900,000 at 09/30/2024 and $152,300,000 at 12/31/2023. In our RMS segment, non GAAP operating income in the first quarter of fiscal twenty twenty five was $9,400,000 or 7.9% of total revenue compared to $16,900,000 or 12.5% of total revenue in the first quarter of fiscal twenty twenty four. Interest expense in Q1 of fiscal twenty twenty five increased to $13,800,000 from $11,400,000 in the first fiscal quarter of twenty twenty four due to an increase in interest rates, interest associated with the second lien note issued in September 2024 and periodic draws on our revolving credit facility. Our balance sheet as of 12/31/2024 included $38,000,000 in cash and cash equivalents as compared to $21,400,000 on 09/30/2024.

[Beth Taylor, Senior VP of Finance & CFO at Inotiv]

Our quarter end cash balance includes the net proceeds from our recent equity offering, Total debt, net of debt issuance costs as of 12/31/2024, was $396,000,000 compared to $393,300,000 on 09/30/2024. This includes $111,600,000 of convertible notes as of 12/31/2024 and our second lien notes of $19,200,000 Net cash used in operations for the three months ended 12/31/2024 was $4,500,000 compared to cash used in operations of $6,500,000 in the three months ended 12/31/2023. In October of twenty twenty four, we entered into a third amendment with the seller of OvidRC and extended the payable to 01/27/2026. Capital expenditures in the first quarter of fiscal twenty twenty five were $4,500,000 or approximately 3.7% of total revenue. The first quarter of fiscal twenty twenty four capital expenditures were 5,600,000 or 4.1% of revenue.

[Beth Taylor, Senior VP of Finance & CFO at Inotiv]

We expect to spend less than 4% of revenue for CapEx in fiscal twenty twenty five. With respect to guidance, as you know, we withdrew our fiscal twenty twenty four financial guidance after we reported Q2 twenty twenty four results. While we continue to feel good about the progress we have made in recent quarters, we are not providing fiscal twenty twenty five guidance at this time. As we have stated previously, we hope to provide guidance once we have greater clarity on the market and client demand. Needless to say, management has developed a comprehensive fiscal twenty twenty five annual operating plan designed to continue to optimize our capital allocation and expense base and improve our operating results as discussed earlier.

[Beth Taylor, Senior VP of Finance & CFO at Inotiv]

The plan forecasts compliance with the updated covenants under our latest amendment to the credit agreement entered into in September of twenty twenty four. And with that financial overview, we will turn the call over to our operator for questions.

[Operator]

Thank We'll go first to Frank Taconan with Lake Street Capital Markets.

[Frank Takkinen, Senior Research Analyst at Lake Street Capital]

Great. Bob, thanks for taking the questions. I was hoping to start with maybe a little bit more of an update around NHPs. I was hoping to kind of ask two parts to it. One, have we worked through some of the higher cost NHPs throughout the first quarter or do we still have some of that to work through in the remainder of the year?

[Frank Takkinen, Senior Research Analyst at Lake Street Capital]

And then two, just any update from ordering patterns from customers would be good to hear as well? Thanks.

[Robert Leasure, CEO, President & Director at Inotiv]

Well, going into the calendar 2025, we have worked through all the higher cost savings fees at this point. So I think that headwind is passed. As far as the ordering patterns, we have significantly changed. We said we would do last February. We significantly changed our approach this year.

[Robert Leasure, CEO, President & Director at Inotiv]

The last February we went into the year without any real commitments and we were selling most on the open market as it's still fairly volatile. And then people didn't want to at that point, I wasn't sure whether you want to lock into commitments. Going into this year, as prices normalized a little bit and stayed stable over the last two or three quarters, we do have more solid commitments for this year going into this year. We do know what people's expectations are. We can deliver and they may move a week or two, we'll work with our customers.

[Robert Leasure, CEO, President & Director at Inotiv]

But what we also do now is we make sell on board, so they can board them with us. So that gives us the ability to be a lot less volatile than we have. So I think we'll be a little more consistent. We can still see as we have in prior years, things slip in the last between the quarters, if large shipments may take place, slip from one a couple of weeks or from one month to the next, which can shift some things through quarters. But for the most part, as I look at our cash flow and our stability and our volatility, we're going to be much less.

[Robert Leasure, CEO, President & Director at Inotiv]

And I think we're in a much better position going into this year. I think it'll be significant as we get into Q2, Q3 and Q4 going into this year.

[Frank Takkinen, Senior Research Analyst at Lake Street Capital]

Okay, that's helpful. And then I was hoping I could ask one about the sites development. I know it's a little bit challenging to predict exactly how it's going to go, but with the contemplation of Cambodia NHP is being no longer being able to be exported worldwide, how could that impact your dynamic? I realize it was pushed to the following year, but clearly there's some skepticism around that supply base. So maybe just talk through theoretically how that could impact the global NHP supply demand dynamic?

[Robert Leasure, CEO, President & Director at Inotiv]

Well, obviously Cambodia is an important part to the global supply base and they're still exporting out of Cambodia, I think in the range of 9,000 a year. So if you take that out of the global supply base, that puts a lot of more pressure on what is available from the other existing supply bases. They did have the signings meeting this week. I think they pushed that decision off. They're going to revisit again probably in November of twenty twenty five.

[Robert Leasure, CEO, President & Director at Inotiv]

But right now that we were ready for I would say we prepared for either event. And we have a lot of contracts starting for this year on the sales side and buy side. And whatever the society people choose to do, we will prepare for. I understand it's very important, but we can't control that. We need to be able to adapt.

[Robert Leasure, CEO, President & Director at Inotiv]

So we've worked very hard in the last two or three years to diversify the countries, diversify the people we work with, to qualify additional suppliers and we continue to keep maintaining relationships with farms in Cambodia and we will comply with whatever they decide and adjust accordingly. But I'm very proud of the team we have, how they adjusted and become much more agile. And I think it's our customers are looking for ways to reduce risk. And with that, the business continues to evolve. We'll evolve with it.

[Frank Takkinen, Senior Research Analyst at Lake Street Capital]

Okay. That's helpful. And then just last one for me. I was hoping you could help us out a little bit with maybe adjusted EBITDA cadence throughout the year. I heard the comment around staying in compliance with the covenants.

[Frank Takkinen, Senior Research Analyst at Lake Street Capital]

But now that we're through some of the higher cost NHPs and expecting a gross margin lift, how should we expect that to flow into adjusted EBITDA for the fiscal second quarter ended March?

[Robert Leasure, CEO, President & Director at Inotiv]

Well, I think what we'll see over the year and I've given guidance, but for us to hit those covenants, it's probably there as some of you identified in your analyst reports that we have to grow sales. And we expect sales will grow year over year and I think I alluded to that in my comments. So seeing sales grow year over year and having just seen that that quarter that we finished have lower sales, you can pretty well see that we think that we will have a pretty good Q2, Q3 and Q4. I think if you also see that our original covenants we are supposed to have a trailing twelve month EBITDA in December, Beth, I believe it's $1,500,000 as trailing six months, two quarters was our covenant of $1,600,000 And we're coming out of this quarter at positive, I believe closer to $8,000,000 So we're obviously ahead of where we thought we would be and we're pleased with the results. And I think that the trailing nine months now going into March, I think our covenant has said, I believe it's 13.5, Beth.

[Robert Leasure, CEO, President & Director at Inotiv]

And so, we're in pretty good shape. And as we look to the future quarters, we're fairly bullish compared to where we have come from. We have some, I think, great opportunities in front of us with what we have done. We have right sized all of our facilities for pretty good economics and that's something we've worked hard in the last two years. So we don't want to worry about as much other than the site consolidation we have going to North America between a couple of sites.

[Robert Leasure, CEO, President & Director at Inotiv]

We don't have to worry about brick and mortar and right sizing. We've done a lot of the integration, and we started up some new services and expanded some sites. And again, the DSA business, we as those sites grow, we're going to see some significant margin improvement at those sites. So I'm excited to see those grow and we saw good growth as I just alluded to in our DTI Discovery Services and some of the service our startups, which I think will enhance we'll see in the back half of this year. So I think we'll see some margin improvement for sure and we'll see some EBITDA adjusted EBITDA improvement on the back half of the year on the increasing sales and improving margins.

[Operator]

We'll move next to Matt Hewitt with Craig Hallum Capital Group.

[Matthew Hewitt, Senior Research Analyst at Craig-Hallum]

Good afternoon. Thanks for taking the questions. And maybe to follow-up on one of the things you said earlier, Bob, you kind of noted how there tends to be some lumpiness, particularly at the end of quarters with NHP sales. Did you have any of that this quarter? Did any of those sales slip out of Q1 into Q2?

[Robert Leasure, CEO, President & Director at Inotiv]

Yes, we probably did. We could have some next quarter and that swing it could swing $3,000,000 or $4,000,000 of sales very easily. But again, overall, if it's switch, it was four or five weeks, we're not last year it could slip six months. We don't have anything like that. It was four or five weeks or six weeks even.

[Robert Leasure, CEO, President & Director at Inotiv]

We're okay with that. So I'm not really worried about that. Last year was a lot of different market I think than what we see going into this year. Last year people had inventory, they were reducing inventory. And then this year we even have some deposits going in which back up some of those sales and orders.

[Robert Leasure, CEO, President & Director at Inotiv]

So again, I think we'll see less volatility. And I think we're doing hopefully we're doing a good job. This year one of the big differences margin, we had brick and mortar, we had integration, we had optimization and we had volatility. This year we've taken a lot of that out. This year is what we need to focus on is customer satisfaction and very customer driven.

[Robert Leasure, CEO, President & Director at Inotiv]

We take care of the customer. We're small enough, we're agile enough. The rest of our business works very well. Economics are set up well right now. What we're doing, we have good people.

[Robert Leasure, CEO, President & Director at Inotiv]

One of the things we had talked about, but last year we had some challenges between the DOJ issues and some of the things going on. And we probably had some customers that made very nervous in the quarters. And right now, I'm optimistic to see some of those customers returning. I see our turnover as low as it's ever been. And that was a challenging year for our industry and for our business.

[Robert Leasure, CEO, President & Director at Inotiv]

And as others go through that, I'm really pleased with the lower term of where our management team has stayed together. It gives us a much better opportunity to do a great job for our customers. So we're going to keep that customer focused, continue to bring them back, continue to make sure we keep our employees satisfied. And I think the business will take care of itself. No, we don't have all the tailwinds that we have going into a biotech funding that's up 20%, thirty %, forty % right now, nor do we expect that.

[Robert Leasure, CEO, President & Director at Inotiv]

If that happens, that's great. But right now, we don't see that. We're not expecting that, but I still think we're going to grow despite of that.

[Matthew Hewitt, Senior Research Analyst at Craig-Hallum]

Got it. And then shifting gears a little bit, the book to bill and a couple of the other metrics kind of been bouncing around a little bit. The one in particular that I wanted to mention was on the cancellations. It seemed like the last couple of quarters you were seeing some improvement that those cancellations were declining, kind of getting back to a normalized level. It seems like that bounced back up here a little bit.

[Matthew Hewitt, Senior Research Analyst at Craig-Hallum]

Is that just a function of what's going on with pharma, companies kind of reprioritizing pipelines and kind of acting quicker on the fill and kill decisions? Or is there some other reason that you saw that number elevated here in Q1?

[Robert Leasure, CEO, President & Director at Inotiv]

I

[Robert Leasure, CEO, President & Director at Inotiv]

think we saw it elevated because we had one large project, which about $4,000,000 that got canceled and that's over $4,000,000 and that's significant to us. So large we have large POs. If one project cancels, it's significant. And so one project will make a difference. And usually we don't have those larger projects to be canceled this quarter.

[Robert Leasure, CEO, President & Director at Inotiv]

We had an anomaly. We did have a large project that canceled that drove that book to bill number down or would have been positive. So again, I'm not overly worried about it, because I think that was one that we'll see every once in a while like that. But hopefully, we don't have a lot of those out there typically. I think what we can't take away that we were really pleased, we made a lot of change for sales organization a year ago on how we approach discovery, translational sciences and even a little bit of safety assessment.

[Robert Leasure, CEO, President & Director at Inotiv]

And seeing that the 1415% growing awards for the three months Q1 in discovery, for me is a pretty good green shoot. We're looking for that where we expect to go. But that's something that we've seen year over year decline for several years. And that's a pretty important business. It's very high cost structure.

[Robert Leasure, CEO, President & Director at Inotiv]

We have a lot of leverage. There's an increase in sales. A lot of those can go to a large percentage that goes to the bottom line. So I wasn't great although the cancellation was discouraging, I was I think I probably took at more positive takeaways from the quarter, because I think that was a one off one large project that really drove that negative cancellation number up.

[Matthew Hewitt, Senior Research Analyst at Craig-Hallum]

Got it.

[Matthew Hewitt, Senior Research Analyst at Craig-Hallum]

Got it. All right. One last one for me and then I'll hop back in the queue. But as you look at the remainder of this year, and given some of your success with some of the newer tests or services that have been rolled out here recently, do you envision rolling out some additional services over the course of this year or is it more about just selling more of your existing portfolio? Thank you.

[Robert Leasure, CEO, President & Director at Inotiv]

Matt, we'll continue to be very customer driven. If our customers are looking for additional service and we're outsourcing what we feel that we can do a better job, we will consider that. Right now, we're not I want our focus to be on our customers and delighting and meeting and exceeding those expectations and really improving communication. I think we have a lot of good services. We're going to we have a few I guess I think we have a couple of small add ons that we're looking, but they're not going to be significant.

[Robert Leasure, CEO, President & Director at Inotiv]

They'll allow us to grow some sites and be a little more sophisticated. And so we're but they're not significant. We're buying new equipment or hiring people. What we're doing is we're training and making sure our people are trained to do these things and are really improving. So they're not the new ones where I need new brick and mortar, new technology.

[Robert Leasure, CEO, President & Director at Inotiv]

It's really training and expanding upon what we have in place.

[Matthew Hewitt, Senior Research Analyst at Craig-Hallum]

Okay, great. Thank you.

[Robert Leasure, CEO, President & Director at Inotiv]

Thank you,

[Robert Leasure, CEO, President & Director at Inotiv]

Matt.

[Operator]

We will go next to David Windley with Jefferies.

[Dave Windley, Managing Director at Jefferies LLC]

Hi, good afternoon. Thanks for taking my questions. Wanted to understand the accounting revenue recognition cadence on presales of inventory. Are these essentially commitments or are you is this a transaction that triggers rev rec in the first quarter when you presale inventory?

[Robert Leasure, CEO, President & Director at Inotiv]

No, we don't recognize any revenue until there's a transition of ownership. So we don't recognize revenue of orders when they come in. It's only after they are sold and transaction is completed. So no, there's none of that has been recognized.

[Dave Windley, Managing Director at Jefferies LLC]

So when you say you're pre selling inventory, you have more orders in hand than you did entering last fiscal year, but those have materialized in sales?

[Robert Leasure, CEO, President & Director at Inotiv]

That is correct. We have orders signed orders and we may have deposits, but not revenue recognition.

[Dave Windley, Managing Director at Jefferies LLC]

Okay.

[Robert Leasure, CEO, President & Director at Inotiv]

So we have correspondingly, we also have probably more deposits out with our suppliers. So we have bought further in advance and we have sold further in advance.

[Dave Windley, Managing Director at Jefferies LLC]

Okay.

[Dave Windley, Managing Director at Jefferies LLC]

And in the case of so maybe invoking then the Colony Management Services, if I understand correctly the way you're saying that, I mean, I would guess that in those cases the client has bought the animal and you're boarding them and title has changed hands. Is that right?

[Robert Leasure, CEO, President & Director at Inotiv]

Yes. If we are boarding or the title has passed specifically and we would be boarding.

[Dave Windley, Managing Director at Jefferies LLC]

Okay. Can you give me a sense of proportion? Like how much of your RMS revenue is calling or first of all, I guess Colony Management Services are in RMS, is that right? And then how much of RMS revenue my Colony Management Services represent?

[Robert Leasure, CEO, President & Director at Inotiv]

Our Colony Management Services for the RMS business, I think a couple of years ago was $22,000,000 might have been in the range of $17,000,000 And I don't think that there are good news numbers before, but if they can do it publicly. Last year was probably closer to $27,000,000 and I think we'll see that grow another 20% as we go forward. So I think it's some customers and large pharma and all about looking to make sure they reduce the risk by owning these fees, but they may not have replaced the storm, but they would like to buy and make sure that they have access and reduce their risk and their volatility. And so we need to make sure that we're setting up our business to be able to comply to help them reduce their risk also.

[Dave Windley, Managing Director at Jefferies LLC]

Do you have plenty of I don't know if the animals even have to be moved, but like for Colony Management, do you have to have a dedicated base? I presume this is in Dallas, Texas, but do you have plenty of room to grow that business without kind of We have plenty of

[Dave Windley, Managing Director at Jefferies LLC]

acreage, please.

[Robert Leasure, CEO, President & Director at Inotiv]

And that's a very good question. We have about 700 acres down there. We've built up and invested quite a bit in the last couple of years in transportation and roads and water, sewer, hospitals, veterinary support, things that the infrastructure commissary, things that the infrastructure you needed to have support for the colonies. Now we are building up brick and mortar places to do boarding and indoor outdoor facilities with improving heating and airflow and water and whatnot.

[Robert Leasure, CEO, President & Director at Inotiv]

We have been pretty much at full capacity for the last couple of years. And so as we've been able to expand, we've been able to increase that revenue base. And so that's where some of our execution dollars are going this year.

[Dave Windley, Managing Director at Jefferies LLC]

Understood. On your We

[Robert Leasure, CEO, President & Director at Inotiv]

have some we have some we have 700 acres and other 700 acres, we're probably using about two fifty.

[Dave Windley, Managing Director at Jefferies LLC]

Yes, yes, yes. On your NHP sourcing comments, so you're through the high cost inventory. Should we think of the move now to be kind of a step function down or is it more of a glide path over the next couple of quarters to a lower cost level?

[Robert Leasure, CEO, President & Director at Inotiv]

I think you see a step function down because I think most of the higher cost NXPs are out and the pricing is set for next year. So I think we'll see that more of a step. And we'll see I think we'll see increase in sales each quarter. So we won't see I think the margins could see improvement, but we'll see I think that each quarter the sales may improve.

[Dave Windley, Managing Director at Jefferies LLC]

Okay. And then last one for me on the I mean it does sound like the DSA gross bookings were kind of meaningfully better sequentially And then you have this one large cancellation. Can you talk to us about the mix of that? Like I'd love more color on what clients are those coming from and what type of services are they wanting to engage you on? I think if I remember correctly, your DSA business does not have a lot of NHP related services.

[Dave Windley, Managing Director at Jefferies LLC]

So I think you would tell me that it's mostly rodent studies,

[Dave Windley, Managing Director at Jefferies LLC]

but I'd

[Dave Windley, Managing Director at Jefferies LLC]

love any additional color on what the kind of the profile of that improving bookings picture looks like. Thank

[Dave Windley, Managing Director at Jefferies LLC]

you.

[Robert Leasure, CEO, President & Director at Inotiv]

Well, our DSA backlog in customers are over 95%, ninety six % biotechs. So that that's what we look for is mix between large pharma and biotech. It is biotechs we are getting for some of the unique services we have since genetic technology and some of our discovered work, we may see some increase in work from large pharma, but for the most part is biotech focused. As far as different service, I think we again, some of the services that we've built up with the biotherapeutics and the genetic toxicology, We are seeing some and DTS right now.

[Robert Leasure, CEO, President & Director at Inotiv]

We saw some pretty good awards last quarter and those are unique. We have a good scientific team there and those have been very helpful. I think there's the general safety assessment. The general safety assessment, again, we'd like to leave it with science and work with customers we identify at the discovery stage and that's starting to happen. But that probably is still fairly flat to down as far as because there's capacity in the market and people don't need to still book that far in advance.

[Robert Leasure, CEO, President & Director at Inotiv]

We're also probably seeing an increasing amount of some of those things outlined as blanket purchase orders come in. So people want to move fairly quickly and gain their confidence. They've used us a little bit in the past, but now they're giving us more meaningful blanket purchase orders so we can move, put more quickly with them and work and then have with them to partner with them more than we have in the past. That's very encouraging. So I think for the commodity safety assessment, probably not as I think that's still flat and still, if we can leave a science, it's good, but it's some of the other specialty services and science that we've been working on it.

[Robert Leasure, CEO, President & Director at Inotiv]

We're probably seeing more growth. And again, as I said, discovering translational sciences would be nice for us to see that growth.

[Dave Windley, Managing Director at Jefferies LLC]

Got it. That's very helpful. Thank you.

[Operator]

It appears we have no further questions I will now turn the program back over to Mr. Bob Leisure for any additional or closing remarks.

[Robert Leasure, CEO, President & Director at Inotiv]

All right. Well, thank you everyone for joining today's call. We're very pleased with the events and results of this past quarter. That have indicated made progress towards reducing our revenue volatility, improving our cash flow liquidity, I think going forward. We'll continue building Unitive as a high touch flexible provider with strong scientific capabilities that is focused on our clients' needs, positive environment for employees to have a career and grow and generate positive returns for our shareholders.

[Robert Leasure, CEO, President & Director at Inotiv]

We'll continue to pay attention to the details and get better every day to 04:25. Thank you for your time today.

[Operator]

Thank you. Ladies and gentlemen, this does conclude today's program. We thank you for your participation. You may disconnect at any time.

[Beth Taylor, Senior VP of Finance & CFO at Inotiv]

Goodbye.

Participants

Executives

• Robert Leasure, CEO, President & Director
• Beth Taylor, Senior VP of Finance & CFO

Analysts

• Steven Halper, Managing Director at LifeSci Capital, LLC
• Frank Takkinen, Senior Research Analyst at Lake Street Capital
• Matthew Hewitt, Senior Research Analyst at Craig-Hallum
• Dave Windley, Managing Director at Jefferies LLC